Senate Standing Committee on Business, Professions and Economic Development

Today's oversight hearing of the Senate business, professions and economic development Committee will come to order. Good morning, everyone. Thank you for coming. The Senate continues to welcome the public, as you know, and has provided access to both in person and teleconference participation for public comment.

For individuals wishing to provide public comment via the teleconference service, the participant toll free number is 1877-226-8216 and the access code is 6217161-621-7161 for today's hearing, we will hear from all of the witnesses on all of the panels listed on the agenda prior to taking any public comment. Once we have heard from all of our panelists, we will have a public comment period.

For those who wish to comment on the topics on today's agenda, we will take questions from my colleagues on the dais when each of the panels have completed the presentation. We will take questions from the dais at that point in time. So welcome to today's hearing.

The title the State of cannabis regulation in California progress, challenges, and next steps as you know, almost seven years ago, Californians approved Proposition 64, which included a multitude of clear goals and expectations for legalizing the cannabis industry, including creating an equitable marketplace, funding state programs, and ensuring fair, effective licensing at each step along the cannabis supply chain.

Over the last six and a half years, the Senate has worked to help advance the marketplace to become equitable and thriving by investing money into equity grant programs and local assistance, creating a licensing structure that encourages legal entry into the market, and supporting important programs funded by cannabis tax revenue. Although progress has been made in establishing a pathway to a safe and successful marketplace, we recognize that there are challenges that still exist within the cannabis regulatory structure.

Today's goal is to highlight where things stand and sort through the various challenges that remain in achieving our goals. We are grateful to have representatives from California's cannabis industry to speak about their challenges in the current licensing structure, representatives from licensing agencies to provide updates on bringing folks into compliance with the legal framework for the industry, and representatives from state agencies who can update us on providing updates on the progress of putting resources into the hands of those intended to benefit from grant monies.

I'd like to thank our panelists, as well as Members of the public for joining us today. We will begin with our first panel, cannabis licensing and barriers to effective regulation. Panelists, please make your way to the front table. This is a change for us. We get to see people in person and prepare yourselves to address the Committee chairs. When the music stops, we're out of luck. We can arrange the chairs so it works. Everybody have a seat.

I can do something I haven't been able to do in over two years, and that's have you introduce yourself. So, with the panelists, introduce yourselves. Starting my left, your right, ma'am.

Hi, I'm Tiffany Devitt, and I'm here representing California Cannabis Industry Association.

Thank you, sir.

Good morning. My name is Ron Gershoni. I'm a co founder and CEO of Jetty Extracts and also a board Member of the California Cannabis Manufacturers Association.

Perfect.

Good morning, honorable chair and Members. My name is Janine Coleman, and I am the Executive Director of Origins Council.

Good morning, my name is Wesley Hine. I am President of the Cannabis Distributors Association. I am also in charge of business development and licensing for mammoth distribution and licensed manufacturer heavy hitters.

Thank you all for joining us. Devitt, I think you are first.

Yes, thank you. Good morning, Mr. Chairman and Committee Members. I'm hoping to take this opportunity to provide perspective on the State of California's licensed cannabis industry. It is dire. Today, the industry is teetering on the brink of failure, which, as Members of the Senate, you might recognize primarily in the form of dramatically decreased tax revenue. We're suffering both from broad economic trends beyond our control, as well as industry specific challenges. Let me begin with a little bit of history, which the Chairman referenced as well.

When Proposition 64 passed, it established 27 voter mandated goals. No less than five of those were about getting rid of the illicit market and providing a reasonable pathway to licensure from Prop 64. It says explicitly it is the intent of the people in enacting this act to take Marijuana production and sales out of the hand of the illegal market, to tax the growth in sales in a way that drives out the illicit market. Seven years later.

The question is how we are doing, and the answer is not good. And our failure to achieve these voter mandated goals is at the root cause of much of the industry's distress. Here are a few key data points to illustrate the shortfalls. Today, two out of three cannabis purchases are made in the illicit market. Evidence suggests that the number is getting worse, not better, as legal sales have been in a free fall for the past two years.

Since May 2021, sales in the legal market have decreased by 22%, with no sign of that downward trajectory slowing. Three, we're seeing cascading business failures across the supply chain. While last year saw a catastrophic glut in oversupply of biomass, in 2023, we are likely to see a disastrous shift in the other direction. The amount of acreage under cultivation licenses is down by 10%.

More importantly, half the land licensed for cultivation today is under a provisional license, and those 80% of those provisional licenses will expire before harvest. Moreover, many cultivators are going fallow this year, unable to Fund this year's grow after last year's losses. That means that the supply of biomass could go down by as much as 60% this year. In other words, we could whiplash from a gross oversupply of biomass to disastrous shortages.

Moving down the supply chain a year ago, there was a robust and innovative brand community in the cannabis industry. In May 2022, there were close to 1500 brands in the market, and at less than a year later, one third of those have been shuttered, and only about 1000 brands remain. That's a loss of 33% of our brands. Distributors are facing crushing debt. Estimates are that they are holding about $700 million in aging accounts receivable. Those are debts that they are probably never going to collect.

Much of this debt represents unremitted excise taxes, a liability that those distributors carry forward, along with 50% penalties. Retailers are struggling as well. We've seen numerous closures among the paltry number of stores. The multistate operators behind many retail chains have pulled out of the state altogether, characterizing a California cannabis market as, quote, toxic. Others are trying to sell off their licenses at bargain basement prices. This largely stems from an over concentration of retail stores in the limited areas where licensed cannabis retail is permitted.

All of this is happening in an industry where there are no bankruptcy protections, where individuals carry personal liability for business taxes owed regardless of the corporate structure, and where federal tax laws prevent the deduction of normal business expenses. There is still an opportunity to make change that will allow California to build the vibrant, regulated, tax generating businesses that the majority of Californians asked for in passing Prop 64. But that will require immediate and important changes. First, we need fair access to adult consumers.

Today, over 60% of jurisdictions still ban cannabis retail. By allowing municipalities to opt out of the cannabis market, the state has ceded almost two thirds of the market to criminals. Californian consumers cannot buy legal cannabis if there isn't a store in their city or county. Two, we need to be able to compete for increasingly price sensitive consumers, which the current tax levy on the industry prevents.

By comparison, the state excise tax on a bottle of wine is state excise tax on an 8th ounce of cannabis is $4.90. The rate is over 100 times higher. That is not competitive. Added to that, our products are hit by local taxes throughout the supply chain, resulting in an aggregate tax burden that is as much as 50% of the product price. Three. We also need real enforcement. Illicit cannabis businesses are robbing a State of about $2 billion in taxes per year.

Good actors can't and shouldn't be asked to make up for that shortfall. Lastly, we are under attack from a whole new generation of designer drugs being sold under the guise of hemp. These dangerous products, which are typically made in a lab, not grown on a farm, are many times stronger than regulated cannabis, at times hundreds of times stronger. They are untested, unsafe, and illegal in California, yet there has been virtually no enforcement against them.

In closing, cannabis is one of California's great heritage industries, along with wine, technology, and entertainment industries we've nurtured and fostered with supportive legislation and regulation. By right, we should also have a robust cannabis market that is poised to dominate the national and even global market in a post legalization world. To ensure that, we need to address the urgent issues at hand. Thank you for the opportunity to address the Committee. I look forward to your questions.

Thank you, Ms. Devitt. Mr. Hine.

Before getting into the State of cannabis regulations and our recommendations how to improve them, I have a question. What is the one thing that everyone in this room should agree upon? I'll tell you. California is home to the greatest cannabis growers, brands, and operators in the world. If we do this right, California will be at the center of a massive global legal cannabis industry, bringing upside to California as our other iconic industries, such as Napa, Hollywood, and Silicon Valley.

That is, if we do it right. But so far, we are falling short. Ms. Devitt shared some of the root causes of our ills. I'm just going to elaborate a little bit more on the local taxes in the City of Los Angeles. I'm just using this as an example. I know they're here. I just happen to live there. Assuming identical gross revenues, guess how many liquor stores it takes to generate an equivalent local tax liability as a single dispensary? 25107878.

Stated another way, dispensary owners in Los Angeles can cut their local tax rates by a factor of 78 simply by shifting to selling alcohol, tobacco, pharmaceuticals, guns, you name it. Take these high taxes, as well as the highest federal tax rates in the country. Combine them with well intended but overly burdensome regulations and inconsistent enforcement against our illicit market competitors, and the result is the failure of legalization in California so far.

How can legalization be considered anything other than a failure when most cannabis is sold and grown completely outside the regulated market, where there's no protections, no taxes, and no testing, and with regard to this last point, it was only three and a half years ago that 2800 people were hospitalized and 68 people died from tainted cannabis products, which our own Department of Health and the CDC concluded were from the unregulated, that is, the unlicensed, untested market.

But despite these challenges, I am actually optimistic that our industry can work with the Legislature, Administration, and local policymakers to address every issue that we have, and note that we are not asking for a handout or a bailout. Instead, we respectfully request that policymakers consider these suggestions, which focus more on efficiency than funding. First, we believe California should follow the lead of New York cannabis regulators and establish a credit law requiring timely payment for goods received, without which we will continue to see operators go under.

This year, we are sponsoring the Cannabis Credit Protection Act, AB 766 by assemblymember Ting. AB 766 is based on an existing and wellestablished framework utilized in every state, including California, in regulating wine and spirits. And it is further modeled after current California law governing payments between contractors and subcontractors. Timely supply chain payments are the foundation of any industry, even cannabis. Second, cut red tape in operations and licensing.

We now have five years data on the actual cost versus the hoped for benefits of every regulation, and we should use this to improve them. For example, eliminate the rules that require producers to maintain costly distribution licenses for testing. Such rules have resulted in the state having to manage almost as many distribution licenses, over 1200 distribution licenses as storefronts to sell to. As the head of a distribution Association, I can tell you that makes no sense at all.

Even seemingly minor regulations such as metric inefficiencies, useless surety bonds, and overly restrictive operating hour limitations all add up. Each dollar in regulatory cost moves even more consumers to the illicit market. Regarding licensing, the system is broken. A year to get permission so one can start running a legal business is simply bad public policy.

Right now, a Member of our Association has auctioned a 20,000 square foot facility in Los Angeles, but they are hesitant moving forward because they don't think they can get it licensed within a year. And you think about that, a year is an awful long time to pay for an empty building. Besides speeding up licensing, why not have renewals run for 23 or even five years, thereby reducing the burden on both operators and regulators?

And I particularly implore you to not let sequip bureaucracy put legal operators and their employees out of business. Third, and finally, we need enforcement against our formidable competitors, unlicensed operators. They are twice our industry size, with a very unfair price advantage. They also sell to 100% of the state, while we are limited to the 39% of jurisdictions that license retail.

I do thank you for your support of this important californian industry, and we look forward to working with you, the Administration and local policymakers to make sure that California takes its rightful place at the center of the coming massive global legal cannabis industry. Thank you.

Thank you, Mr. Hine, Mr. Gershoni.

Thank you to the chair and the Committee for holding this hearing. I'm truly grateful you're taking this time to have this conversation with us. In 2013, my partners and I founded Jetty Extracts with the goal of making clean, quality cannabis products that we would want to use. My journey into the cannabis industry began when my father found that cannabis was the best option to mitigate his back pain.

Each month, I hear from consumers who use our products to help manage anxiety, insomnia, ptsd, side effects of chemotherapy, and a myriad of other issues. I continue to be humbled by the impact that cannabis and cannabis companies can have on people's well being. In the nearly 10 years since we started jetty, we have donated over $1 million of high quality cannabis products to over 1000 cancer patients throughout California. When Covid shut down our economy and schools, cannabis was deemed an essential business.

We all continued to operate, providing safe, regulated cannabis products to the people of California. At a time when opiate and alcohol use and related fatalities have increased dramatically, Jetty has grown to become one of California's largest concentrate brands, sold legally in hundreds of stores. Statewide, we employ 72 people, providing stable income, insurance and retirement benefits we hope to continue to hire this year. I am proud of the positive impact that Jetty has made on our community, our consumers, and our team.

Just 10 days ago, Jetty received its first annual distribution license from DCC, 1901 days after we applied for it. That's over five years from application to issuance. To obtain this distribution license at the state level alone, we exchanged hundreds of emails with two state licensing agencies. We submitted several hundred pages of forms, standard operating procedures, facility plans, diagrams, fingerprints, personal information, corporate documents, financial statements, investment agreements, and other documents.

We communicated with 19 separate BCC and DCC email accounts, including five licensing analysts, one Executive program analyst, three staff, service managers, one environmental scientist, one assistant chief counsel, and one chief of bureau. And we spent over $1 million on attorneys, licensing specialists, license fees, and the extra warehouse space, vault rooms, labeling, equipment and personnel that is required to maintain a distribution license.

What I'd like to highlight to the Committee about this process is not just the incredible length of time it took to get this distribution license, or the excessive costs we incurred in doing so. It's also that jetty is not even in the distribution business, and we have no desire to be. We are a manufacturer and a brand.

We manufacture cannabis products at our plant, which our third party distributor picks up from our facility, stores at one of their distribution warehouses, and ships onward to retailers all over the state, much like manufacturers do in other CPG industries, like alcohol, food, and natural products. We have a manufacturing license for this purpose, obtained over a similar period of time at even greater cost from an entirely different set of licensing analysts, staff, service managers, Executive program analysts, and environmental scientists.

All cannabis products sold legally in California must be tested by a third party lab. The state mandates that only distribution license holders may arrange for this very important laboratory testing. Manufacturing license holders are not permitted to arrange for this testing. Therefore, we are forced to obtain this separate distribution license with all of the costs, fees, time, and administrative headaches that entails, just to arrange for required lab testing of our products. The distribution license in our case is completely superfluous.

It serves no purpose other than to duplicate time and effort for our employees, for TCC's staff, and to add distraction and expense to our business. Meanwhile, our main competition, the illicit market, obtains no licenses, pays no taxes, and conducts no testing. I've highlighted this story about our distribution license, but I want to emphasize that this is just one example of the severe and often irrational bureaucratic drag that negatively impacts our business.

This licensing issue requires a statutory fix, as do several issues that this Committee can help with. But there are also dozens of areas where easy, logical tweaks to DCC regulations would make a considerable difference to a business where margins are perilously thin. Our industry is struggling. Dozens of cannabis companies have shut their doors, and dozens more will do so this year. Our customers are struggling to pay their invoices on time. Our suppliers are desperate for business. The industry is in peril.

I invite you all to come visit our State of the art production facility in Oakland to speak with our staff, as we would all be happy to answer any questions you may have and discuss why the survival of compliant cannabis companies is so important. I humbly ask that the state review the costs imposed on legal operators. This is imperative for the continued existence of jetty extracts and all the other cannabis businesses in California.

I look forward to working with this Committee to try to make that happen. Thank you.

Thank you, sir. Ms. Coleman.

Good morning, honorable chair and Members. My name is Janine Coleman. I am the founder and Executive Director of Origins Council we represent 800 small and independent licensed cannabis businesses across rural California. We're honored to have been invited to participate in this hearing today. Thank you so much for providing this forum to us. My comments focus on the experiences and needs of our membership, which embody a very unique sector of the regulated cannabis industry.

In addition to the licensed distributors, manufacturers, and retailers in our region, we represent hundreds of legacy small scale homestead farming families that have stepped forward asked to be regulated, proud to share their agricultural heritage with the world. Their livelihoods are deeply woven through the economic fabric of our rural communities, and the success or failure of their businesses deeply impacts the social and economic health of our regions.

It is my responsibility to communicate to you all that our Members, and thus our rural communities are in serious distress. Licenses are being surrendered daily. Homestead properties are being put up for sale. Non cannabis businesses are shuddering. We're seeing an alarming increase in applications for public assistance, divorces, substance abuse, and suicide. There are two fundamental causes for this distress, licensing challenges and the collapse in market conditions. We need legislative solutions this year that ensure licensing security and expanded market access for small producers.

I'll speak to licensing challenges. First, cannabis farming is not regulated as an agricultural activity in California. Instead, farms are regulated like commercial development projects. Among the many challenges this poses, every single farm, regardless of size, must undergo site specific seeker review and certification in order to qualify for an annual license. Five years into legalization, less than half of cultivation licenses statewide have achieved annual status. Furthermore, the burden of site specific CEQA has fallen upon local governments. We have the data.

Even with additional funding, many local governments are clearly struggling to meet this state mandate on behalf of their licensees. In 2021, the statute was amended to include aggressive benchmarks for secret review. Many local jurisdictions are unable to meet these statutory benchmarks and their licenses will be unable to renew and their licensees, pardon me, will be unable to renew their provisional license after July 1.

Once again, cannabis businesses are facing a crisis of licensing insecurity due to the unrealistic statutory timelines for CEQA and licensing, the third such crisis since legalization. Due to the aggressive timelines we are facing, there are very few immediate policy remedies. We need either more time or we need a statutory CEQA exemption for small farmers, and we need one of these solutions to be law by July 1 of this year.

We would also like to voice our support for SB 51, introduced by Honorable Senator Bradford, which seeks to extend the provisional licensing program for social equity operators, which relates to my next point regarding market conditions. Over the past two years, the price for wholesale cannabis has collapsed due to market supply and demand issues. On the one hand, local control has resulted in 61% of jurisdictions banning retail cannabis businesses. The state has only 1600 licensed retailers. We need market expansion.

On the other hand, the state has allowed for large scale farms to be licensed from the onset of legalization. Contrary to the intention of Proposition 64, this has resulted in a massive overproduction issue, with the state producing an estimated 7.5 million pounds of cannabis last year. Overproduction is compounded by inflexible state licensing rules, which make it extremely difficult for cultivators to seasonally fallow their crops. The California licensing framework silos supply chain activities under distinct licensing for cultivation, manufacturing, testing and distribution, and retail.

