Audit reveals California regulators bungled $100M Cannabis licensing aid program
The program was established in 2021 but expires in June 2025, at which point the cities and counties will have to return any unused funds.
California’s chief cannabis regulatory agency fumbled the ball on a $100 million grant program it was tapped to oversee in 2021, according to a new state audit released last week. That funding was designed to streamline annual cannabis business licensing in 17 cities and counties.
The report, released by State Auditor Grant Parks, found that by January 2023 – almost a year after the $100 million was disbursed by the state Department of Cannabis Control to the 17 jurisdictions – the program lacked sufficient oversight by the DCC, which led to inappropriate grant money spending by several of the cities and counties.
That meant that the $100 million might not have been directed toward helping all provisionally licensed marijuana companies in those cities and counties attain their full annual permits, a step the businesses need to have completed by January 2026 at the latest, Parks reported.
Parks further found that, in 2022, despite the DCC handing out roughly $80 million to the 17 localities, just 535 cannabis companies obtained new annual licenses, while more than 4,600 were still in the queue.
The grant recipients included the cities of:
- Los Angeles
- Oakland
- Sacramento
- Long Beach
- San Francisco
They also included the counties:
- Humboldt
- Lake
- Mendocino
- Monterey
- Sonoma
- Trinity
There were also a few smaller jurisdictions on the list.
The auditor’s office that licensees waited an average of two years to obtain an annual cannabis business license, but the report noted that it had encountered some operational companies that have been waiting more than three years to obtain theirs.
All of the findings, Parks wrote, raises questions “about whether the grant program can achieve its purpose.”
“DCC’s inadequate oversight and the local jurisdictions’ inappropriate expenditures during the first year of the Grant Program have weakened the program’s ability to … assist certain local jurisdictions needing assistance in transitioning cannabis businesses that hold provisional licenses to obtain annual state licenses,” the audit asserted.
“The relatively small number of provisional licenses transitioned to annual state licenses in the first year of the four‑year program is not promising.”
Provisional not meant to be permanent
The audit analyzed the DCC’s performance overseeing the grant money and its uses for the 2022 calendar year. It found that, as of January 2023, there were still 4,607 provisional license holders, and the 17 jurisdictions had not noticeably sped up the process of transitioning them to annual status.
“If DCC continues to issue the same number of annual state licenses to provisional license holders that it did during 2022, more than half of the provisional license holders in the grantees’ jurisdictions will still not have obtained an annual state license by 2026,” Parks warned.
The underlying problem is that the provisional licenses were never intended to act as permanent permits for the businesses, but as temporary stop-gaps due to how difficult it can be for various companies to fully comply with all relevant California laws, including the California Environmental Quality Act (CEQA). And because all cities and counties deal with CEQA and other issues in their own way – and because all localities have first sign-off on marijuana permitting before the DCC gets its chance – the state legislature decided to create the $100 million grant program to help grease the licensing skids.
The program was established in 2021 but expires in June 2025, at which point the cities and counties will have to return any unused funds. By January 2023, the 17 localities had used only $2 million out of roughly $80 million that had been disbursed by the DCC.
The DCC itself used only $350,000 out of $5 million available to it for administration purposes, as of February 2023, the audit found, and some of that money was also used improperly, for items such as salaries of staff working on different grant programs.
Part of the problem was general understaffing by the DCC, the audit found, given that initially “just two people were tasked with administering the $100 million Grant Program, and on a part-time basis.”
That has since been increased to four staff, but the DCC staff themselves said their own lack of experience running large grant programs was a major factor in the lack of oversight.
Where’s the money?
In addition, the audit found that several of the cities and counties were not tracking their use of grant monies or were using them for purposes not intended by the legislature, which could lead to the DCC requesting some of the funds be returned.
“Four of the 17 grantees did not adequately track their grant funds, two grantees did not track and document whether staff time was spent on tasks related to the grant, and two grantees charged expenditures to the Grant Program that were unrelated to its purpose,” the audit reported.
Parks reported that the DCC was responsive to policy recommendations and had initiated some changes, but that “some shortcomings” remained as of July last year.
The DCC did not respond to a request for comment Tuesday, but told KCRA, “Throughout the grant program’s operations, the Department has actively worked to implement changes to address CSA concerns and address opportunities for improvement. Prior to the audit report’s publication, many of the issues highlighted in the report had been addressed, including hiring dedicated grant management staff, consolidating licensing systems, and adopting CSA-recommended best practices for administering similar grant programs.”
Just going by the numbers, the DCC has made significant progress since the audit period concluded.
As of Sept. 3, the DCC’s licensing database showed that statewide – not just in the 17 jurisdictions that received grants – California was down to 2,594 provisional cannabis business licenses. There are also now 6,201 full annual licenses, for a grand total of 8,800 active business permits.
