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Hundreds of California Cannabis Licenses Suspended: Where Does That Leave the State’s Industry?

From manufacturers to distributors to retailers, that’s as much as about 5% of the cannabis industry’s supply up in the air.

Over 400 marijuana licenses have been suspended in California, leaving behind an air of uncertainty in the state’s cannabis industry. Any company with a license suspended must immediately stop all operations until they’ve been reinstated.

The Bureau of Cannabis Control (BCC) recently issued notices to hundreds of retailers, distributors, delivery services, and microbusinesses prohibiting them from business. They cannot resume until mandatory training on track-and-trace systems and credentialing has taken place.

Over 2,000 cannabis companies are currently overseen by the BCC (their regulations can be found here), while over 900 are overseen by the California Department of Public Health (CDPH). Further, the Department of Food and Agriculture (CDFA) in California oversees over 3,800 marijuana farmers.

What Led to These Suspensions?

The cannabis license suspensions did not come without just cause. According to the BCC, all marijuana businesses that had their licenses withdrawn did not complete the necessary track-and-trace steps. They also didn’t upload their inventory information into their databases so that lawmakers could easily identify the marijuana supply chain, despite being given plenty of time to do so.

Tracking the cannabis supply chain is done via a specific software known as Metrc, a Florida-based platform required as part of obtaining a temporary license. Cannabis businesses granted a provisional permit were given a few days to sign up for Metrc, undergo the required training to use the software, and start implementing the system. However, all temporary licenses expired before such steps were taken, leading to license suspension.

All companies that had their licenses suspended were given a follow-up notice reminding them to sign up for the tracking software and take the necessary training. Despite warnings of the consequences, steps still weren’t taken.

BCC also stated that if the companies complete their Metrc credentialing process and upload their inventory data, the suspensions will be removed. The requirements aren’t too involved and are estimated to take just three hours to complete in order to get their suspensions lifted. It’s expected that all of the affected businesses will comply.

More specifically, 103 marijuana farmers received these notices from the CDFA that they would be subject to a permit suspension if they didn’t comply with the required track-and-trace sign-up and training. All but three of those notified eventually responded and are taking measures to get credentialed into the Metrc system.

Multiple companies’ licenses have been reinstated since complying with provisions, so it’s not exactly an impossible feat. However, the change from suspended to active license status might not be reflected in the BCC’s online database right away and may take a few days to update.

Opponents to the Suspensions Voice Concern For a Fueled Illegal Marijuana Market

The recent wave of license suspensions has not come without its fair share of criticism. Some are complaining that cutting back on the number of legal dispensaries will have negative consequences.

Some industry participants have voiced their concern about these suspensions and fear that they will fuel the illicit cannabis market, particularly if retailers have to close up shop. In turn, this could send would-be customers looking to make a cannabis purchase through legitimate channels to seek out other means of obtaining cannabis, and that could lead them straight into the arms of the black market.

For instance, 63 retailers and 61 delivery services had their licenses suspended, which represents approximately 10% of legal cannabis shops and about 20% of legal cannabis delivery companies.  Shutting down retailers could inadvertently incentivize the illegal marijuana market, which is just another way that consumers can obtain cannabis products affordably. Critics believe that the focus should be on easy access to affordable quality products, and shutting down leal dispensaries is not the way to go about it.

Some industry insiders are also critical of the BCC for not being as forthcoming about the situation to industry stakeholders as they should be. Many believe that the situation hasn’t been properly communicated, leaving many in the industry in the dark about what’s going on. Some cannabis companies may not have been given enough notice about Metrc or may not have been explicitly told that such onboarding must happen right away.

However, others say that cannabis companies have indeed been given plenty of notice and have been clearly instructed that Metrc must absolutely be used.

How Big of an Effect Will These Suspensions Have?

While many are concerned about the impact that these license suspensions may have on the legal cannabis market, others aren’t as fearful that it will have such a dire effect. While there may be some impact, some aren’t convinced that it will be overly significant on the legal cannabis supply chain. This is partly because there may be a glitch with the Metrc platform that lets cannabis companies with suspended licenses still carry out their business.

Yolo County officials seem to already be aware of the glitch and are on top of dealing with it. They’ve issued a notice to all their licensed cannabis farmers to verify the license status of distributors and other entities they work with before dealing with them in a business capacity. Apparently, Metrc is still allowing license transfers to take place with companies that have had their licenses suspended. This has been brought to the attention of California officials, but how and when a resolution will take place remains to be seen.

California’s Marijuana Legalization

While California tends to be known as a very progressive and liberal state, it trails many other states that legalized recreational cannabis long ago. More specifically, recreational marijuana only became legal in the state of California on January 1, 2018 thanks to the Marijuana Act and Proposition 64. That said, the Golden State now represents the largest legal marijuana market in the country.

Only those who are 21 years of age and older are allowed to buy and possess up to 28.5g of marijuana, up to 8g of cannabis concentrate, and up to six live marijuana plants. Those between the ages of 18 and 20 are allowed to buy and possess up to 8 ounces of marijuana and 12 live plants only with a medical marijuana card.

Certain cities have their own laws on the sale and consumption of marijuana, many of which are even stricter than state laws. While the consumption of cannabis may be legal in California, it’s not allowed to be consumed in a public place. As far as transporting cannabis is concerned, consumers can only travel with their cannabis – within state borders – as long as the cannabis container is properly sealed and is out of reach of the driver and the vehicle’s occupants.

Marijuana’s Growth in Demand and Popularity

The influx of applications among those who wish to become part of the cannabis industry comes as the demand for marijuana grows exponentially. With continued studies on the potential benefits of marijuana, more and more people are looking to the plant and its derivatives as a natural alternative to traditional medications.

Many are also looking to cannabis as a means to improve overall health and wellness, thanks to the myriad of applications of the plant and its compounds. Ongoing studies have shown that marijuana’s cannabinoids may help to alleviate issues such as pain, inflammation, anxiety, and seizures, among other things. The growing demand for cannabis has spurred a boom in the industry. Current market research shows sales reaching as high as 12 billion dollars in the last year, and is expected to grow significantly as time progresses.

All in All

Correct licensing is imperative to ensuring the safety of consumers and driving sales away from the illicit market. Without such licenses, cannabis companies are not permitted to carry out business in the legal landscape.

But with the recent onslaught of license suspensions, some businesses will have to wait until they’ve taken the appropriate steps to get their licenses reinstated once again. Until then, there is some level of concern that consumers will seek out other avenues to obtain their marijuana, and the illegal cannabis market is the next logical step.

Knowing this, it seems that other folks aren’t so worried — saying that it shouldn’t be too much for licenses to get reinstated when the required steps are taken. But until then, the license suspensions remain in effect for approximately 400 cannabis businesses in the state of California.