Many retailers are vertically integrated, also holding licenses for cultivation. This is a market access strategy which is entirely out of reach for modestly resourced small rural farmers, even if these farmers had the resources to pursue retail licensing, legacy farmers live and farm in remote rural areas that are almost never compatible with local zoning and land use requirements for on farm cannabis retail activity. Our Members are deeply invested in the long term viability of California craft cannabis and strengthening the economies of our world renowned farming regions.

We've been partners for many years with the state in a historic effort to develop the world's first legal appellation system for cannabis, garnering the attention and support of the California wine industry and the French National Assembly. Heritage small farmers offer California the opportunity to differentiate as a historically renowned cannabis farming region within the global cannabis marketplace. As we face the potential extinction of California's heritage small farmers, this opportunity is at grave risk. We are at grave risk. We need your help. We need market access tools.

Small batch cannabis producers need to be able to pursue direct to consumer marketing and sales, just like all other small batch producers are afforded in the State of California. In conclusion, we believe there are two fundamental questions we need to ask ourselves when gauging California's success in achieving a safe, sustainable, and equitable regulated cannabis market. One, is the licensing and regulatory framework small business friendly? Two, is it small farmer friendly?

Conditions on the ground indicate that we have significant work ahead to be able to truthfully answer yes to these questions. On behalf of our 800 small cannabis business Members, we greatly look forward to working with you all in the Legislature and the Administration this year to get to yes. Thank you so much for the opportunity to comment.

Thank you for your comments. As I indicated at the beginning, we're going to permit those on the dais to ask the panelists questions before we move on to our next panel. Let me start out with one or two. Hopefully they'll be intelligent questions. You've referenced the length of time for licensing and other issues, and I guess I'm trying, at least initially, to get an idea with regard to the specific substantial issues.

Are they primarily at the state level with regard to licensing or the local level, or both? I'm talking now about the cultivation operation, and I can move to the others as well.

Due to the environmental and land use compliance issues, particularly the site specific CEQA, which is a state licensing requirement, it's really put upon local jurisdictions to effectuate that review and certification. And particularly for rural jurisdictions that don't see a number of projects, this volume of projects throughout the year is considerable. And so, for example, Humboldt County has done a good job at effectuating this review and getting folks to annual licenses.

But it's taken five years for roughly 800 farms, and so it's really a matter of volume and the burden upon local government to conduct that review and seek a certification.

So staffing cost or absence thereof in terms of funding and staffing drives the length of time.

Yes, and we have the local jurisdiction assistance grant program, and those funds move forward to those jurisdictions most in need. But we have now seen roughly two years later that that has not helped. It's difficult to staff in rural jurisdictions to garner the talent to come and support court, but it's again, surely the volume and the complexity of the sikh review and the additional requirements pertaining to the local ordinances.

Other panelists comments one thing I would add.

With regard, the one thing I would add with regard to CEQA review is a lot of resources are used up doing CEQA reviews for every license type. So a retailer who moves into a facility that used to be for a different kind of retail still has to go through CEQA review. So part of the problem is we're over-allocating resources by having that CEQA requirement for every type of business.

Any other comments? Mr. Hein?

There is room for significant improvement at both the state and local level.

It's largely the CEQA issue?

Any comment? Mr. Kashan?

I'd agree with Wes, but yeah, everything I described was just related to the state licensing.

Well, there was one question I was going to ask, and that relates, Ms. Devitt, to your comment, and that's this. How can we combine at least some elements of both of the processes that we have in place, both at the state level and the local level, so that applicants don't have to repeat steps, or the local government, state government, they don't have to duplicate efforts and achieve the result. So maybe we have a primary actor and then we have supplemental action that's taken. Any comments on that and any comments directed as to the specifics in terms of how we could combine elements of this review process?

Part of what I think we want to do is kind of normalize the cannabis industry. So Janine made the point that cultivators are not treated like normal farmers and cannabis is not treated like a normal agricultural crop. But that sort of being treated differently happens all through the bureaucratic process. One would hope that kind of where we would try to get to is a point where all a local jurisdiction had to do was set up certain zoning laws about where cannabis is allowed and what type of business is allowed in each area. As it stands, they're setting up these full programs, which takes a lot of time and adds complexity.

Okay. One of the issues that some of you also touched on is the difficulty in transitioning from provisional licensing to annual licensing. Any comments on the reason for that in the areas that you work in?

Yeah, I wanted to speak to your earlier point as well, which I think leads to both. Last year, Senator Laird introduced SB 1148 and that sought to eliminate the duplicative process on the state level with the DCC with regard to CEQA review. The issue is that CEQA, as it's being applied to cannabis, is really an anomalous iteration of how CEQA is applied normally. And so allowing the local jurisdiction to play lead agency or allowing the state to play lead agency would streamline in both cases. But requiring both to do the level of review is definitely a significant burden upon the whole system, I would say.

And with regard to provisional licensing versus annual?

It's largely the CEQA issue.

Say almost exclusively at this point.

Yeah, entirely.

There's a very Low bar to get a provisional license, and those are going away. So I think going forward, it's going to be more like, what does it take to go from starting up to getting the annual license?

Let me ask one other question, and I'm going to let my colleagues have at it. I think it was you, Ms. Devitt mentioned, the excise tax. The difference between alcohol and cannabis, $0.04 versus $4.00. Where do you think the excise tax should be at the state level?

If the State of California actually wants to make a priority of getting rid of the illicit market, you would need to suspend that excise tax altogether. That would be the quickest pathway to causing the illicit market to wither away. And everybody on the panel, or almost everyone, referenced the need for enforcement. But at the end of the day, enforcement is really a game of whack a mole, and what's going to cause the illicit market to kind of dry up is the regulated market taking that market share.

And as long as we have this kind of unfair competition, and especially in today's economy, you are going to see consumers gravitate towards that lower price point. So I did say, and I would recommend it in an ideal scenario, that one suspended the excise tax, if that was the primary goal. I realize you have budget shortfalls, and that is not politically practical.

So my response would be, bring it down as low as you can bring it down, with the understanding that if you increase the size of the market, you can have your excise tax and not lose. If you double the size of the legal market, you can have your excise tax cut it in half and not lose any revenue. And there was a very important study by the Reason Foundation last year that did a lot of analysis about what it would mean to lower the excise tax. And what they modeled out was, if you lower the excise tax, you bring in new consumers, the state actually gets more revenue.

May I also answer that question?

Yes, sir.

This country and this state has approximately a 90 year history in taxing intoxicants, which is the alcohol model. And I would think that that's a bar that we should be looking for. Well proven.

Any other comments? Let me turn to my colleagues and take a list here. Anyone else? Anyone else? Mr. Bradford? I did. I got you. Okay, let's start with Senator Wahab.

Thank you. So I do just want to say, I come from the City of Hayward, which did have a local cannabis ordinance, and there's a lot of difficulties at play in Hayward. In particular, we had cultivation delivery, including non storefront retail, as well as distribution, manufacturing type 1 and 2, micro business, testing laboratory, and storefront retail.

Roughly about a year and a half, two years ago, I led an effort to reform the ordinance because we heard from local cannabis businesses that it's not working. We had one business open roughly in August, and within one year made a significant amount of tax revenue for the city over roughly about half a million dollars. And it wasn't a full solid year, right. So I understand what you guys are talking about at the state level regarding taxes, but the other concern is the local jurisdictions have the ability to tax cannabis as well.

In particular, Hayward decided to tax the local cannabis industry at 7%. 1% of that 7% is to go to different community benefits. Right. And we keep talking about equity and starting up these businesses. Hayward primarily focused on trying to provide local/people of color/anybody affected by the war on drugs, priority preference, if you will. Right. And that seemed to be more difficult to implement than just having an operator, to your point of treating the cannabis industry as a business rather than a community effort. Right.

And one of the thought processes that I've always had was that we should charge the cannabis industry a flat rate and utilize that rate for community benefits. In particular, for example, legal services, rental services, whatever the case may be. Do you believe that the current equity model to provide just support for one cannabis industry or business? I should say, that is, an equity applicant, is more beneficial than potentially charging a certain flat rate to help the larger community at a local level?

You like to take that?

No, we had multiple different operators under the different divisions, right. Three, storefront retail and one that started, finally opened several years after the state and the city okayed it. Because at the end of the day, it ends up being on local jurisdiction's approval. Right.

And you had 7% as a tax. If it was a non cannabis business, what would they be being charged?

It depends on the industry, but I wouldn't have that number on.

And just to clarify for everyone, that's 7% of gross receipts. So even if the company is losing money, it's 7% of the revenue.

I would also like to add to that point with regard to local taxes, there's sort of a hidden increase in the local taxes. So, for example, you take our product, we grow it on a farm, we get hit by a local cultivation tax. That tax is then folded into the wholesale manufacturing price, then at wholesale hit with a manufacturing tax, then we put that same piece of product that's been taxed twice into a distribution vehicle, and it gets hit by a distribution tax.

We drive that vehicle down to San Diego or other jurisdictions, that gets hit by a road tax, and then it gets to retail, and it gets hit by the local retail tax, the excise tax.

So I agree that your industry is overly taxed. Right. But I want to get back to the root of the question in regards to equity. That is the question, right? What do you think about that?

I think the preferential assignment of licenses makes 100% of sense. The thing I'm concerned with is when you give someone a 7% tax, you've made it very difficult for them to succeed. So they'll have a preference to be able to go in, but the odds over the long run could be stacked up against them.

Okay. And I will say we gave preference to an individual, local woman of color to open up a business in the City of Hayward. It took her four years, and she still has not opened, even with the city bending over backwards to allow for a position or a rental spot to be open for her to do business. Number one is that there is a lot of stigma around cannabis. Obviously, we know this, right.

Local jurisdictions also create buffer zones around certain protected areas, whether it's a daycare center, a school, a park, whatever the case may be. So we have complications there. We also have the complication that some of these equity applicants do not have the ability or the capital to provide enough security on, let's be honest, a cash and carry type business. Number one. Number two is to meet the demands of the local jurisdiction's neighborhoods. Right.

People want to make sure that this is protected, that this is secure, that kids won't go there. There's a lot of local laws around that as well. So it's very clear to me, I think, that we have a problem in regards to the equity space, the local tax space, which obviously, to your point, it's added on and on. And then in regards to. None of you guys have mentioned the audits, the state audit that each cannabis industry has to go through.

Can you guys elaborate a little bit more on that?

I believe it's plural, but if you're talking about the CDTFA. So, one thing, and the panel probably knows, everything that we do with the product inside our facility and outside of our facility is tracked through an extremely inefficient software program called Metric. We have, one of the largest departments at our company is the ones that just keys things into Metric. And so the upside for auditors, we have learned, is they're able to tap into that system and see every single thing.

So if you're tracking what you're doing and you're being very careful, audits are simply double checking and triple checking that what you've got is right now, there are some exceptions and some things going on. I believe Senator Bradford is working on a Bill that there's some different interpretations about how things are taxed and where gross proceeds go. But in General, audits shouldn't be anything that is too concerning. But we also get them on the local level.

We're in multiple jurisdictions, not just Los Angeles, and they come in on a regular basis to look through everything because the stakes are so high. One of the things, when you're taxed 78% or 78 times or 100 times or whatever it happened to be, it's well worth the jurisdiction to go in and make sure they're getting paid accurately. But it's another burden we deal with.

I wanted to go back to the equity issue and speak to conceptually what you're discussing with respect to community responsibility and really taking the time upon implementation to consider the complexity of repealing prohibition and the impacts from the war on drugs. It's been our experience that local equity programs can be challenging. We favor the state developing a more robust statewide equity program.

The other thing I wanted to flag are the community reinvestment funds through grow business is another resource for local jurisdictions in terms of really addressing the broader impacts on a community level. So those are some things that I wanted to offer on that front.

Okay. And then final question in regards to the tax as it stands now, at the state level, the funds typically go, and I think it's allocation one, two and three, specifically around research, some academic research, and then some preventive/early intervention and treatment. Do you believe that overall, the tax and this effort in regards to Proposition 64 needs to be reformed completely?

Yes.

I believe the evidence is there, yes.

All right. And what would you prefer that the tax go to?

Oh, you mean allocations? I think the allocations are fine. It's a matter of the tax rate. I do want to come back to your point about audits. Yes, they're very rigorous. If you're running your company, well, you can manage it, but what it comes down to for me is the priority, and I'll give you an example.

We had a big inspection of our manufacturing facility, and the inspectors were there for about four hours and looking at every single detail, and we got one notice to comply, which was there was a shelf in our infusion area that was supposed to be six inches off the ground, and it was four and a half inches off the ground.

Meanwhile, that same week, there was an illegal butane extraction facility down their street, which blew up the building, and those inspectors were spending their agents, their energies, and time on our facility, and that one and a half inch difference on the shelf, rather than shutting those guys down the street.

The last thing I wanted to come back to is your social equity question, and I don't have an answer as to which methodology works best, but what I do want to underscore is that the owners of cannabis companies, even if it's an LLC or a C Corp, have ongoing personal liability for taxes.

And when you think about those social equity businesses, which have a lot less access to the capital and you contemplate the fact that even the big msos that are well funded cannot make it work and are pulling out, you are essentially inviting people to a dinner party knowing that people are going to get food poisoned. And it's one of the sort of heartbreaks and tragic aspects of social equity. Of all this good intention is bringing people into a market knowing that they will fail.

Thank you. Thank you, chair.

Thank you, Senator Wahab. Senator Archuleta.

Thank you, Mr. Chair. I thank you all for being here and enlightening us. I had no idea the problems that you all have.

And I'll tell you one problem you had was the perception that all these cannabis stores and the growers and just the entire process was going to be a windfall of money, not only for you, but even perhaps for the local governments and also the State of California, which what I'm hearing today is not true at all, the reality is, when I hear that so many of you have lost so much money and that 80% of the provincial licenses are floating up there that will probably never become prevalent, and even waiting three to five years, who knows?

I'm talking about the education that you're giving us. This is an educational meeting, and I think that's what we're hitting the spot. Right on. With sales down 22%, as you had mentioned, and with the inability to even file bankruptcy for these stores that have closed and businesses that have gotten up and left California. It's amazing. But I think you're also saying that you don't want to open the floodgates.

And I think regulation is good because it keeps the bad guys out, but at the same time, we're not doing enough to keep the bad guys out, the bad elements. And I think law enforcement needs to beef up, obviously.

So I'm hoping that maybe you can supply us with a nice long list of what you think we need to do as a Committee, as a state, because this is all new to all of us, even though it's been a couple of years, a few years now, but we're still trying to clean up and understand what's going on, whether growers and transportation and even the material that's used, the chemical labs that are being tested and looked at.

I mean, there's just so many things that the General public has no knowledge. And I think to accept what you're doing, you need to give us the knowledge. And I applaud the business aspect. Each and every one of you are business owners and representing businesses. And I have a law enforcement background so I am totally against the bad guys, no doubt, and we've got to do whatever we can.

So on my side, I look forward to additional information and additional comments from even the panelists that will be coming. But I will tell you, be patient. I believe the State of California is looking to help and be a partner as much as possible and not be with a thumb on your business. And certainly as we go along, we want to see equity. We want to see mom and pop be able to participate.

We want to see the local government be able to prosper as you will. So I thank you again for your time. And Mr. Chair, thank you for allowing me to make those comments.

Thank you, Senator Archuleta. Senator Smallwood Cuevas.

Thank you, Mr. Chair.

I also want to appreciate what was shared today, and I think the comment that was made about the complexity of this issue and the work that the industry and the state has done together to ensure that we are building an industry of the future, one that's going to provide good jobs for our communities, one that is going to repair a lot of the harm, particularly in communities like Los Angeles and particularly in black and brown, low income communities.

And for me, it is about that as the priority, repairing the harm of the War on Drugs and communities of color and poor working class communities. I think that the Chairman started with some questions about the provisional licensing, and I wanted to go back to that in my questions.

The City of Los Angeles has been one of the early architects of supporting the development of this sector, and particularly the social equity components of it, with many of the activists in the Bay Area and a lot of community union engagement in that space in Los Angeles. I noticed that the City of Los Angeles was one of the communities to receive $22 million to support moving folks from provisional licensing into permanent licensing, but none of that money has been spent as of 2022.

And just curious, what are some of the challenges that you're seeing in my community, in my county? And it's probably an example of what's happening in other places as to why those dollars aren't moving. And I think in that span of time, we've only seen one provisional license move to a permanent license. So money is not being spent, and we're not seeing that movement. What are some of the factors behind that? Why hasn't that money been spent?

What is the way that the industry is supporting communities like that to make sure that we can improve outcomes? And I'll ask you.

Yeah, I think you're fortunate. I saw in the audience there are several members of the Los Angeles Department of Cannabis regulation. I believe they'll be testifying, and they're probably the best to address that. But I will just tell you, I'm very concerned. The largest customer base that we have, that we work with, is the community that you're talking about.

And I would be very concerned that the people who have been able to operate or open and operate, whether that they have to use a term that I learned today, license insecurity. So I'll be looking forward to hearing the testimony as well. I am very glad. It was a good reminder that the state did provide funds, and I'm hoping that that works for all of the license holders, provisional license holders in Los Angeles and anywhere else.

And so is there assistance that DCC can provide beyond the funding to assist with transitioning folks? Because it sounds like there are a lot of factors and laid a lot of those out. So it know partly how the city is moving it, but it's also a lot of market factors that are preventing this.

Yeah. So operators, in General, we're receiving documents, and when we receive a document, and it's like, fill this out, how many vehicles might be coming every day? How much wastewater are you doing? Those kinds of things in General, we wait for those, and as soon as we get them, we turn around. But in all candor and honest, it's been very opaque for us as operators, we're waiting. I think the bulk of the work and the responsibility and the onus at this point has been on the local jurisdictions.

