Regulatory and Industry News Alerts from Armanino

Growing Pains: The Effects of California’s $100 Million Grant to Aid the Legal Cannabis Industry

by Mike Goral, Kiyoshi Smith
July 09, 2021

On June 14, 2021, the California Legislature approved a $100 million grant to aid California’s legal marijuana industry. What does that mean for businesses that work in the cannabis industry? California has laid out its eligibility criteria and vision for how this grant intends to benefit businesses operating in the state’s legal cannabis industry through disbursements from local jurisdictions.

Why the Aid?

According to Statista, the California illicit cannabis market conducted about $8.7 billion in sales in 2019. In comparison, the legal market had sales of about $3.1 billion in 2019. Furthermore, the number of licensed businesses is miniscule in comparison to the number of unlicensed businesses. A few reasons for these large differences are due to the high cannabis-related tax liabilities on legal businesses, burdensome regulations and lack of county support toward the cannabis industry. The California Legislature hopes this aid will help resolve these discrepancies in sales as well as permanent licenses.

Who Is Eligible to Receive Grants?

As mentioned in a Los Angeles Times article, this aid from California will be provided as grants to cities and counties with the most provisional licenses for growing, manufacturing, distribution, testing and retail operations. Additionally, some of the aid can be used by cities offering equity funding to cannabis businesses owned by people of color.

What Does This Mean for Businesses in the Industry?

The grant from California won’t go directly to businesses in the cannabis industry. Instead, it’ll help cities and counties hire experts and staff to assist businesses in completing the transitional process from a temporary, provisional license to a permanent license. This will allow regulators to work through any backlog of license submissions and assist businesses during the process.

One big issue is the process of obtaining a permanent license from the state. As of April 2021, about 82% of the state’s cannabis licensees still held provisional licenses. In order to obtain a permanent license, one huge hurdle involves a California Environmental Quality Act (CEQA) review of the negative environmental effects involved in a business and the plan for reducing those harms. This CEQA review can be time consuming and costly depending on the type and location of the business.

As mentioned previously, some of the money can be used by cities offering equity funding to cannabis businesses owned by people of color. The eligibility of these social equity programs is usually based on these three summarized factors for an individual:

  1. Income of that individual is 80% or below of the area median income for the applicable city
  2. A previous arrest or conviction for a cannabis charge
  3. Residency in an area with disproportionately high cannabis arrests

Meeting any of these criteria would increase the likelihood of an applicant’s qualification for aid through a social equity program, depending on each city and county standards. Those eligible can be financially supported through workforce development, covering of start-up costs, consulting services and technical assistance.

Next Steps

Although cannabis businesses won’t receive aid directly, this still helps one of the largest (if not the largest) cannabis markets in the world. If your cannabis business is currently going through this process of obtaining a permanent license from the state of California, you should prepare your business for what’s ahead. Whether that is structuring your business, integrating technology to accumulate the correct data or forecasting your business to plan for this process.

If you have questions about your business’s eligibility or filing to receive grant money from California’s program, reach out to Armanino’s cannabis experts.

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Kiyoshi Smith - Tax | Armanino
Supervising Senior
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