California Department of Cannabis Control (DCC) is facing scrutiny after a state audit revealed significant mismanagement of a $100 million grant program intended to streamline cannabis business licensing in 17 jurisdictions.
This program, established in 2021, was intended to help cannabis companies move from provisional licenses to annual licenses, a process that has proven complex and time-consuming. With the program set to expire in June 2025, concerns are growing over whether the funds will effectively achieve this goal.
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Worrying report
According Green Market Report, State Audit Grant ParksThe report, released the week before Labor Day, highlights numerous shortcomings in the program's oversight.
In January 2023, nearly a year after the state disbursed the initial $100 million, the audit found that many cities and counties had mismanaged the funds. This mismanagement potentially prevented thousands of cannabis businesses from moving from provisional licenses to full annual licenses, which they must complete by January 2026.
According to the audit, only 535 companies out of the thousands still awaiting licenses had successfully obtained their annual permits in 2022, despite the DCC distributing approximately $80 million to participating jurisdictions.
“Inadequate DCC oversight and inappropriate expenditures by local jurisdictions during the first year of the Grant Program have weakened the program’s ability to assist certain local jurisdictions in need of assistance in transitioning cannabis businesses from provisional licenses to obtaining annual state licenses,” Parks said.
“The relatively small number of provisional licenses that were converted to annual state licenses in the first year of the four-year program is not promising,” he added.
Provisional licenses: a temporary solution that does not work
The problem stems from the nature of provisional licenses, which were never intended to be permanent permits. Authorities introduced them as a temporary solution to help cannabis businesses navigate California’s complex and often slow regulatory environment, including compliance with the California Environmental Quality Act (CEQA).
However, because local governments have the initial say in allowing marijuana, the process has become cumbersome and inconsistent across regions.
The $100 million grant program was intended to alleviate these delays, but the audit shows that as of January 2023, the program had barely made any impact. Parks noted that if the current pace continues, “more than half of provisional license holders in grantee jurisdictions will still not have obtained an annual state license by 2026.”
Mismanagement and misuse of funds
The audit uncovered several alarming problems, including misuse of grant funds by some of the cities and counties involved.
Four jurisdictions failed to adequately track their use of grant money, while others spent funds on unrelated expenses. This misuse of funds has raised concerns about the program’s ability to achieve its intended outcomes, with the possibility that DCC may seek repayment of the misused money.
Compounding these problems was a lack of staff and DCC's inexperience in managing large grant programs. Initially, only two part-time staff members were responsible for overseeing the $100 million program. Although DCC has since increased its staff to four, the audit noted that the department's lack of experience played a major role in the program's early failures.
Recent response and progress
The DCC acknowledged the audit's findings and said it has already begun to address many of the concerns raised.
“Throughout the grant program’s operations, the Department has actively worked to implement changes that address CSA concerns and opportunities for improvement,” the department said in a statement to KCRA. These changes include hiring dedicated grant management staff, consolidating licensing systems, and adopting best practices for administering similar grant programs.
While the audit paints a grim picture, there has been progress. As of September 3, 2024, the DCC licensing database shows that the number of provisional licenses statewide has decreased to 2,594, with 6,201 full-year licenses currently active, bringing the total number of active business permits to 8,800.
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