Got it. Thank you for that. My other question has to do around this expansion of social equity, and I appreciated the comments about the role that the state can play in helping to support universal definitions of what social equity projects look like. I think ownership is one piece. The other piece that I know LA has also been pioneering in is making sure that there are high road standards within these sectors and the workforce that we're bringing into this business.

At every level, whether it be cultivation or retail, there's a pathway for quality work. How are we thinking about this idea of not just ownership, but also quality employment for those most impacted by the war on the poor or the war on drugs? How are we ensuring that there is local hiring and opportunities for those communities who are most impacted to be owners? Of course, and that's the focus of social equity, and I absolutely support and believe in that.

But there also are hundreds of thousands of jobs that will be created through this sector that many impacted communities have very little limited access to. Can you share this question about how social equity can be expanded to workforce and ways to bring those most impacted communities into work opportunities in their own?

Actually, Los Angeles, my experience has been very much a leader in that and built into the licensing requirements and getting very specific in terms of types of categorizing hires on base and basically building it right into the system. And so I feel like that is an area that LA has done very well and it got built into our own hiring systems and recruiting systems.

And as owners and employers in these sectors, I especially appreciated hearing about the work that jetty's done and the opportunities that you're creating at every point of the supply chain. Just know again, what role do employers play in helping to shape some of that social equity opportunity for impacted communities?

So I would also add to this that one of the things that California cannabis Prop 64 did was require that companies over a certain size enter into a labor peace agreement, and it's been a bit erratic. Our company, both March and Ash and Canacref, are in a collective bargaining agreement with UFCW, and we have the privilege of sitting on a joint labor management Committee with UFCW.

And one of the things that we've been working on is just that with regard to the workforce of how do you implement apprenticeship programs that help people to develop a career pathway, how do you develop training programs to ensure workplace safety? So there is a lot of opportunity, I think, to create very high quality jobs.

And one of the kind of heartaches I have when I see us having to cut salaries, cut staff, cut this, cut that, cut everything but the essentials so we can stay in business is we lose our ability to invest in these types of programs, we lose our ability to invest in research. But for us, that workforce development is one of our primary mandates and critically essential, and it's a worthwhile investment, whether you're talking about training programs or subsidized childcare programs.

It's essential to a healthy community and a healthy workforce.

No, I appreciate that, I'm sorry.

Yeah, I think it's a great question. And the most important thing is allowing businesses to be able to operate and to grow and to allow those businesses in LA and Oakland and areas that have more of those impoverished communities, because that's who we hire into our businesses. And often, instead of talking about more hiring and growth, we're talking about where we can cut things, including jobs, given the tremendous regulatory burden and tax burden that makes it very difficult to operate.

And there's almost no capital coming into the industry from the outside, which has really fueled a lot of the growth over the last five years since legalization began. But most businesses are losing money. Almost every business, retail, cultivation, distribution, manufacturing, almost every single business in California in this industry loses money right now. And so there has to be a thriving business component to allow anyone to succeed, whether it's a social equity business or any other type of business that also has social equity, I guess, employees.

I appreciate that challenge, and I raise the expansion of social equity beyond just the social equity business to the industry having a social equity model that creates greater opportunity for folks to come in, because at the end of the day, this is a growing sector. It is part of the future of California's industrial, manufacturing, and business base. And we want to make sure that these are going to be good jobs that could sustain families.

And the more that we can show that those jobs are being created and we are moving folks from the other categories that we have to Fund in terms of homelessness, in terms of health access, where we can put them in a business and cannabis sector, where they are sustained, I think that is a benefit in ways for us to negotiate around where our investments go.

So I want to say, I want to see how our investments, like the $22 million, actually move folks into permanent licensing and strong, robust business so that we then create those job opportunities, and where we're creating them, we can think about where are the ways that some of the relief can come right in terms of the ways in which we have to tax and create statewide revenue in the sector.

So to me, I appreciate the sharing and look forward to more discussion on how we can make this an industry that more communities that are impacted can participate in.

May I add one thing regarding your earlier question regarding provisional licensing? Because the state license requires this site specific SQL review, local jurisdictions are unable to utilize local permitting frameworks that have efficiencies. So, for example, looking at the General plan of a jurisdiction, the existing zoning code, the allowed zoning districts and standards for retail operations don't apply. The jurisdiction essentially has to stand up a specific cannabis ordinance and effectuate this site specific review, which requires that it's a discretionary permit.

And so county staff, in some cases, planning commissions, need to hear every single project. And so local jurisdictions are not able to utilize these efficiencies like ministerial frameworks, et cetera. And so I think that's a really key piece to really make sure that's very clear that that's a significant burden on the local jurisdiction because of that state licensing requirement. And.

Thank you.

Thank you, Senator. Senator Bradford.

Thank you. And I want to thank our chair for hosting this hearing today. And as we've heard so far, this is a very complicated issue, only because we've made it so, we as legislators. And it is just the reason why it led me to author 1294 six years ago, when I sat and met with the director of Cannabis Control, and they clearly stated, I didn't know this industry was so complicated. I knew nothing about it.

Well, I said, well, maybe you should have folks who know something about it run it. And so we're here today because we've overcomplicated something that it's not that difficult. And we've put regulations on an industry that no other industry faces. And we need to first change the narrative of quit calling this a drug. It's a plant. A drug is something man-made. This was here before any of us here in this room. It's a plant. Have we improved it through technology and horticulture and agriculture?

Yes, we have. But it's a plant at its common core. And let's tell the truth. Seven of our first 12 presidents not only grew cannabis but smoked it as well. But nobody wants to talk about that. Talk about it. Thank you. So, the point I'm trying to make is that we need to also change the narrative of what a provisional applicant is, because far too often, we frame it as someone who's under-financed, has no business acumen, needs some kind of handout or help.

That's the farthest thing from the truth. But we have to understand there are some barriers that only people of color are facing in this industry because it's now 85% White male-dominated. Why aren't they facing the same obstacles as these social applicants are facing? I have a dear friend who's a very prominent lawyer in LA. He's been seeking a license for five years. He gave up on it. Again, a very successful, a smart guy, runs a business.

And as he said when he approached me five years ago, he says, Bradford, I paid for law school selling weed, so I know something about it. But he can't enter this space. So we've created too many barriers. And my colleague who states, let's deal with the legal market by the barriers that all these legal operators are facing. We're promoting the illegal market. So we need to remove the barriers that all of these businesses are facing and make it easier to stand up.

This is the only industry that you have to pay taxes on your product before it's sold. What other you don't have to pay taxes on your eggs in a grocery store before you sell, but you have to pay taxes on this product before it's even sold. And it has a shelf life. So when it goes bad, you got to throw it out. So I'm just here to say I think I appreciate the testimony we hear.

I'm looking forward to hearing from some of these social equity applicants who can tell their story of why it's so difficult. Because, again, we've made this too complicated and we have too many cities, as you stated, that have hodgepodge rules and regulations on how to go forward. And we do need a clear definition of what a social applicant is.

The Governor asked me last year to help define that we weren't successful in doing so, but that will help because, again, every community can describe it differently, and we need one set of criteria that describe social equity. So I would just ask the question, if there's anything we as legislators could do, what would that be to make it easier for folks to not only get up and running, but succeed in this industry?

I think you first separate. There's getting the license. And when it comes to social equity, I feel like 99% of the effort has gone there and obviously not meeting near the successes that you've wanted. But the real problems do start the day they open up. And so I feel like, to answer your question specifically, I would do the equivalent of a Manhattan Project on regulations.

Bring people who are living under the regulations and the burdens of them with regulators, and have each regulation, each rule go through a cost-benefit analysis. The nice thing is we now have five years. There's no guessing as to the cost of these things. There's no guessing as to the benefits they've been able to get and then reduce the regulatory burden. I understand that doesn't address the licensing. That's why it's a separate thing that you've said it perfectly, Senator. It has just been so overcomplicated.

And yes, we do want to make sure that people are vetted before they come into the industry to keep out those are in. We understand that it doesn't have to be the things that we've done and so many of the others. But I just really feel that cost number one thing, and it's the easiest, the low-hanging fruit we covered some today, is to lower the regulatory burden.

Taxes, I understand, is a trickier thing because somebody was talking about, there we go, they go for causes they want. And so in that particular case, it can seem like a zero-sum game. If taxes go down there's less money for worthy causes. But as Ms. Devitt mentioned, $2 billion of taxes is just not coming to the state when the vast majority of products are being sold with no taxes. That is where we should be getting the money to be funding the various.

And I understand it's always easier to say than do, but that's why I do almost this Manhattan Project like thing. Bring the people in and say, you don't come out until we have gone through every single regulation and decided, can it be done for a less costly basis, still accomplishing the benefits that we want from each of those regulations.

I would say there are basically three things we need to address. One, to your point and Wes's point, reduce the regulatory burden. Two, reduce the taxes, the tax rate, so that you bring more consumers into the market. Three, we need genuine retail expansion. And by genuine, what I mean is the DCC has issued hundreds of retail licenses in the past year or so. The problem is all of those licenses are in jurisdictions that were already served.

So what happened was they basically didn't make the pie any bigger. They just chopped up the small piece pie into smaller pieces, which in fact destabilized retail rather than expanding the market. So lower taxes go after those illicit companies for tax evasion and collect that money and reduce the regulatory burden.

And I'd like to add lowering barriers to entry and lowering regulatory burden, the number one thing, and I know I sound like a broken record, is the site-specific CEQA issue. If there was not site-specific CEQA mandated with the state license, it would fall to local jurisdictions. Should they desire to have a site-specific CEQA be a requirement for local permitting, they can pursue that. But removing that state mandate imposed upon local jurisdictions would really result in the resources for social equity going exponentially further. And so I really must emphasize this is probably the number one bottleneck and issue that operators, local jurisdictions are facing.

And I might add, requiring you to have a brick and mortar facility even before you can even begin this process, before you even get to a sequence that makes no sense.

Thank you, Senator Bradford. Senator Dodd.

Yeah, I guess the question here kind of made me come up with yet another question. How much of this burden is a result of Prop 64? What was set forward by the Proposition itself that forces the regulatory system to do what it does? Because it was the industry. I just want to be clear. There's a lot of fingers pointing at the state, and frankly, I'm okay taking criticism for that.

But if much of this was done because this is what the industry felt, the voters would go for when they put Proposition 64, then you kind of reap what you sow. And so now we're saying, okay, we need a level reset here. So I'm just trying to understand what part of this is regulatory, where we went off script, so to speak, or how much of this is just what was mandated to be done in Prop 64? Follow?

Oh, very much so. I mean, I think that there was well-meaning intentions across the board. I don't think when we have a burdensome regulation, and I hope it never gets to finger-pointing because that's just not productive. But I feel that in each particular case, people were looking and going, you know, the benefits of doing it this way, whether it was in Prop 64 by regulation or so forth, are worthwhile. And all we're saying is now we need to do a reset.

And I believe you're absolutely right. I think there's an awful lot of things in Prop 64 that are troublesome. But when we go back to the intent and purposes of it, that's where I think that needs to be our guiding light and what it was. And the number one thing was to be able to move things into out of the illicit market, into a legal, regulated market. And it's failing that.

So there's unintended consequences. And so is there something in that initiative, I don't even know, that suggests that the Legislature, with a two-thirds vote, can change what the people?

Above my pay grade, but there's a lot of conflicts in there. They talk about child-resistant packaging and on flour, there's absolutely nothing a child can do with flour that would make them. You can eat it. Try getting a kid to eat broccoli. Right? So you're going to eat flour? It does nothing. It's not intoxicant. Yet, we have child-resistant packaging at a horrible expense to operators and even worse expense to the environment. And then people come back and say, well, that's in Prop 64. But also in Prop 64, was that the intent of legalization was to benefit the environment. So I think that there's probably some things I would hope that we can go in and deal with and look, at the end of the day, maybe we can't let perfect be the only of the good. There's an awful lot of low-hanging fruit, and I would start with that.

Thank you. Thank you, Senator Dodd.

Yes, I'd really like to say absolutely a lot of the issues pertain to the Proposition, and the industry was divided on that, and our predecessor organizations invested a lot of time into MCRSA and working with the Legislature, and that ability to have that flexibility and work with our legislators is something that we would really like to be able to advance more of. And so I really appreciate you drawing attention to that point.

Any other comments? Maybe one final question. Unless someone else jumps in access to capital, I think someone touched on this. Are there obstacles to access to capital for small business in this arena? And if those obstacles are related to the licensing process and the tax burden, if we speed up licensing and reduce the tax burden, do you believe that will increase the availability of capital for some of the small operators that my colleagues are concerned about?

Maybe. If you had asked me six months ago, I would have said yes, absolutely. But so much capital has fled the industry at the moment, at least the California industry. And of course, the banks are having some issues right now. But certainly speeding up that licensing process will lower the cost, right? So I know more than one licensee right now or would be licensee who is in the process, and their ability to raise another round of funding is contingent upon their getting their license first. So the sooner that happens, the better, because what happens to Genine's point earlier is you take two years, you're paying rent, you're paying security, you're paying this, that or the other thing, you're paying insurance, all on an empty building, whether it's self-funded or outside funding, it would help.

Any other comments?

Yeah, and I think that, think of it this way, if you instead were saying, let's say there was fine access to capital, and you said, you know what, we're thinking of making licensing really difficult and long and jacking up taxes, what do we think that would happen to capital? It would go down. So I do believe it'll have an impact. Is it a panacea? No, but I think it is certainly something that you want to do as part of all of the other things. The best way to have investment capital come into something is to make it where investors want to be in there.

It's return on investment.

That's exactly it. And then that money is almost limitless.

Anything that makes operations easier and there's less friction on the licensing would be a positive in the view of investors. Social equity business owners suffer the most from lack of capital coming into the industry. It's much harder for them to raise money in normal circumstances. So when it's so difficult for everyone, it falls hardest on the social equity.

And I'm sorry, I wouldn't be doing my job if I didn't go back to the flow of payments through the supply chain is very much broken. And we have proposed what we think is a very constructive solution on that, which is the AB 766. And so in addition to all of the other things, I do believe securing those supply chain payments through the entire value chain is something that will have an immediate and beneficial impact.

Thank you. Any other comments, colleagues? Any other questions? Senator Archuleta.

Yes, before you leave, I've gotten a lot smarter because of all of you. Thank you so much. But what I just heard from my colleague, he said that you've got to have the building, you've got to go this, that and the other. Would you walk me through someone who's just starting and one who may have succeeded you mentioned? Because it sounds to me that he's got to have the building. Well, even for that, he's got to have the assets and the banking history and money. And walk me through it just very quickly.

So when Genine talks about site-specific approvals, what she's referring to is the fact that when you are applying for a license, you can't say, I want a license to do cannabis retail in San Francisco. You have to say, I want a license to do cannabis retail at 531 Post Street in San Francisco.

So the first thing you have to do, and I'm going to speak about it from the retail side, is you have to look at the city ordinance, understand where the churches and the schools and the daycare centers are since you can't be within 1000 ft. Find some properties, find some landlords with available space in those properties. Make sure that the landlord knows that it's a cannabis business. Then you have to lease the property and start paying rent, and then start your local approval process.

And bear in mind that for a lot of these jurisdictions, for cannabis retail, it is ultimately a lottery process. So you can put your heart and soul and do your best effort, and maybe you'll get it, maybe you won't. Sometimes it's literally a flip of a coin. So you go through that process, and then you go through the CEQA process and you fulfill all of the local ordinance requirements, and then you go off and you apply for your state license. And typically, if you have the local approval, you will get that state license, but it takes time.

And this is why the one who may have the assets is able to get to that point while someone from the community will never get to that point.

Yeah, can you take a loss for three years?

But even the people with assets, we've lost 500 brands in the last two years who have exited the industry, and also CuraLeaf, which is the largest cannabis company in the world, just exited, announcing leaving California, the Select brand. They weren't able to make money.

Thank you.

Thank you, Senator. Seeing no other questions.

I was disappointed nobody asked me about this, but we can leave that.

Why don't you tell us about this?

Well, this is just an example.

Consumable.

It is a consumable. It is an alternative to high-end alcohol. And I use it just as an example of the innovation that comes out of California. It was easier to show an incredible product like this than it is the incredible genetics that comes, that people are doing, the growing techniques. I just met out here. So we're setting a young brand called Cadre I'm very excited to hear about. So the innovation and the cleverness out of California cannabis is incredible. So we really do have an advantage to take advantage of, and that's why I wanted to put this here.

Thank you for sharing. Before we close out, Senator Alvarado-Gil.

Yes. Just a brief comment. You touched on this briefly, and I just wanted to underscore it before get up and thank you so much. Was, from the consumer perspective, the intent of the legalization of cannabis here in California was really about making an alternative, a natural alternative for people that were looking for pain management, alleviation of mental health, distress, trauma. And you touched on it.

But I wanted to reemphasize that we have gone a long way from that now, and we have created an industry where, in order to seek out that relief, to seek out that quality of life, you must now be treated as sometimes as a criminal for pursuing this. And I worry, because, if anything, the pandemic taught us is that the level of trauma, depression, anxiety, the rate of suicide amongst our young people has escalated.

And access to alternative medicine, or access to plants, as Senator Bradford has mentioned, we have real science that shows that it alleviates some of the symptoms that are creating these mass shootings, mass suicides, this traumatic impact in our community. And so when I hear about the regulations, when I hear about the excise taxes, when I hear about all these obstacles to creating a product that, in tune, adds quality of life to Californians and other people, to me, it saddens me that we, as a Legislature, have created this impasse, if you will. So I'd like to encourage you, and perhaps this will come out through other panels and through public comment, is to really bring forward the voice and the story of the consumer. As a two time cancer survivor, I will tell you that having an alternative to the mass of drugs that kill your system is a real win and it's a real benefit of being able to be in front of you here today to speak. So thank you.

Could I just add one thing to your point? And thank you so much for making that point, because one of the things that's been lost is a real focus on an attention to medical cannabis. And 2018, 16, 17, 18 our company had a brand called Care by Design, and we are very oriented towards the medical space and we had three PhDs on staff that did nothing other than tracking on the research and data and try to figure out how to formulate products that better met the needs of patients. That entire research effort is backburnered and it's backburned because we can't afford it. And that is one of the things that's kind of lost. It's not just kind of the failed businesses that we've spoken to, it's the loss of the potential to do something more meaningful. Thank you.

Thank you both. The other thing that's been lost is the focus on economic development and the over focus on revenue all throughout this process. Thank you.

Jobs. It's a huge job creator and these are jobs that are often blue-collar, that it's in a growth industry are hard to outsource to other countries, even to other states currently. So, yeah, we would love to see a more thriving industry to allow for hiring a lot more Californians.

But we need to move past the thought that this is just a bank at all levels and focus on other issues. Thank you for the very robust discussion. We'll now move to our second panel. Thank you for coming. Our second panel is transitioning from provisional to annual licenses. Has progress been made? That is the question of the day. Presenters, if you would please make your way to the front table.

It's an empty bottle. Just to let everybody know. I get. To do something I haven't done in a couple of years. So have you all. Introduce yourselves. Starting to my left, your right. Ma'am, let's start with you.

Hello, my name is Ada Waelder, and I'm a legislative advocate with the California State Association of Counties, or CSAC.

Thank you for being here.

Hello, I'm Kristin Nevedal, and I'm the Director of the Mendocino County Cannabis Department.

Thank you, Ms. Nevadal.

Good morning. Jason Killeen, assistant Executive Director for the Department of Cannabis Regulation within the City of Los Angeles.

Mr. Killeen, thank you for being here.

Good morning. My name is Rasha Salama, and I serve as the Chief Deputy Director for the Department of Cannabis Control.

Thank you, ma'am.

Thank you. And I'm Angela Hill, Deputy Director of the Department of Cannabis Control. Thank you.

Okay, who wants to start first?

Why not? No, go ahead. You were ready.

I have Rasha Salama.

No, Angela Hill and Rasha Salama.

Good morning. Chair and Members of the Committee. As I said, my name is Rasha Salama, and I serve as the Chief Deputy Director for the Department of Cannabis Control. Joining me today is Angela Hill, Deputy Director of government affairs. I want to begin by thanking the Committee for their work to organize this oversight hearing and for inviting the Department to participate on the provisional licensing panel. The Department is responsible for the licensing and regulation of the commercial cannabis industry within California.

Our mission is to advance and facilitate a well regulated legal market that benefits all Californians through innovative policies and effective implementation. Since the establishment of the Department in July 2021, we are proud of the many accomplishments we have made while simultaneously building the Department. These accomplishments include reducing our vacancy rate from 33% to 25%, processing over 4600 license applications, conducting over 5700 license inspections, increasing our enforcement efforts against illegal operators by over 150%, and implementing and refining approximately 156,000,000 in new programs.

Thanks in large part to the support and leadership of this body. Before we dive into provisional licensing, I want to take a moment to acknowledge the timeliness of today's conversation, especially in light of recent discourse around the health of California's cannabis market. As we enter 2023, cannabis businesses, just like many other businesses, are facing economic uncertainties that challenge their ability to succeed.

This industry is not immune from the macroeconomic factors that universally challenge businesses including changing consumer purchasing habits post Covid, a tight labor market and a lack of capital investment. It is important to situate these challenges in the context of the important and steady progress that is being made in the cannabis market. Recently, we have begun to see wholesale prices stabilizing, product quantity purchases remaining stable year over year despite tax revenue decreasing, and product prices decreasing for consumers.

While macro factors might challenge our ability to create that sustainable, equitable, and safe market, there are a number of challenges that are unique to cannabis that we encourage policymakers to focus immediate attention on, notably those associated with local and state licensure, some of which you heard this morning. To achieve a healthy legal market in California, one that sustains cannabis tax revenue and reflects the diversity of our state, the process for obtaining annual licensure must be simpler and more streamlined.

For these reasons, we are grateful for the opportunity to discuss the nuances and challenges with licensing, particularly those related to provisional licensing, with you. Today, I'm going to pass it over to my colleague Angela to speak to the provisional licensing system at the Department. Thank you.

To understand how we got here, it's necessary to briefly discuss how our licensing system has become so complicated. Over the course of the last four years, the state has refined provisional licenses so that operators must meet heightened licensing requirements while simultaneously phasing out provisionals altogether. As you may know, after the passage of Proposition 64 to onramp existing legacy operators into the legal market, state licensing entities were authorized to issue temporary licenses in the first year.

These licenses were intended to provide operators quick entry to the legal market while also allowing them time to gather and submit the approvals and documents necessary to meet annual licensure requirements. As the temporary sunset deadline approached, it became apparent that the timelines to accomplish annual licensure were unrealistic. When transitioning a market the size of California's, the state took swift action to bridge temporary licensure with annual licensure by creating provisional licenses that would phase out by January 12020.

The hope was that this temporary solution would provide the necessary time for licensing entities, state and local, to process permit applications and the California Quality Act, Environmental Quality act, or SQL reviews, for the issuance of annual licensure. Then it became clear that more time was needed to transition provisionals, and the deadline was again extended through January 12022.

However, in the spirit of this ramp up license, if you will, the state further incorporated a new requirement that provisionals could only be renewed if licensees were actively and diligently pursuing requirements for annual licensure, including CEQA, and then finally on July twelveth, 2021, Assembly Bill 141 established the Department, created even more detailed milestones to meet SQL requirements, set deadlines for the issuance of provisionals, and established the final sunset date of January 12026.

So, as you can see, each extension to the provisional licensing program has not just extended sunset deadlines, but also sought to require a higher level of deliverables from licensees and to support the phasing out of this license type. The state did simultaneously invest extensive resources to support the migration of provisional licenses to annuals through 100 $1.0 million grant program, which was awarded to 17 local jurisdictions holding the highest percentage of provisional licenses.

As we make progress and as our cannabis market matures, we believe it is necessary that we take a step back and critically assess the role and efficacy of provisional licenses. Provisional licenses were initially intended to serve as a bridge to transition and stabilize the legal market. However, in practice they are compensating for an overly complex licensing process. We recognize that some of the issues we are seeing in this industry are not siloed.

Whether we're discussing building more housing or opening a cannabis business, performing site specific SQL review is expensive and time consuming. For these reasons, we urge policymakers to focus on radically simplifying and streamlining the licensing scheme so that ultimately full licensure is more achievable for all businesses. We believe that small and equity operators will greatly benefit from these licensing modernizations. Thank you for this opportunity, and we're here to answer any questions you may have.

Thank you. I guess we're now going to hear from Kristin Nevadal, Director of the County of Mendocino Cannabis Department.

Thank you. Hello, honorable Committee Members. Thank you for having me here today to speak to Mendocino County's cannabis cultivation and other permitting processes. So, as many of you may be aware, the County of Mendocino has a very robust history, both of cultivation, cannabis cultivation, largely outdoors, sungrown cannabis, and in the lead up to Proposition 64, the passage of regulations here in California that cannabis cultivation sector within the county played a really significant role in our economy.

And because of this, the Board of Supervisors recognized the crop's cultural and economic importance. And in May of 2017, they passed what's known as the Menocino cannabis cultivation Ordinance. Shortly thereafter, they passed a second ordinance, which regulated the remainder of the supply chain.

So our program is actually split into two ordinances, both of which offer largely ministerial permits which do not include project specific sequoia analysis, which means that the vast majority of our permit holders from Mendocino county do not qualify for annual licensure under the state unless the applicant themselves does conduct the project specific sequoia analysis. Or in the case of cultivators.

We've negotiated a pathway for project specific sequoia analysis known as an appendix G checklist, which is a process that occurs after the county issues the permit to the cultivator. The cultivator then essentially can utilize those permit materials to draft a project specific checklist, which is then turned back into the county, who then re reviews the checklist, who then gives it back to the applicant, who then turns it into the state, who then re reviews the checklist again.

So all of this creates a rather duplicative situation, not just for the applicants trying to navigate this system, but also for county staff and I imagine for Department of Cannabis Control Staff as well. The cultivation ordinance, which includes all cultivation and nursery operations, is housed within the cannabis Department, which I oversee. The cannabis Department itself also oversees the county's equity program and the local jurisdiction assistance grant funds that the county has received.

Currently, under the cultivation ordinance, we have around 233 annual permits and over 800 applications that are in various phases of review. We have been traditionally understaffed. I've been with the county for two years, and when I joined the county to find 233 issued permits and over 800 applications to review, it was a team of myself, four planners, and two admin assistants.

We have continually been understaffed, largely because staffing in Mendocino County is a challenge across the board, regardless of what business you're trying to staff and the needs of a Department such as my own, where we're going to continue to offer social equity grants, hopefully we're going to continue to work through the LJAGP funds, which includes a $10 million direct grant program to operators to help them meet their SQL requirements.

And the processing of the applications and maintenance of the permits we have in house is going to take a minimum of at least 22 people, and it wasn't until November of 2022. So just a few months ago, it seems that we had enough space available to even consider hiring that many people. But then again, when you're understaffed, hiring 22 people and running all the programs that we run is a pretty tall order. So we have managed to get quite a bit accomplished.

I feel like in the last two years that I've been there, it has been a whirlwind. But again, our permits are ministerial. They do not include project specific CEQA analysis, which I believe is why we have a very Low rate of annual licensure with the Department of Cannabis control. So I'm going to rattle off a few accomplishments, because I don't want anyone to think that we've been sitting around idle over these last several years.

So in the last two years, we've transitioned what was a cannabis program within planning and building services into a Standalone Department. We've amended the local equity program manual five times, expanding the program to better serve those impacted by the war on drugs, and have awarded over $644,000 to local equity applicants to help cover their local permitting fees and their local cannabis related taxes. We've awarded over $2.6 million in direct grants to local equity applicants.

And with the local jurisdiction assistance grant program funding that we received, I do want to call out an error in my reporting to the state, which makes it look like we spent down 3.1 million in the first half of the funding period. Actually, we did not spend down monies between January 1 and July 1 of 2022.

And largely the reason for that is we've been spending a heck of a lot of time in the county trying to modify the regulations to ensure that our applicants and our permit holders can stay in the regulated marketplace and hopefully qualify for annual licensure. This has created a lot of kind of stop and go processing for our county, because every time an amendment to the ordinance occurs, you have to press pause on applicants coming through that portion of the ordinance, if that makes sense.

So we've been really struggling with stop and go processing simply because ministerial programs, and I'm going to repeat it again, do not include project specific sequence analysis, which means that those permit holders do not qualify for annual licensure at the state, which is just about everyone that comes through Mendocino County. And the goal of the supervisors and the county staff has really been to help these folks get through to annual licensure. So ordinance changes has been the direction we've chosen to go in.

In closing, I'd like to just propose that one of the biggest things that could happen to help support the commercial cannabis cultivation or the commercial cannabis industry in full in Mendocino County would be to eliminate the requirement for project specific CEQA analysis to qualify for an annual license. Local jurisdictions really should be able to use their ordinances CEQA document. So the cannabis cultivation ordinance that we have in Mendocino County is ministerial, but it does have a mitigated negative declaration that was passed in Association with it.

That is a CEQA document. It informed very robust environmental performance standards for our cultivators. Yet we still have to go back and do another project specific CEQA analysis, even though we wrapped CEQA into the ordinance itself, this is, again, duplicative and time consuming. And if we could just utilize that secret document and or in the case of the cannabis facility business licenses that we issue the General plan. Right. Those facilities are cited appropriately in a like manner in the vast majority of cases.

So when we issue a cannabis retailer permit, we're issuing that permit in an area that under our General plan, allows for commercial retail activities. Right. So having to come back and do CEQA analysis is incredibly duplicative, time consuming, costly, not just to the applicants, but to the county, and is part of the reason why we need so many staff persons to actually navigate this process with our applicants. So I'm going to go ahead and leave it there.

I'm happy to answer questions, but I know we're a little short on time. Thank you.

Thank you for your comments, I guess. Mr. Killeen, LA.

Good afternoon. So my Director has asked me to keep it at a high level, and I figure when we get to the panel questions, we'll get into the weeds, the Low level, the Low level. So the City of LA is probably the largest market within the state. Currently, we have over 770 licensed business locations covering over 1400 different licensed activities. We are in the process of utilizing the $22 million in LJA grants that we did receive.

Those monies were intended to provide direct assistance to our applicants and licensees to transition them from the provisional licensure process into the annual application process. We will be waiving fees for the environmental review for all of our licensees, as well as the annual application fees. Our annual application process will open up on Monday, May 1. That will be the first time that our local applicants will have the opportunity to apply for their local license.

The reason why we did wait so long to open that up is the original ordinance drafted by our local policymakers had the city as a first mover and a final mover. So we had to decouple our annual process from the state's process, our local county public health process as well, because in order to get your annual license, originally, you had to have qualified for your state annual license as well as your county public health permit.

And of course, under current law, folks could not qualify for those until they received their city annual license. So we had a number of community meetings and meeting with politicians over the last year so that we could amend our local ordinance. They did adopt our department's recommendations, and our city attorney is drafting an amendment to our local ordinance to effectuate those changes effectively.

What's going to happen is it's going to allow for us to eliminate the duplicity between our local process as well as the state's process. So everything that the state does that is not related to time, place, and manner or a land use review is being jettisoned from our local process that will expedite it.

And then, of course, because the CEQA review, the environmental document, is tied to the issuance of the discretionary license, which is that annual license, it can't be adopted until the local jurisdiction adopts that finding. So by streamlining our annual process and reducing the duplicity, we'll be able to transition our local licensees through the environmental review into annual licensure and do those local hearings within three to six months.

So we've already been working with all of our licensees to allow for them to submit their final draft sqWA documents. That document was based on what the Department of Cannabis Control and the legacy agencies had put together for their original SQL review. We do work hand in hand with the state to make sure that we're preparing our applicants and licensees to navigate through their process.

May 1 also happens to be the first day that folks that have provisional licenses that will expire on or after July 12023 will have the opportunity to begin renewing their licenses. We have a notice of completion for the folks that have submitted their environmental documents that we can provide a letter to our licensees so that you can provide it to the state agency to continue to renew their provisional licenses as they work towards annual licensure.

And we do anticipate that the first tranche of annual licenses will be issued at the local level late summer, and then the first tranche of retail storefront licenses, which have to go. Additional community meetings, public hearings, and through our Commission, will start to be adopted sometime in the fall. So with that, I will turn it back over to the Committee.

Thank you. Ms. Waelder.

Hello again. My name is Ada Waelder, and I'm a legislative advocate with CSAC. We represent all 58 counties in the state, and as I'm sure you all are aware, each county is unique in its politics, its geography, in its population, and as many counties as we have with cannabis licenses, we have that many different types of programs. So it's very hard to paint the whole state with a broad stroke.

While we do have counties who are struggling with the transition from provisional to annual licenses, we also have a lot of counties who have made immense progress and have had great successes. It's this unique quality that each county has. That is why local control was one of the underpinnings of Prop 64, and many counties have eagerly taken on this challenge of local control.

But it's creating a brand new licensing scheme for a brand new industry, and counties are always on the sword's edge of providing services with limited resources. Cannabis is no exception on this front. Local jurisdictions are forced to split time and resources between regulation and enforcement. Despite the fact that these are two sides of the same coin, the license market will not survive without robust enforcement of rules and regulations to even the playing field.

Many localities set up permitting structures did so counting on rosy forecasts of projected revenue, which, as we've heard today, have not come to fruition. This is especially true over the last year, as the market price of cannabis has crashed, while inflation rates, energy costs, the amount of unlicensed product on the market has soared. As we heard in the first panel, it's a very hard time to be a legal operator in this state.

To bolster the industry, many counties have chosen to lower, suspend, or eliminate local taxes, which leaves them with even fewer resources. While there are a few counties who have dedicated cannabis departments, most depend on one or maybe two full time staffers to run the bulk of their program. And counties face the same staff shortages that many industries in our state are facing in this era. These issues are often compounded in rural areas and areas with Low and expensive housing stock.

All these issues are intertwined when new employees are brought in. They often require quite a bit of onboarding to develop the technical expertise that's required, and this is uncommon to exist unless somebody is trained at the county level. Programs like the DCC's Local Jurisdiction Assistance grant program have helped bridge this gap, but ultimately, it is difficult for counties to rely on one time funding.

Since the consolidation of the Department of Cannabis control, counties have seen great improvement in communication and relationships with the state, and we'd like to see this continue. We applaud the strides that DCC has made in proactively reaching out to locals and providing support where they can. However, a lack of access to data, especially track and trace and licensing information for locals, has been an immense challenge.

For example, after a local jurisdiction confirms that a licensee has met local requirements to the Department, they often have to find out from the licensee themselves that they got the annual license. They're not informed by the Department. Despite these difficulties, counties recognize that cannabis is an important economic driver in communities and are looking for new and creative ways to support the industry. From opening consumption lounges to cutting taxes to offering grants for water storage and solar panels, counties are enthusiastic partners in this endeavor.

We don't want to be a roadblock to the success of this industry or at odds with the state and the Legislature, and we're looking forward to working to address these issues with you coming forward. Thank you so much.

Thank you, Ms. Waelder. Before I turn to my colleagues, let me just kick it off with a couple of questions and comments. Mendocino, thank you for dealing with the site specific issue on a local basis. It sounds as if, however, that staffing may continue to be an issue. Do you have a plan to move forward?

I mean, we're constantly trying to move forward with staffing. So for the last 18 months or so, we're in a small building that only allowed us six to seven offices. In November, we moved to a much larger facility in hopes of meeting our full staffing allocation. However, our location is remote. We are no longer in Ukiah. We're in Willetts, which makes staffing perhaps even more challenging. Housing is already limited in Ukiah and throughout Mendocino.

And then you move a Department such as ours to Willets, and it's a 30 minutes drive each way from UK, where most of the housing is going to be available for folks. So we'll do our best. We'll continue recruiting and interviewing and hopefully hiring, but it is going to take time. It's not something that's going to happen overnight. We did just enter into a contract for contract planning services. The contract will be funded by the local jurisdiction assistance grant program, which we're very appreciative of.

But again, it's working with contractors. They're not in the office. We'll have to train them to our ordinance and those specifics. So it is not an immediate solution, but is a solution in some regards.

Thank you. I was going to ask about the contracting, so thank you for the response. Mr. Killeen, LA. I gather you still require, or intend to continue to require a site specific sequoia on the local level, even for retail?

Yes, sir, we do.

And why is that?

So at the local level, commercial cannabis activity is not an enumerated use within our zoning code. So we've identified zones where these businesses can operate, and then the majority of the City of LA is already built out. So most of these businesses will qualify for either an existing facilities exemption or an infill projects exemption under the categorical exemptions. So our expectation is we've onboarded a number of contractors who specialize in local SQL compliance through our city planning Department so that we can facilitate that review.

And then we will be working with our local county to make sure that we file the notices of exemption to reduce the appeal period for any of the categorical exemptions we actually file so that folks will get their final CEQA document to comply with the state requirement so that they can proceed forward through the state's annual licensing process.

I gather that CEQA then will not be a problem in LA.

I think from a cost perspective for our local equity applicants it will be in the future. But thankfully with the LJAG grant we will be waiving those fees. So at least in the short term to move our 700 plus businesses and our 500 existing applicants, it shouldn't be a barrier.

And with regard to the site specific CEQA process in LA, how long does that do you anticipate that will take?

With exemptions, I'm assuming that it will take somewhere between one to six months. We do have contractors lined up, so as we get additional documentation in from licensees, we will be able to outsource that so that we can do the analysis in parallel with working on the annual application process so that the decision maker can adopt the SQL finding as well as the licensing recommendation at the same time.

And other than CEQA, can you be more specific as to any other local processes that LA will either eliminate or defer to the state in order to simplify this overall process?

Yeah, so what our new Director has done is she's come on board to reduce barriers and to make it easier for folks to navigate through the process. So we've created a pre application review process so that folks can go through the land use review, identify if it's a compliant zone, and that's less than $600. So they know before they execute a lease or make material business decisions whether or not they can move forward a specific location as part of that process.

Of course, we've identified the location so we can start that site specific CEQA review so that once we complete it, when they submit their annual application, we can file the notice of completion and begin to provide the public with the opportunity to review those draft CEQA documents. So that cuts down the time for the legal business entity record. That's something we created to allow for the businesses to form their legal entity and go through the equity share review, which is part of our local equity program.

They can do that without actually having to have site control so that businesses can kind of move forward at their own pace. The goal there is, of course to reduce holding costs that folks aren't renting a location prior to actually being able to navigate through the full application process.

So instead of waiting 1, 2, 3 years to get a license and going through all of these processes, we've broken it down into bite sized chunks so that we can do the bulk of the work up front before they've identified a location. And then, of course, as part of the pre app review, they have up to a year to submit their application and they don't have to have site control in order to go through pre gap.

And then, of course, the annual application is going to be a streamlined process where the Director will have the discretion to issue annual licenses for everything other than licenses with on site retail sales for those activities. We will have additional public hearings, and it will go through our Commission.

Thank you for that response. I think I'll allow my colleagues from Los Angeles to continue to inquire as to other issues, including the jurisdictional grant awards. Let me turn to the state for a moment and ask this. Are there areas of our licensing process where the state might benefit from license reform? I heard stories about multiple background checks being required of the same person, multiple license applications being required of the same person.

I don't know whether that's state or local, but perhaps you could address how reform might improve our process at the state level.

Thank you for that opportunity, chair. Absolutely. I think we heard from the earlier panel and from my colleagues here today, and we agree with that. There's definitely an opportunity to seek reforms, and we'd be happy to work with this Committee and other stakeholders to look at what those could be. You definitely mentioned one that we often hear about, which is like the fingerprinting.

So if you're an owner of a business and you have multiple businesses or multiple licenses, you would have to fingerprint for each one of those licenses that you apply for. So that's definitely an area that we can streamline. But there's other opportunities I just don't want to step over one that we've all talked about today, which is CEQA. It is a burden we hear directly from licensees about.

It is an area that our local jurisdictions have spoken about, and it's definitely an area that we see an opportunity for reform.

I mean, one of the issues that someone mentioned to me is when you increase or decrease cultivation, it requires a new license application. Is that accurate?

That is accurate, and that is also an area and opportunity for streamlining. If you look at the statute, currently there's 13 license categories for cultivation. So while that specific example that you provide is an opportunity that we can look at both for regulatory reform as well as for statutory reforms, well, thank.

You for those responses. Obviously, this process needs to be efficient and effective, and it's neither if folks are having difficulty obtaining a license, moving from the provisional to the annual for whatever reason. So we're going to need to clean it up and make it happen lickety split, as we used to say. Let me turn to my colleagues. I'm going to take a list. Senator Archuleta, Senator Smallwood-Cuevas, Senator Bradford, anyone else? Okay, Senator Archuleta, you're on.

Thank you. Thank you, panelists, for coming. Los Angeles, you are the largest consumer in LA County with 10 million people. We look to you for answers in many times, but I'm thinking that you're looking to us for some answers here. We've got Proposition 64, all these issues and regulations, and some things that sound very punitive, especially to the young mum and pop store that want to get started. And we keep hearing these horror stories.

Is it because of Prop 64 and your interpretation that all these different regulations and duplications have existed and that why it takes three to five years to get a license? And you mentioned May 1, where you're going to open up the floodgates. Sounds like, is that going to be opening those gates? But it's going to be another three to five years before we see progress. So, not to finger point, but how can we partner?

I think what has happened here, I think my colleague mentioned it earlier, but it's amazing. Are you misinterpreting what the voters have said in Prop 64, based on local and county regulations, that you feel that you've got to be so punitive in some aspects? I think.

I mean, for the City of LA, when the adult use of Marijuana act was adopted, we had a local ballot initiative which was adopted by over 80% of our voters. And unfortunately, that local initiative duplicated a lot of what was in the adult use of Marijuana act. So our local jurisdiction was on the hook for replicating what the state was going to do. And then it became of who's chicken and egg? Who's going to move first?

And then how do you do the trade offs so slowly? Over the last five years, as our local policymakers have become more comfortable with these businesses operating, we've been able to pull back the onion and eliminate a lot of that duplicity. You know, we've always seen the Department of Cannabis control as the statewide lead agency because they oversee every jurisdiction within the state.

And what we've tried to do is focus on time, place, manner, and then to reduce the barriers by breaking up our process so that folks can navigate it through at their own pace with the hopes of ultimately getting to licensure by spending the least amount of money possible. I do anticipate that with our reformed annual licensure process, folks should be able to navigate it within three to 12 months, depending on how ready they are to navigate through that process.

And I might add, just one other thing, Mr. Chair. When you're talking about the grants have gone to the various counties, we're talking millions of dollars, obviously. My colleague had already mentioned the County of Los Angeles, or the city received 22 million, and there's one millions and two millions and nine millions all the way down the line. Are you not using those resources that are there? Have they not been given to you to hire more people? Can you elaborate on that?

Because it sounds to me that it's woe is me, but I think the state put out $100 million in these 17 different local governments, and it's just not moving. So how is it being spent?

So, as the first panel mentioned, we hadn't begun to draw down the LJAG funds. So we have received over 17 million, which was 80% of our award. Those monies were going to be direct services for the environmental review as well as the annual application process. CEQA is very litigious. Within the City of Los Angeles, we have a number of judges who have found that analysis that is more than two years old needs to be redone.

So in an abundance of caution, we didn't rush people into the environmental review process to put out final docs knowing full well that the local jurisdiction as well as the state were refining what that annual licensing process was going to look like. And we did have 2024 and 2025 to navigate through that process. So to best utilize those monies, we've made sure that the local process was refined as much as it can before we force people into the environmental review as well as that annual application.

But 19.6 million of the $22 million is going towards fee waivers for our existing pipeline. And then the other $2 million is to refresh the land use environmental document that was prepared in 2016, but was set aside in favor of the statutory exemption.

Thank you. I think you were about to make a comment.

Yes. Thank you. So, in the county amendocino, we did not draw down funds in the first half of the 2022 or in the second half of the 20212022 fiscal year, simply because as the funds came into our account, we also had General funds and we had some revenue coming in. So there was no need to draw down for the purposes of staffing, and we were not ready to execute contracts.

So our grant application covers a number of things, help or support with a portion of the staffing that is being utilized to review applications. It supports the ability for the Department to acquire contract planning services to fully bolster our staffing so we can get through materials in a timely manner. It covers indirect costs associated with administering the grant itself. And then the big bulk of our grant program is really slated towards a direct grant to assist our applicants with meeting their CEQA requirements.

And then the remainder of that portion of kind of indirect other items that are in the grant budget really is to modernize our internal processes. We utilize a very, an older permit tracking system that does not consider ministerial permits that require annual renewal. So our process for tracking our permits is largely in spreadsheets. It's incredibly challenging to track, it's very time consuming. So we're looking to upgrade those systems instead of building them out ourselves.

So we would update the back of the house, so to speak, with a SelLA processing system is the hope. And then that also would streamline application renewals and file management for our applicants and our staff by having an online portal that our applicants can utilize for submitting their materials and also modifying their applications if they need to, perhaps, or paying for a renewal, et cetera.

So we're looking at kind of a total overhaul to get ourselves modernized and up to speed with the tools we need to move forward.

Thank you, Mr. Chair. I'm sorry, were you about to make comment? No. Okay. Thank you, Mr. Chair.

Let me just, Senator, before you jump in, let me just ask one quick clarifying question. Assuming the City of Los Angeles wants to retain, or retains the authority to do local CEQA analyses, if we provided the authority. Assuming we need to provide the authority, are you able to group large sections of the city together and do one CEQA analysis?

Yes, sir, we are.

Are you able to do that today?

Yeah, I mean, effectively as part of our, we have 35 community plan areas, and then our licenses are divided amongst those community plan areas. So as we route the environmental documents to our consultants, they're routed by geographic area so that we could utilize the same analyses and findings to cover multiple licensees.

But to answer your question, as part of the larger citywide study, we do plan to refresh it so that we have one citywide plan, regardless of community plan area that can be touched upon by our licensees to expedite that process.

We've utilized this in the housing development area in the past. By statute, wouldn't that save time.

Absolutely. Okay.

Thank you. Thank you for your patience. Senator Smallwood-Cuevas.

Thank you, Mr. Chair.

Great question. A lot of my questions were answered in your responses to others. I'm curious about the 500 applicants that you mentioned, and I understand that there was a reason of sort of holding off on spending funds until you had some of the duplication and policy overlapping address. I'm just curious, since it sounds like this has been stacked and there must be a priority list, how are you planning to move through that list of 500 applicants?

What's the timeline that the $19 million will be allocated to support the CEQA costs? Just recognizing that we've had these funds, we've seen one provisional license move to permanent. What's our expectation of moving that 500 through a process? How are you prioritizing that? And you have the staff now. You have the resources to support the applicants. How quickly will these move?

My other question to that is, what percent of those 500 are social equity and what additional supports will be provided there in terms of technical assistance? I know that the social equity applicants have been less than 8% in our region, and there are a number of challenges beyond just the CEQA fees that folks are facing.

So I'm curious about how one, the priority, how quickly we're going to move, and then what sort of really intentional efforts will be used to increase the number of social equity applicants and certainly moving them through the process.

Wonderful questions. I'll try to unpack all of it. In terms of the priority, we had a conversation with the Department of Cannabis control within the last two weeks, and beginning on May 1, we will work with them so that we know who's coming up for renewal for their provisional licenses to ensure that the analysis is done, to make sure that notices of completion are issued to those licensees prior to the date that they have to submit that document to the state separately.

From that, it comes on a first come, first serve basis. So with the grant monies, we're able to provide expedited services as well as take care of the core pipeline. In terms of how long it's going to take, I anticipate that it will take one to three months to get people to a complete annual application, as long as they get all of the documentation submitted. And then in terms of social equity folks, we have over 770 licensed business locations.

40% of those locations are actually social equity businesses. We have another 500 businesses in our pipeline moving towards licensure. Of course, the social equity folks have until March 31 to submit their provisional state license. We are expediting the review and doing fee deferrals for all of our social equity applicants, and 60% of that 500 are social equity businesses. Dr. Amani Brown, who will be on the next panel, can talk to you a lot more about the different programming that we're providing.

But in a nutshell, it's a combination of fee deferrals, fee waivers, direct financial assistance through the grant programs. We have a partnership with the Los Angeles County Bar Association to provide Low bono and pro bono legal services to our social equity applicants. And then, of course, we're looking for ways to break up the process so that they can get through the process in bite sized chunks without having to have site control of a location or making material business decisions. You're welcome.

Thank you, Senator. Senator Bradford.

Thank you, Mr. Chair. My question was along the lines of Senator Smallwood as it relates to the number of social equity applicants that were in the queue, and I think you answered that question. But I would like to know if the state can tell us how many of those on provisional license, and can you tell me how you differentiate between a provisional license holder and an annual license holder? Is there any limitations to what they can and cannot do?

And if, in fact, that license expires that provisional or annual, I assume that operator is now out of compliance. Is there an appeal process through DCC to allow applicant to get back in compliance, or are they just out of business? I'm just curious about that.

Thank you, Senator Bradford. So I'll try to answer those in the sequence that you asked them. So, there is a distinction between what the requirement is for a provisional license versus an annual license. And I want to reiterate something that Jason just said. So there's a number of deadlines that are set in statute for licensees to meet prior to the sunset date that is set in statute now for provisional licenses.

And the first key one that we're going to face is the end of this month for receipt of social equity applicants who want to be considered for a provisional license. The department has three months to process those applications, to issue provisional licenses no later than June 30 of this year. So that's the key deadline that we're facing right ahead of us, the distinction between a provisional and an annual. So, a provisional license, like Angela mentioned earlier, was a ramp on license.

So the requirement is that an applicant submit a full annual application, a complete one, which is an area that we struggle with because we rarely find applicants submit a complete application. That CEQA is underway, that is a key component, and then that the applicant is in compliance with or in the process of becoming compliant with local ordinances and regulations. This is another key factor to provisional licenses around local control because every jurisdiction is different in what it requires to be in compliance with that license.

So, folks who have an annual license have met those three things. They're in compliance with local requirements, they've completed their CEQA review, so they've completed their environmental evaluation, and they have submitted everything that the state needs to process their annual license application. So that's the distinction between the provisional and annual in terms of data. I may have that. If I don't, I will get that information for you, but I'll just give some quick stats of where we are with provisionals and annuals.

Right now in our entire pipeline with the state. So we have over 5000 annuals and over 6642 provisionals. That's what our total pipeline is, the subset of equity applicants. If I can get back to you, that would be great. Oh, we have it. The number of equity licensees that have an annual license is 636, and the number of equity licensees that have a provisional license is 995. And the total number of LJAG recipients is 1476.

Is there an appeal process if one falls out of compliance with DCC?

For provisional licenses, there is not an appeal process. If a license is denied at that juncture, the applicant can apply again to the state.

Thanks, Senator Bradford. Senator Niello.

Thank you, Mr. Chair. I'm not going to be able to stay through the whole hearing because of other meetings that I have; I don't really have any questions, just an observation that every informational hearing that we've had, both here as well as in the Budget Committee, we at the state appear to take a program area and make it as complex and confusing as possible with multiple agencies that deal with a lot of time the same thing.

This seems to be very similar, but the state really didn't legalize the recreational use of marijuana. The proposition enabled local governments to do that but with an umbrella of rather complicated regulations that would be taken into effect that would be made effective for each local jurisdiction that decided to legalize marijuana. Now, parenthetically, I think that was done by the proponents of the proposition because they were concerned that it would not prevail if it was a blanket legalization.

Because a lot of communities, as we know, a lot of communities, have not legalized it, and they have concerns about it. And I think the perhaps unstated assumption was that, well, first of all, this is all done with an existing illegal market that is relatively successful. And I don't mean that in a complementary way, but it is.

And it seems like there was an unstated assumption that this in parallel illegal market would happily join the legal market so that they could be legal as opposed to illegal, but with this dizzying array of complicated regulatory requirements. And, of course, that has not happened. So we have a parallel illegal market that's competing with a significantly hampered legal market, and it's winning. The illegal market is winning, probably even better than it was before Proposition 64 was passed.

So my observation is this is all so totally dysfunctional that perhaps the only way that it could be fixed would be to start all over again.

May I respond to that?

Well, it wasn't a question, but I'll let you respond.

Well, I do appreciate that. Thank you so much, Chairman, just for clarification's sake, the program that I run in Mendocino for cultivators and nursery operators is almost exclusively operators who were operating prior to January 1 of 2016. They are legacy cultivators who came out of the shadows and into the light to join the legal marketplace.

And that is exclusively who we have been working with until, I would say, around March of 2022, when we finally opened up the application processes to allow for new businesses to be established. And since then, I think we've received five applications for new businesses. So what we're struggling with in Mendocino is how do we keep these folks that really tried to do the right thing and come into a legal, regulated market in the legal, regulated market.

And that's important not just for the county's economy but also for the environment. Right. And I do agree with you that the challenges faced by the legal market have really helped to bolster, in some ways, the unregulated market. But I just would feel remiss if I didn't point out that our participants are very much so, probably in the 90, upper 90 percentile, folks who were providing for patients before legalization and chose to come forward to be regulated.

I appreciate that clarification and good for Mendocino.

Thank you. Thank you, Senator Niello. I mean, clearly, for those areas of the state that choose to permit cannabis, our job is to make sure that government works for people and works efficiently and effectively. So that should be our focus here. And for those locations that decide not to pursue, that's fine, too, I suppose. But again, we need to make sure that the process is efficient and effective. And that's really what we're trying to explore here -

- what changes need to be made to the system to allow those jurisdictions to move forward, and the applicants and the businesses in those jurisdictions to move forward with some certainty that if they hit the targets, they will get to the finish line however they define it. Senator Bradford.

I just did a quick - follow up question as it relates to some of the predatory agreements that predatory agreements that we've heard about. Are there any safeguards, either on the local level or on the state level, to address that?

So, for the City of LA, as part of our municipal code, we have different provisions that allow for our equity owners to make sure that they have the appropriate voting rights based on their equity interests. And once profits get distributed, they get pro-rata based on their equity within the business. Given the challenges to raise equity, there are loans that are being taken out by folks either as a personal loan or by the entity who's pursuing the license.

And those loans get paid back as an operating expense, which, of course, reduce the profits that could be distributed to the owners. So when we find language that could run afoul of our local ordinance, we provide our concerns to the applicant, and they can't move forward in our process until it's been cured.

Okay.

And that involves rent as well because we've seen some real escalations in rent when they know it's a cannabis operator.

Unfortunately, at the local level, there are no rent controls for commercial businesses.

Thank you, Senator Bradford. Senator Smallwood-Cuevas gets the last word.

Thank you so much, Mr. Chair.

And I also have to run to my next meeting, but I wanted to just have a clarifying question. One, do interagencies that enforce and process this process? Do you all have a structure for actually communicating with one another about the overlapping and the real-time challenges and changes in local policy and state policy to create a seamless process for our business owners and particularly the social equity portion of that? That's one question. And then my second question is, and I think you spoke to this a bit in terms of the social equity piece, but given just the low percentage, and especially when you look at the state numbers as well, what are we doing to really build an ownership stake in that hardest hit community most impacted?

What is it that we can do to improve the numbers that we're seeing across the board in the social equity participation? I recognize the technical barriers that you all are working through now, but it's the human challenges that we need to also get at in terms of ownership. So, I just wanted to get responses to those two questions before I have to leave.

Thank you for your question. So, I'll start with how we are engaging as the Department of Cannabis Control with other state and local departments in this space. So, the state definitely has very close-knit relationships with sister agencies that work in this space, such as the Department of Fish and Wildlife and the Department of Tax and Fees. That looks many different ways. It looks like meetings, obviously, task forces as well as inspections.

So it's definitely a very close-knit function of work that we do with our local jurisdictions. We have a team that specifically meets with our local counterparts. They work very closely with them. We have a local liaison unit that does that work, monitors, updates to ordinances. But as stated earlier, there's over 200 jurisdictions in the state that license cannabis at the local level, and each is slightly different. So it is a two-way street, right?

Like that engagement has to be on both parties, the ones that we definitely engage very closely with through the local jurisdiction access grant. Those meetings are very consistent and are part of our reporting requirements for the grant agreement. In terms of - I wanted to speak also a little bit on what the department has done to support success, both for local jurisdictions as well as for licensees.

So, for the local jurisdictions themselves, when a new jurisdiction comes online, we have a team specifically that meets with them on how they have set up their licensing and permitting process so that we are aware of that and try to identify opportunities for streamlining. We also talk about CEQA pathways because we want to share lessons learned and ways to streamline and not run into the same kind of problems that our colleagues from other jurisdictions have run into.

And we also have a lot of those resources online. So that's what we do in terms of local jurisdictions coming online. And I'm just going to put in a plug also for a comment you made earlier around the Retail Access Grant. And I think the chair member also mentioned this, that a part of our problem is that we don't have enough access, we don't have enough retailers. We still have 60% of the state that does not allow any form of retail.

And this is critical to the success of the operators. Some of the challenges that we heard about from the first panel and, again, streamlining. Right. So that when those jurisdictions do come online, they don't fall into some of the pitfalls that we did earlier in setting up the framework. So, to pivot to resources that are available for licensees, we have, especially social equity licensees. We have a team, a full unit, and their role is to provide technical assistance to social equity licensees at the state level.

The state also has several programs. The Fee Waiver and Deferral program supports a lot of these applicants that are new applicants coming in for licensure or ones that are already licensed to either defer their annual license fee or waive their license fee if they meet certain requirements. So there's a lot of resources, I think, at both the state and local level. But I think fundamentally, the key issue is that it's got to get easier.

The whole process doesn't matter what level of business; the process has to become easier for businesses to stay in California.

If I can address the question as well. In talking to counties to prepare for this hearing, I was very struck by how many of the know point persons that people that I was talking to knew their colleagues in other counties and not just the counties that they shared borders with, but across the state. There's a lot of informal discussion that goes on sharing best practices.

Yolo County has a cutting-edge program, and they're going out and sharing with San Diego County, with Monterey County having a lot of conversations. I do think that there's opportunity to better formalize that. I think informal conversations are really beneficial. I'm sure that we could better coordinate the communication among counties, and that's something that we're working on as CSAC.

I'll also say in terms of retail access, the grant program is huge to allow those counties who are interested in bringing a cannabis ordinance on to be able to achieve that. And I think streamlining is going to be key to that because if you look at you're a county, you're considering it, you have a lot of stigma in your community around cannabis. You have a lot of hesitation still from your constituents, and then you see that it's not going that well everywhere.

The incentive to come on and spend a lot of money is low. And so where we can streamline the process, where grants are made available, funds are made available, these are all things that are going to help expand the market and make it a little easier for locals to be able to achieve these.

Thank you.

One of the main ways, I think, to help support additional retail is to allow consumer direct sales. It's something that the county of Mendocino has supported in its legislative platform for, you know, farmers cultivate this product, they package this product, and then they have to give it to a distributor to get it to the retailer. And only the retailer can offer this product to a consumer or a patient.

Even in legal or licensed cannabis events, a cultivator cannot interact directly with their product, with a consumer or a patient. Neither can a manufacturer. So there are these other areas where we could expand retail access by also providing some additional opportunities to the license holders themselves.

Thank you for those comments. Any other questions? Colleagues, thank you very much for the great discussion. More to come on this, I'm sure. Before we move on to our third panel, let me just make this comment. We have two more panels to go. It is about 01:10 p.m. We will have to recess this committee at 01:45 p.m. Because we have a 02:00 p.m. session on the Senate Floor that we all must attend

And having done that, we will reconvene 15 minutes after Senate Floor session ends this afternoon. So that's the schedule. I doubt that we'll get through two panels and public comment by 1:45. If a miracle occurs, then I'll change that. But that's the schedule for this from, at least at this point. The third panel is equity and inclusion within the regulated marketplace. Our equity applicants being provided with opportunities as intended. Panelists, if you'd please join us up here at the table, we'll proceed with the third panel.

Okay, well, let's start with self identification. So if we could start with my left, your right. If you'd identify yourself for the record, please.

Yes. Thank you so much. Can everyone hear me?

Perfectly.

Good morning, and thank you, honorable committee members, for the introduction. I am Dr. Imani Brown, the Director of the Department of Cannabis Regulation Social Equity program for the city of Los Angeles.

Thank you, Dr. Brown.

Good afternoon. Eugene Hillsman, Deputy Director of Equity and Inclusion at the Department of Cannabis Control.

Mr. Hillsman, thanks for joining us.

And good afternoon. Greg Minor with the City of Oakland.

Okay, Mr. Hillsman, I think you're up to bat first.

Thank you so much. Good morning. Chair and members of the committee, my name is Eugene Hillsman, Deputy Director of Equity and Inclusion at the DCC. Thank you for inviting the Department to participate on this panel and to share with you what the Department has done to support and advance cannabis equity in California. Today, I will share some specific ways our department is doing that work and supporting equity applicants and licensees.

But first, I'd like to speak more broadly about how the state has invested in cannabis equity. California was the first state to incorporate decriminalization into its adult use legalization, and you have seen this policy replicated across the country in states that have come after us. However, equity in cannabis began not at the state. It began with locals, including the nation's first program, Oakland, in 2017. The state's commitment to realize and advance cannabis equity has not always been explicit.

California has committed approximately $200 million in community reinvestment grants to provide support through local nonprofits and health departments. And thanks to the decriminalization aspects of Prop. 64 and the leadership of the Assembly, California has advanced the expungement of criminal records, including 197,000 convictions. So, I want to take a moment to highlight the history of California State efforts. The programs created, investments made, and the leadership behind it.

Starting with Senator Bradford, as the author of the Cannabis Equity Act, he helped California create a grant program that has provided almost $100 million in funds to local governments to create equity programs and provide financial support and technical assistance to equity businesses. In 2021, again, through the leadership of the Senate, the state created the Equity License, Fee Waiver, and Deferral program.

As part of this work, the state committed $30 million in one-time funds to the program for the purpose of waiving and deferring license applications and renewal fees for equity applicants and licensees. It also created in statute a statewide equity definition, tying eligibility to these funds for waivers and deferrals based on this definition. Then, last year, the Legislature passed AB 195, cannabis tax reform.

This bill included a range of measures to bring tax relief to the cannabis industry and consumers, as well as reinvestments to support and stabilize equity businesses, including the Cannabis Equity Tax Credit program, administered by the Franchise Tax Board, which provides a $10,000 tax credit annually to eligible equity licenses. The Vendor Compensation program, administered by CDTFA, which allows eligible equity retailers to keep 20% of the cannabis excise tax they collect.

Turning now to the department's efforts, the department is responsible for developing and implementing several programs that prioritize and apply equity measures. For example, our local jurisdiction assistance grant, which we've heard about over a couple of panels today, earmarked half the funds, approximately $47 million. To further support jurisdictions with equity efforts, our recently released $20 million retail access grant program proposes additional incentives in funding for localities that create and prioritize equity funding.

And as mentioned, the department is responsible for administering the $30 million cannabis equity licensing fee waiver and deferral program. To date, our department's fee waiver program has assisted approximately 1618 small business entrepreneurs negatively impacted by the war on drugs. This represents approximately 25% of our total licensed population. The number of businesses receiving fee relief is a significant portion of our licensed population, representing a quarter of our license pool.

And while noteworthy, I will point out that this is not representative of the entirety of the state's equity community. Equity businesses that meet local program definitions are not included, so this figure does not capture equity licenses that do not meet the state definition but qualify for their local equity program. And in January, the department established the fee deferral program to provide more flexibility of cash flow for their local equity program.

Further, as my colleague Rasha mentioned, the department provides technical assistance to equity business owners that need help getting their state license. That team is exclusively dedicated to helping equity businesses receive and renew their state license. We think this is a critical resource for existing business owners to receive specialized case management. The department has grown the number of resources since its inception to make information more accessible for equity businesses. This includes an equity web page that makes available guidance documents, plain language forms, videos and more.

Our department also engages regularly with business owners and local jurisdictions to learn more about the health of equity businesses, the efficacy of programs, and the challenges faced. Finally, the department is working to more effectively define and capture data to better inform our work, assess programs, and track equity measures.

All told, these efforts reflect a strong financial commitment by California, over a quarter of $1.0 billion to support cannabis equity and help rebuild communities harmed by the war on drugs in addition to these financial commitments by the state, according to reports provided by local jurisdictions with equity programs to Go-Biz last year, we have seen some local jurisdictions dedicate funding to their equity programs and businesses. For example, Oakland and Los Angeles have reported committing more than $6 million each in local funds to support equity efforts.

We applaud these contributions, but also support policies that result in more resources being committed by our local partners to advance their programs as well at a level that matches the state's efforts. In closing, as the department identifies and lifts promising practices, and as we see these replicated throughout the state and the rest of the nation, we remain committed to building on successes and learning from failures.

To steadily improve the way California approaches this complex and important issue, business owners must be able to move through the licensing and permitting process efficiently. Processes that take multiple years for businesses to receive annual licensure need reform. The department wants to encourage policymakers to also focus attention on the need to address these deficient institutional processes, especially those systems that further disenfranchise, excuse me, our state's equity operators.

Because even while hundreds of millions of dollars have gone to support equity in cannabis, the processes that businesses are required to navigate for local and state licensure have proven to disenfranchise some of our equity operators in ways that money alone cannot solve.

For this reason, I want to thank the committee for its commitment to take up the issues before you today, some of which touch on some of the challenging institutional processes our equity businesses are required to navigate and thank you again for the opportunity to be a part of the conversation. I'm happy to answer any questions.

Thank you, Mr. Hillsman. Dr. Brown?

Yes, thank you so much. Before I provide an overview of our program, I'd like to share some perspectives and give this discussion a little bit of context in terms of the genesis of the department. Although Los Angeles, the city council officially established the department in 2017, that was shortly after Proposition 64 was adopted. The social equity program for the department did not receive any funding until 2019. There was no infrastructure from which to execute any meaningful programming.

All forms, policies, procedures were built from the ground up since that time and after the launch of the social equity program in 2019. The program was then plagued with the onslaught of COVID-19 pandemic, where we were saddled with bureaucratic delays such as a citywide hiring and contracting freeze. Throughout this time, the social equity team was comprised of three staff, including myself. After the hiring contracting freeze was relaxed, we created an infrastructure, an agenda we created through an RFP process -

- five third-party subject matter expert vendors to create the tools and resources that now define our social equity program's business licensing, compliance, and technical assistance program. We take seriously supporting black and brown communities who were disproportionately impacted by the war on drugs. Now, within three and a half short years, the BLC program includes a robust suite of over 125 hours of cannabis-specific educational content, which is housed in our learning management system or our LMS. It's a digital platform exclusive to our verified social equity applicants.

DCR has held over 67 live webinars with subject matter experts covering topics related to the successful operation of cannabis commercial businesses, including marketing and branding, contracts and negotiations, accounting, business formation, inventory management, insurance track and trace or metrics, commercial leasing for all license types, and much more. Now, we recognize that everybody is not an entrepreneur, so we have been intentional with creating a workforce development initiative to support and make available career opportunities for those seeking employment within the cannabis space.

We've created a jobs board, and we've had three job fairs, two virtual and one live at the LA Trade Tech College. The BLC program also offers technical assistance, including 300 hours of free one on one business coaching and a full interviewing and a full suite of workforce development support to assist and guide job seekers through interview training, resume review, interview coaching. We're trying to train a sustainable cannabis workforce in the city of LA.

We also train all operators on their good faith hiring requirements, and we're creating an apprenticeship program in partnership with the Department of Cannabis Standards: I'm sorry, with the Department of Apprenticeship Standards at the state. Now, in addition to those resources, we have expanded our pro-bono legal services program to include a low-bono legal services program in partnership with the LA County Bar Association SmartLaw Division.

We offer up to 10 hours of free legal services, and once people have exhausted the 10 hours, they can move into up to 30 hours of reduced rates of $35 an hour. I don't know where you get $35 an hour in the country for legal services. On February 24, 2023, the Department of Cannabis Regulation, in partnership with the BLC program, hosted a cannabis and capital investor networking forum, which was held at the Convention Center in Los Angeles.

We had over 450 attendees come out in torrential rain to take part in an innovative opportunity to learn and cultivate relationships pertaining to investment in the cannabis space. We had panel discussions on getting to yes from pitch to profit and a panel on the investment journey. We had over 30 operators and ancillary businesses host exhibit booths. We offered one-on-one coaching and free professional headshots for startup businesses. Senator Bradford was kind enough to attend this groundbreaking event and address the audience.

The abovementioned services are funded exclusively through the city's general fund. To date, we have received $9 million from the City of LA's General Fund, 3 million in 2019, 3 in 2021, and 3 million in 2022. We are inspired to have created a social equity program that offers a myriad of resources to social equity individual applicants and licensees as we continue to strive for policy reform until the cannabis industry is normalized in terms of business resources that are made available to social equity applicants.

Now, as a companion piece to the BLC program, funded by the city's general fund, the department also receives funding from the Cannabis Equity grant for local jurisdictions, which is funded by the state, the Governor's Office of Economic Development, or Go-Biz. Now, to date, from 2019 to 2020, we received 6,042,000 and some change. In the 2021 cycle, we received 2,031,000, and in the 21-22 cycle, we received $5.7 million, which is a total of $13.79 thousand.

For the 22-23 grant, we have been awarded $1.984 million, which we have not received yet. We have dispersed 80% of all grants received each year in direct financial support. So, to date, we have dispersed $11,039,000 as per the grant agreement in terms of authorized business expenses. Now there are $15 million allocated to the CEG grant program. This year, 14 jurisdictions applied for that same grant. Each year, more and more jurisdictions apply for the same amount of funding.

Hence, we received $1.9 million this year as opposed to $5.7 million last year. We know from our targeted outreach and stakeholder feedback that there are three major barriers to participating in the licensed cannabis market for equity entrepreneurs. Number one is access to capital, number two, access to compliant real estate and number three, access to affordable legal counsel. We consistently try to meet folks where they are.

In September of last year, we launched our Seed Rental Assistance grant program that's administered in partnership with Elevate Impact LA. $5 million of the 5.7 million received in funding from the 2022 Equity Grant for local jurisdictions is being dispersed to qualified social equity applicants and licensees.

To assist with rent-related expenses like paying rent or a security deposit pursuant to a fully executed commercial lease, or financing up to one month of back rent, or securing a binding letter of intent, or assisting with buildout or construction cost, we are awarding approved applicants up to 50k, which we believe will make a huge difference in equity entrepreneurs ability to stand up their businesses and stay in compliance.

We also provided social equity verified application fee waivers for 1276 social equity applicants and 100 application fee waivers for phase three retail round two applicants. As part of the underwriting process, Elevate Impact provides technical assistance as it relates to reviewing submitted leases and advises applicants and licensees on the details of their lease. The Elevate Impact team provides consultations on financial assistance, assessing marketing plans and buildout costs, and walks applicants through any revisions in their budgets, executive summaries, and additional submissions necessary for application completion.

Now, in terms of the reporting through the CEG required periodic report and narrative reporting, DCR has been able to thoroughly assess the collection of data and statistics as it relates to the utilization of grant funds. During the 20-21 grant cycle, 206 equity entrepreneurs received $6 million in direct financial support from the Seed Grant. For the 21-22 grant cycle, 100 equity entrepreneurs have received 1.9 million thus far from the Seed Rental Assistance Grant program. The grant closes in October of 2023.

I'm sorry, I lost my place. The volume of the local equity applicants and licensees have been assisted through the CEG. Grant funding has been substantial and has allowed many to advance in the licensure process and gain access to one of the most prevalent hurdles in that process: obtaining and securing compliant property. Now, although much has been accomplished through the social equity program, there have been many challenges along the way that prohibit social equity applicants and licensees from competing and thriving in the cannabis space.

Los Angeles has the largest social equity cohort of any jurisdiction in the state. Los Angeles is the largest cannabis market in the country. The majority of equity entrepreneurs simply do not have access to the resources they need, like access to traditional banking services, which has contributed to a predatory investor industry. And as a department, we have worked hard to create programming to assist as many of those individuals as possible.

It is our hope to continue to provide innovative programming and outreach for opportunities and accessibility and, hopefully, to provide a more nuanced understanding of entrepreneurship, investment, and the realities of what starting a business in the cannabis industry really is. It is important for this community to have access to the resources that other businesses have access to in terms of banking, loans, and other financial services. It is important for this community to have access to all resources.

We are committed to continuing the advocacy of the social equity community in order for them to have a chance to participate and be represented in this multibillion-dollar industry. We must strive to normalize the cannabis industry with state banking access and other resources that are not available today. I want to thank this body for hosting this hearing, and I am available and willing to answer any questions you may have of me. Thank you.

Thank you, Dr. Brown.

Mr. Minor?

Sure. Ms. Keith, did you want to jump in? Okay, so I'm just building on Dr. Brown's last comments; thank you so much for having this forum today and also building on Eugene's point earlier. Special thank you to Senator Bradford for being such a leader in this space and changing many people's lives through your efforts over the last several years. So, my name is Greg Minor with the City of Oakland.

Just for a quick background, I've managed our special activity permits division, which includes the cannabis businesses in Oakland, since 2014. And then, I co-authored our equity analysis and equity program in 2017, which was the first in the country. I know we are short on time, so I'm just going to highlight two points for the committee's consideration. The first being that if we want to ensure that the regulated marketplace reflects the diversity of the state, we need more resources.

The state of California has been a tremendous partner in funding the local jurisdiction. Excuse me, is it the grand program from the cannabis equity local? Yeah, just rolls off the tongue. Go-Biz. The funds from Go-Biz, they've been tremendous. And we've had great funding cycles where the state of California set aside $30 million, which ended up resulting in around six or $5 million for the City of Oakland to disperse. And we've been able to make more than just disperse.

Those dollars make very strategic, sustainable investments, helping a team of equity applicants purchase a property with a shared kitchen that's going to be a permanent, free business incubation space and lasts well beyond just the one-year funding cycle. But as Dr. Brown mentioned, unfortunately, in recent funding cycles, there was only $15 million set aside, for example, last year. So even though Oakland got first place, we have over 300 verified equity applicants.

So that left us with about $6,000 per applicant, and I believe LA has about $1,000 per applicant. It costs hundreds of thousands of dollars if not more, to start a cannabis business. So I'm just hoping, obviously, you have many priorities before you in the budget cycle coming up, but hoping that the state can invest more than 15 million so that we can make these critical strategic investments that are going to go beyond just one funding cycle. We also don't have any problems dispersing those funds.

We have the opposite problem. We disperse them faster than we would like in some ways because the need is so great. We haven't really dove into it, but obviously, or hopefully, it's obvious, that because cannabis is illegal on the federal level, you can't go to a bank and get a loan. So those that already have in any other context would have a leg up, have even more of a leg up because they have access to wealthy friends and family and private networks of capital.

So it's very critical, or there's an opportunity rather for government to help level the playing field and play a key role in ensuring a more equitable marketplace. Last point is that these equity programs don't exist in a vacuum. So, all the information that you heard earlier is applicable to our equity programs. Equity applicants, because of disparities in access to capital and real estate and disparate law enforcement practices, are disproportionately impacted, in many cases, by the same obstacles that other cannabis entrepreneurs face.

But the more difficult it is for anyone to participate in the regulated marketplace, the more difficult it's going to be for an equity applicant. So, a couple of examples come to mind. We've heard CEQA as an example. Is it really critical that every single step of the supply chain has multiple layers of CEQA analysis? For example, a retail store moving into a commercial zone? Why do we have to have all this paperwork at the local and the state level?

Does any other industry have to go through that level of review? There's currently, as another example, a 10:00 p.m. curfew for dispensaries in the State of California. What's the rationale for? Why can't a dispensary operate at 10:30 at night? Why not let a local jurisdiction decide what's appropriate? Why are we limiting? The unregulated market doesn't have a curfew, so we've already recognized all the limitations the regulated market faces. Let's lean in and support the regulated market.

Now I'm going to have to cheat and look at my phone. I'm sorry. Just the last example on that is food sales. I know there's sort of workarounds, but why not just explicitly allow for food sales at dispensaries? Can you imagine going to a restaurant and not being able to order a glass of wine?

How limiting would the alcohol industry be if you could only go to a liquor store and you couldn't go to a show, you couldn't go to a restaurant to have an alcoholic beverage? So, I think there's some low-hanging fruit when it comes to supporting the regulated market. I think folks have talked about it before taxes; that's maybe more complex. Resources are always probably more of a complex challenge, but I think there's some lower regulatory areas to support.

And then two last issues to highlight in terms of the context is just burglaries and crime. Unfortunately, it's been a huge problem since the COVID-19 pandemic. So, any resources the state can make available to help regulated operators secure their facilities and deter burglaries would be much appreciated.

And then the last one, as much as I love my colleague Mr. Hillsman, and I would love local jurisdictions to be able to match the state, this is a tremendously difficult budget cycle that local governments are entering into, and Go-Biz is proposing a matching funds requirement. While we're emerging from the COVID-19 pandemic, we're facing historic budget shortfalls at the local level.

And so the less we're going to be able to match the state, that means the less funding we're going to be able to give to equity applicants. So, I'm hoping that Go-Biz can pause or postpone that matching requirement. It's a very rough moment to impose a matching funds requirement, so thank you so much for the forum. Happy to answer any questions and happy to be in a state where these conversations are happening.

Thank you. Mr. Minor.

Can I add one thing to Greg's talk about the matching funds? $500,000, every dime. After that, your local jurisdiction or the general fund has to match that. So if your jurisdiction does not have any matching funds, the max you can get will be 500k. That's it.

Administration is listening. I'm sure they're probably trying to figure out what the revenue is going to be this year. But we understand the issue and it's very important to make sure that these social equity programs work.

Thank you.

Ms. Kika Keith thank you for joining us.

Glad to be here. Esteemed Senators, my name is Kika Keith. I'm President - thank you - I'm President of the Social Equity Workers and Owners and Workers Association and proud owner of Gorilla Rx Wellness Co., Los Angeles 'first black woman-owned social equity retail dispensary.

My testimony today draws from both personal experience and my engagement with thousands of aspiring social equity entrepreneurs, community members, and advocates from cities across California, including Oakland, San Francisco, Sacramento, Fresno, Long Beach, San Diego, Inland Empire, the city and county of Los Angeles. There are four issues that are most problematic for us right now. The lack of an independent, statewide social equity definition, direct access to capital, looming deadline for the social equity provisional license, and need for tax relief.

I did provide you all a read-along with me so you can actually see some examples of what I'm speaking about. So today, I implore the committee to first recognize the need to acknowledge the historical injustices of the war on drugs, which was built on the foundation of intentionally racist enforcement policies. In Los Angeles, black people represent only 8% of the population but a staggering 40% of the arrests. In Oakland, African Americans constituted 70% of the arrests despite making up only 30% of the population.

And even right here in our state capital, from 2012 to 2016, African Americans represented 43% of their arrests while comprising only 15% of Sacramento's population. The collateral damage of the war on black and brown people is reprehensible, and it has broken apart families and communities. Senator Bradford's Cannabis Equity Act of 2018 was supposed to provide funding for grants, fee waivers, technical assistance, and expedited licensing process.

However, the lack of an independent, statewide social equity definition that clearly identifies disproportionately impacted communities has meant that the majority of state-funded equity resources have not reached their intended recipients. It is not a coincidence that jurisdictions with the least amount of state dollars allocated per capita are jurisdictions with the highest black population. We were sold a dream, but the reality has fallen short. Senators, it is imperative that we establish a statewide, independent social equity definition and use data. Use the data.

It exists to determine what disproportionately impacted communities are. Next, I would like to share with you my pathway, and if you turn, sorry, the slides aren't working, but to my journey. You can read it later. But the 13 hundred and 40 days that it took me to get from licensing. As a black woman, the social equity program in Los Angeles resonated with me deeply.

The hope of closing the wealth gap and atoning for the damage of the war on drugs gave me a glimmer of hope. However, as LA began to roll out its cannabis licenses in 2018, we quickly realized that the program was designed to fail. As Dr. Brown said, there was no budget, no technical assistance, no education or access to capital. And while trying to navigate Los Angeles regulatory changes and delays, the most troublesome requirement is that we had to have a property to apply.

In March of 2018, I leased my retail location on Crenshaw Boulevard for 14,000 a month for a vacant building. Now remember, to qualify for social equity, we had to be low-income to apply. We were set up for predatory investors with no established equity share guidelines in the regulations, no access to banking, no access to grant and fee deferrals that were promised. We were thrown to the woods with no legal assistance or oversight of sharecropper agreements.

As the social equity community anxiously awaited the opportunity for the priority license that we keep hearing about, the city council acquiesced to the well-capitalized existing medical marijuana lobbying efforts and reallocated the $10 million originally budgeted for the launch of the social equity program to enforcement. Once again, social equity is deprioritized, all while we are still paying rent on empty buildings despite budget allocations for the social equity program. If you look at the next slide, you'll see where some of this money went.

No grants or direct services were made. By October 2020, the city of Los Angeles received over $7.8 million in state grants, and it took over 700 days before social equity applicants could apply for a maximum of $33,000 pennies, compared to the $350,000 in rent that Gorilla Rx spent holding our vacant property for two and a half years. Now multiply that time, the hundreds of social equity applicants who were in my same position, millions upon millions of dollars lost due to bureaucratic delays.

Senators, you can help stop the bleeding. Our solution is simple. Obtain data to understand what jurisdictions were most impacted by the drug war and prioritize these jurisdictions for funding. Additionally, provide social equity operators a more streamlined way of receiving subsidies, including tax reductions and access to grants directly from the state. It's simple. We are excluded from fighting for an advantage. I'm sorry, we are exhausted from fighting for an advantage that was supposed to be ours. I remember when the Governor Newsom was the lieutenant Governor Newsom.

He said this cannabis industry was to right the wrongs of the war on drugs. Yet every single meeting, social equity is last on the agenda. Every single conversation, social equity is last. Every budget item, social equity is last. And we asked the Senator asked, "What happened, and why doesn't social equity work?" Because we're not set up for success. There are still over 200 social equity retail owners in LA alone that have won the licensing opportunity but are struggling to open their doors. I'm talking to them.

My story isn't an exception. It is the reality of black and brown small cannabis business owners across the state. Where is the recompense for those who made every attempt to follow the letter of the law but lost it all? Where is the recompense for the hundreds of social equity applicants who filed a lawsuit against the city of Los Angeles for their flawed application process just to open our doors? There's another slide on here for you if you all want to switch to provisional licensing.

The social equity community in California has been facing a crisis for the past five years. We come to every meeting, we yell out, we ask for help, and we still keep sitting here saying the exact same thing. I pulled up these numbers from a presentation I meant to Nicole Elliot in April of 2021. I'm still saying the same thing.

Many social equity applicants are currently entangled in litigation with predatory investors because back in 2018, when there wasn't a pro-bono program, back in 2019, 20, and 21, we were stuck in these sharecropper deals, and now we can't get out of them. We've lost our properties, and we are in immense debt. Our community desperately needs justice and more time, which can be achieved through the passage of SB 51.

In 2017, the state began issuing provisional licenses as general applicants began; businesses started operations with the least restrictive requirements while working towards obtaining an annual license. That's the benefit of a provisional license. We can open our doors and make money and then start to pay for the sequel and all the professionals that you need to hire. This gave general applicants a five-year period to operate fully while preparing to meet compliance. Social equity applicants deserve the same five-year runway as nonsocial equity retailers.

As with provisional licenses to open their businesses while fulfilling the requirement for annual processing, the deadline for social equity retail applicants to receive a provisional license ends this month. There are over 300 new upcoming social equity retail licensing opportunities slated to open across the state, including in Long Beach, San Diego, San Jose, LA County, and even more in LA City. Additional barriers to entry will only hinder our progress.

The passage of Senate Bill 51 will enable social equity operators to hold a provisional license for up to five years for retail activities. We need this to survive and last, Senator, this is the most important side. I'm going to open it with you because I brought a snapshot of my taxes and my current State of affairs from when I opened my doors. This is a snapshot for my first five months of business.

I naively thought that the battle was over once I completed the licensing process and opened our doors. However, the reality is there is no existing legislation to provide significant excise tax relief or credits for social equity. 3% is not significant, which goes against the very essence of social equity in the cannabis industry.

Here's a snapshot of the first five months of operation to shed light on the plight of each and every startup equity dispensary like Gorilla Rx and the devastating impact of the exorbitant tax burden imposed on us. Despite generating a remarkable $2 million in gross revenues during our first five months of operation, our revenue streams have been mercilessly siphoned off to pay taxes to the city and state every month and every three months, respectively.

This has, in turn, left already under-capitalized social equity operators, and I started my business with all of the expenses that it took to open my doors. With $7,000. We are under-capitalized for Gorilla Rx. This translated into paying a staggering $531,000 in taxes. And coupled with the excessive operating expenses required to comply with regulations such as inflated cannabis rent prices, security, insurance costs, bonds, our operating expenses reached a whopping $1.8 million.

As equity operators, we understand the gravity of our responsibility and are committed to utilizing this hard-won opportunity to create a positive impact in our communities. I've created over 30 jobs for social equity workers, and a significant reduction in tax would allow me to create even more living wage jobs and provide health benefits to my team members. It would also give us a chance to reinvest in the growth of our business. Every other new business, that's what you do with your money.

You invest it back in so you can grow. We're not able to do that. We got to pay these taxes every month and every quarter. So I ask you, however, with the taxes and operating expenses you see, it totaled up to $2.4 million, which is well over the $2 million that I made in revenue. We ask ourselves, is this equity? It is nothing short of a miscarriage of justice. So I implore you, esteemed senators, to champion significant tax relief for social equity retailers.

We urge you to declare a state of emergency for disproportionately impacted black and brown small business owners and workers and form a task force that will allow us the opportunity to share our experiences and our needs and collectively form solutions. We're heard last every single meeting, and I go to all of them. Social equity is always the last on the agenda. We want to be prioritized; we want to contribute.

We are not looking for a handout, but we are looking for recompense for what our families and our children, and our community has suffered. So, I thank you for this opportunity to share.

Well, thank you for an excellent presentation. We're not finished with this panel. I hope you will stay around for questions by my colleagues, and I hope my colleagues will come after session back to have a further conversation with you on this very important topic. It's 10 to 1:50 P.M. Unfortunately, my colleagues and I have to be on the Senate Floor in 10 minutes. We will recess.

We will reconvene 15 minutes after Senate session concludes today to resume with this panel, questions by my colleagues, and then the last panel of the day followed by questions in public comment. So we're in recess at 01:50 p.m.

03:25 p.m. I'll ask the panel number four Members to come back up to the table. I mean, panel four, equity and inclusion within the regulated marketplace.

And for purposes of those individuals who wish to provide public comment, which we will do after the next panel and questions of that panel by Members from the dais. If you wish to provide public comment via the teleconference service, the participant toll free number is 1877-226-8216 and the access code remains 6217161-621-7161 and at this point, I will turn the proceedings over to my colleagues on the dais for questions of panel Members on my panel number four. Apparently it's your panel number three.

Who wants to go first? Senator Smallwood-Cuevas. Looks like you get the nod.

Well, there you go. I'm happy to go. And first, I want to apologize. I missed the testimony, although I was watching it in between my other meetings. But just want to say how excited for this panel, because for me, this is the reason voters supported Prop 64, is that they wanted to see a transformation from the carnage of the war on drugs, poor communities of color, and to see equity realized.

And the LA Times did an in depth dive into the social equity programs in California and using Los Angeles as an entry point. And the headline said, California promised social equity after pot legalization.

Those hit hardest feel betrayed, is the headline of that report, which goes on to talk about the deep inequities in accessing the program, and particularly the startling statistics that only a small fraction, less than 8% of all people granted cannabis licenses through the end of 2020, reach those communities that are the hardest hit by the war on drugs and the war on poverty. I'm sorry, the war on poor, communities of color.

So my question to this panel is really, what is it that the state Legislature can do to accelerate equity in this space, both from the access of licensing, but also in terms of access of the broader community that has been impacted by the criminalization of our communities related to Marijuana for decades?

And we talked earlier in the earlier panels, and I know many of you heard those panels, there's a lot being done to sort of address some of the technical challenges of the local and state policies and to work through collaboration to better align the policies. But is that really the challenge that we are facing? Is it really about Cequa? Is it really about the contradictions in the policy, or is there something we're missing? And what do we need to really prioritize from the Legislature?

Point of view. I will ask anyone who wants to respond to that to please respond. But I will start with the community leaders who are in this space first.

Well, I would say our biggest challenge first is oversight. We go too many years for these opportunities to happen. Every time where social equity community Members get up to speak, it's on a 1 minute or two minute time clock. We don't have access to capital for lobbyists, so our people are not behind the scenes effectuating the policies. By the time we get in front of public comment, it's too late, and the laws have been set.

The well resourced cannabis companies are slowly dismantling the intent of the social equity program. We saw it in LA. As good as cat packers desires were for an equitable program, it couldn't change the fact that you needed the City Council's vote and there was no political will. We see that now. And I'm glad to hear you be such a champion for equity. But far too often, Senator Bradford is the only person in the room speaking loud about our issues.

And until there's enough political will to understand that, we need to be prioritized, that before there is a truly a real cannabis industry, you have to be able to show a pathway for those that have been destroyed by this. And so when you talk about the illicit market, they have no desire to conform or come into this market because they see no true pathway.

They see those of us that are from the street do nothing but suffer and wait for time and time, and so oversight is required. I don't see how you can give these millions of dollars and not do needs assessments for the people who are implementing, who are having access to these programs. This whole panel should be made up of social equity operators from across the state. Then ask those questions.

That's how you hold the municipalities accountable, and that's how you also hold your own people accountable for what they're doing with the money. And they only accept reports, and they don't hear what is actually happening. I talked to the LA Bar Association about two months ago, and I asked them, and I had to ask them four different times, how many actual social equity applicants have received pro Bono lawyers? The answer was three.

That's not true.

So maybe things have changed and more funding is available. But I can tell you this, 30 hours of pro Bono services, when you have to negotiate a contract with these wealth resource investors is not enough. I got halfway through my negotiations for my operating agreement and then had to start paying money and was left with a Bill and not a finished contract.

You cannot tell me that you're wanting underprivileged people from the communities and think that online learning, there's a mode of learning for our people, and it's not webinars, and it's not online learning. We need hands on, practical application about how we learn to operate, because what you learn in those webinars, you can't learn in your operation when you're going to operate your businesses. And so when the other Senator asked today, why isn't that lady open? Because there's no support.

You can't offer this opportunity and then give me $55,000. What am I doing with it when it cost me $1.0 million to open my business? And so you're setting us up to fail by not prioritizing, us giving $15 million, and us having to go and lobby about this and push for an annual budget for all of these jurisdictions. And now you have all these other communities that are opening up, Coachella, all kinds of places that I don't feel that there was disproportionate arrest.

And that's the key. It's not just where people were arrested for cannabis, it's the disproportionality. And we start looking at the statistics and collect the data, then we can start solving the problems. And right now, nobody wants to solve this problem. And that's what we're hoping will change today.

Anyone else?

Well, Kika, she's very eloquent. And I think another aspect that the state might be able to work on is to create some type of state banking and provide banking services for the cannabis industry. Not being able to bank and get the traditional loans that any small business can just assume, they can go in and apply for a loan that's not available to equity entrepreneurs. And that, of course, perpetuates this whole predatory investor industry.

So if there was some state banking, we all understand that it's still schedule one and it's federally illegal, but we could do something at the state level and have some state banking for equity entrepreneurs. I think that would go a long way.

Well, assuming you actually need a bank as opposed to a loan program to provide capital. Correct?

Well, if there was a loan program from the state, that would be fine. I'm just thinking in terms of the private sector. The state can't do everything, as we know. So if there could be just some regulatory banking, we have to normalize cannabis. So why can't there be state banking for cannabis? Also, as we all know, commercial real estate is insane in Los Angeles. And I would like to see and I don't know if that's even possible because these are all private owners.

But to put some type of controls and oversight on the commercial real estate industry like they did banking, I mean, anything that's 10 times, eight times the cost that it was two years ago, those are usury prices. And so there needs to be oversight there. I mean, they're just gouging 2000 sqft might have been $4,500. Now it's 20 k a month. Who can sustain that? Any business across the board can sustain that as a startup company.

And so the banking and the commercial real estate, there needs to be oversight there and more progressive rules that can control that market.

I'll just piggyback on what you guys are saying. I agree with all those comments. I do think hearing directly from equity operators, hearing directly from operators is critical. As amazing as bureaucrats can be, we are not on the ground. We're not actually experiencing these challenges. But from conversations with operators, I'm going to kind of reiterate some of what I mentioned before.

In terms of larger strategies, I think it's lowering barriers of entry into the market and addressing the biggest barrier is access to capital, access to real estate. The state has been amazing at times, a leader in supporting equity in the cannabis space on a national level. But when you do only allocate $15 million statewide, we're adding more and more jurisdictions. So we're slicing that pie thinner and thinner. It's not just less money, but it's like less money we can strategically target.

I think, larger buckets that we can target towards things like real estate. Again, when we've had more funds, we've been able to help a team of equity applicants. We're going to do it for a second time now, purchase a property that's going to benefit multiple equity applicants, and it's going to be a free space in perpetuity. So I think just being a little bit more strategic will allow local jurisdictions and equity operators to navigate all these challenges that folks have talked about today.

As a follow up, can you share in terms of demographics, of the social equity owners versus the traditional marijuana, I'm sorry, cannabis industry leaders? What does it look like in terms of racial demographics? So, in terms of social equity, what is the racial demographics there? In terms of cannabis industry license holders, what do the demographics look like there, racially? Does anybody have that data?

Okay, well, just speaking for the City of Oakland, I don't know if this is maybe what you're going to say as well. We don't have perfect data, unfortunately. We have data on our equity applicants that we provide services to, but we haven't been collecting as much data as we should from the whole industry. But just sort of as an anecdote, 80% of all of our loan and grant recipients in our equity program are African American.

Prior to the launch of an equity program, we had eight dispensaries in Oakland, and only one was owned by an African American. So just as a sense of where things were and where things have shifted, but we need to do a better job of tracking data so we can evaluate who's benefiting, who's not.

Does the state, who tracks that data, who's responsible for tracking that data, then?

Sure. Thanks for the question. So, currently, the Department of Cannabis Control does not have a demographic questionnaire as a part of its licensing system. So as licensees are moving through the process, we're not currently collecting that information. The Governor's Office of Business and Economic Development, as a part of their grants to local jurisdictions, is required to put out a report to the Legislature in which they're collecting demographic information from participants.

But I think, to Greg's point, it is a situation in which that information is voluntary, so people are self selecting whether to provide that information. So we do not have a lot of good information associated with the demographic kind of eligibility for program participants, at least as a part of the current licensing structure.

Yeah, I see that as problematic, because going back to where I started, why there was this overwhelming support, folks recognizing the impact of the war on drugs and the war on the poor, and particularly the disproportionate impact that's held in black communities in particular, where in LA County, we are 8%, 9% of the population, 45, 50% of the county jails has black residents of LA County.

And so to me, it would be part of the foundational evaluation and measurement and oversight of this process is to see that when you look at the disproportionate impact of that criminal justice system on black communities, that we would see the same sort of measurement of success, to the point about the 80 applicants in Oakland and now one owner.

We can judge the success by who's getting access, and we won't be able to do that unless we are very closely monitoring and tracking data at the local, county, and state level. So that's something that I would love to see, that data. We'll get back to my office just to see where that data is held and how we might be able to start to evaluate the success of this enterprise overall is in measuring who benefits and gets to participate in it.

So if we could get that, and then I don't know if we. Is that a bill that's necessary, legislation, or is that a regulatory process that can happen within the Department to fix that oversight?

Yeah. Thank you. This question is nuanced, so I want to kind of speak to some of the nuance in it. We currently collect data that we track for folks who are eligible for our fee deferral and waiver program. That data does not include race per se. That is something that we are looking at.

I think a piece that's important and critical to include here is when we consolidate the Department. We're operating out of three licensing systems currently, just to make it for a smooth transition and in the meantime had to implement these programs. So this is something we are definitely have our eye on when we have it consolidated one system to start tracking some of this information.

In the meantime, we are trying to track information based on the program requirements that are set currently. But hear you loud and clear. I just want to acknowledge that we hear you and it's something that we can take back and respond to your office about what we can do in the meantime. I want to double back on a comment made earlier about banking or a state bank, the idea of a state bank.

Before we move on to the banking piece, I just want to close my thought process, because, in the meantime, and then you said that there is actually going to be a process by which the state is going to develop a tracking system across all of the different entry points for service, for different types.

Of licenses that the Department currently issues.

Okay. No, I just wanted to clarify, is there a timeline on when that is expected? And I understand the triage, and we absolutely need to triage now and begin to evaluate the effectiveness. But is there a sense of when this infrastructure of tracking and monitoring and oversight and evaluation will be in place as part of the umbrella?

I do not have a timeline that I can give to you right now. We just received funding to start that assessment for a larger licensing system, for a comprehensive licensing system. That budget came into effect this year to start that assessment.

That's important. And I want to close by, just, we all have so many different definitions of equity, and we talked about the need to define that. But fundamentally, for me, it's looking at disparity, that equity is about the disparity. And if we aren't able to take our point of departure of disparity, which is how have these laws disproportionately impacted communities of color, black, Latinex, immigrant communities, then we really don't have the tools to evaluate the overall success of the program.

And so for me, that starting point data is relevant to where we want to end up in terms of the impact of this emerging sector being a benefit in repairing the harm in community. So in the follow up, having a sense of timeline for when that infrastructure will be in place will be really important for my office. So thank you.

Yeah. And I think it's important also a point you made that was really critical, which is at the local level, because these disparities look different from locality to locality versus what we are tracking at the Department level, which is those licensees that come to the Department to be licensed. So the localities will be able to better reflect what their communities look like. And these points that you brought up: what does that disparity look like in that community? So I think that's a really critical point you raised.

I appreciate that. But the lion's share of the funding comes from the state. And so as we are making the really tough decisions, especially now that we're moving into a deficit, because now the surplus years are behind us, so there's nothing we can do to go back and remedy that. But moving forward, this is where the resources start and the local entities would not have any support if it's not for what the state is going to mandate and provide.

So I believe that it begins with us. We have the opportunity to look globally across all of the local jurisdictions and to really be able to track and monitor. And let's be real, there are some localities that might not want to look at race as a factor. They may not want to prioritize in a way that addresses the disparity. It's the role of the state to ensure that they do and that our understanding of what social equity is, is carried down to the local level.

And as I said, it's about disparity. So in some communities it might be native people who are disproportionately impacted by the criminal justice system in their communities, and therefore, they should be overrepresented in the licensing.

So for us to see this as a repairing the harm that has been done, which is why so many communities have embraced and are pushing for, and to me, is the way in which we're going to accelerate the expansion of other jurisdictions to embrace this, is that they have to see themselves in it and they have to see it as a way of correcting the social devastation and carnage that came as a result of those policies.

And so we have an opportunity to create a new industry that is high road, that creates opportunity, but we have to ensure that those communities that are most impacted are at the front end of that. So I just want to say the state has a tremendous leadership role in playing by prioritizing equity and helping to define it by the data that we're tracking. And beginning with that end in mind.

I'm sorry, because I did want to answer your first question, because we did survey on the first group of 100 and there were under 20 black equity operators. We represented almost the smallest ethnic group that received those first round of licenses. It's very rare that we get the outreach that's needed in our community so that there's a higher participation rate from those communities that are most underserved. And those are just things that can be remedied very easy.

And as a social equity community, we've been asking for that data, and I think it's as simple as your questionnaires when you're filling out your application or doing your renewal, to add that data point in those questionnaires that we get all the time.

Let me just make a comment. It seems to me that social equity is baked into this program, and I think we expect the state, where the state can do tracking where the state is involved in the process, to track the metrics. And that would include social equity metrics. To answer the Senator's question, a bill shouldn't be required. It's certainly something the state can do.

And if you need regulations, then departments and agencies know how to put regulations together, although it does take a while around here. If the state doesn't move in the direction that we think it should move in, to answer the Senator's question again, we do a bill, and we direct that certain metrics be kept and certain reports be generated. I'd like to think in this case that that's not necessary.

And so as you move forward with this process to develop the system changes that you need to bring three into one or whatever you're going to do, I'd ask that you provide us with a short explanation or report so that the Members of this Committee can take a look at what the new system will look like and what the new set of metrics will look like that you expect to be able to provide and analyze once the system is up and running.

And then individual Senators can make a decision as to whether they want to ask for more or ask for clarification that makes sense to you? And what locals do, we don't have any control over unless we engage in the legislative process or the state engages in some regulatory process to direct the kind of data that the locals collect, except that where the state's providing resources, the state can ask for and expect to receive reports, and you know how to design those as well. So I think we can address Senator Smallwood-Cuevas's concern as we move down the road here.

Thank you. Thank you. And I think you were going to answer a question on the banking, but thank you so much.

I didn't mean to interrupt, but hopefully you kept your thought.

Thank you. I think for the purposes of banking, I just wanted to bring to this body's attention. There was a study done by the treasurer some time back, which I'm happy to send the link to at a later time, that really essentially pointed us that it's not going to be a feasible solution because we'll go right back into the trap of federal oversight. That is the challenge with banking. There's requirements for reporting, and so there will be limitations to the idea of a state bank.

And I think this is part of why the state resourced locals and some of the grants that were pushed out was another mechanism to provide funding and capital to support operators and local jurisdictions to support operators in that vein. So just wanted to point out to some of the challenges that were raised around the issue of banking.

But from what I understood, that was maybe in 2019. The industry is different now, and I think we have to continue to push. Things that weren't even thought of maybe four or five years ago, we could revisit now because that's the only way we're going to get cannabis descheduled and get it federally legal. If more and more states insist that there's banking.

I would only say you certainly don't want to jeopardize those individuals who are engaged in business in this space, which is possible, given the federal presence in the banking arena, given the fact that money moves around in the federal system, not the state system.

As I recall the study, there were a bunch of issues, not to say we shouldn't consider it again, but if the issue is access to capital, as opposed to access to checking and credit card transactions, then access to capital, I would think, and I would think this would be one of the things that the Department would want to explore with the governor and the Administration is how to set up a revolving loan fund or some other program besides grants, that would allow business to access capital to a much greater extent than business in this space is able to access it today.

Checks, credit cards, that raises an entirely different set of issues. At least that's my recollection from taking a look at the state banking issue a few years ago. Maybe it's changed, and they're certainly smarter people than me, certainly something we should look at. But in the meantime, between now and then, we ought to take a look at a more robust financing program for particularly small business in this space. Senator Smallwood, Puebas, more questions?

No, that is it for my questions. Thank you, Mr. Chair.

Well, I mean, I think Senator Bradford first, and then.

Thank you. Thank you, Mr. Chair. And I want to thank this panel for their informative discussion. And I also want to thank Ms. Keith for detailing what she went through these 1,340 days in order to become an operator. But I guess my only question is, are the challenges that you face, does non-equity operators face those same challenges that you face? Ms. Keith?

No.

Okay.

Absolutely not.

Okay. And can you describe some of the challenges that you face versus your counterparts that seem to find a clearer path to becoming licensed here in Los Angeles or California?

Sure. The education and training to even know what to do when you have the opportunity to open your doors. You're talking about well resourced non-equity operators have whole teams. They have professionals. They have accountants, they have lawyers, they have architects. They have engineers. They have compliance folks, lobbyists. We don't have access to those professional services. And so then you cannot run a multimillion dollar operation like a mom-and-pop business. It's not possible.

And so without those built in technical services for us to even know how to negotiate our contract, without the lawyers to help us put those contracts together, we are left to swim with sharks. And aside from that, the political will is crucial. In the City of LA, it just kept getting delayed and delayed on things not being put to vote by City Council. And so when we're not prioritized, you see everything else.

Like I mentioned earlier, when they licensed the 187 medical marijuana dispensaries and they gave them priority, only six of them were African American out of the 187. And then that $10 million, that was to go to social equity, it didn't, because now those existing dispensaries had the argument about enforcement and said, how can you open the social equity stores when we have all these illegal stores? You need to close those down. And so that shift went away from us once again.

And so that continues to be the case as we continue to come here and fight even for the tax relief. The cultivators got their tax taken away. Social equity operators, we are literally bleeding dry. We're dropping like flies. And yet you all say this is a priority. I just can't even understand why that's not the first thing you say, is that you have tax credits. Give the real estate folks incentives for renting to social equity folks. Tax credits doesn't come out of your pockets. There are so many things that could be done if we were prioritized that could relieve the burden that we have of being under capitalized, not just giving us money.

And I totally agree. And as the author of 1294, the social equity measure, I remember vividly a couple of days before the money was supposed to hit the street in 2019, and I ran immediately down to the governor's office because of the 40 million, 30 million was going to non-impacted communities. And I'm not going to go into those communities because they know who they were. And we put a halt on it immediately.

And I told the Governor, this is not why I wrote this bill, to subsidize folks who've been in this industry for 40, 50 years. And luckily, they agreed. But even though they agreed and reprioritized some of that money, it still hasn't reached the communities that it needed.

They talked about banking, and I just want to elaborate on that a little bit and just show you how we, as a Legislation, and again, government are hypocrites as how we deal with this banking issue, because every day, legal operators walk hundreds of thousands of dollars into our controller's office or into the BOE or into a bank to pay their taxes every day, and we take that money. But the same operator, if they went to put it in the bank, they'll be up on charges.

And we're taking millions of dollars every day from cannabis operators at the BOE. Like I say, wherever they're paying their taxes, they walk in with sacks of money. So the banking issue is something that we've looked at for the last three years. Well, I don't know if anybody looked at it last year, but I know two years ago, Senator Hertzberg and I had a measure trying to deal with the banking, but we still would like to get help.

I know this is something you can't answer right now, but banking is one of the issues that I'm really concerned about because it puts you guys all at risk as operators, as they say. Why do you rob banks? Because that's where the money is. Everybody knows that you guys are a cash and carry business, and that's why it requires you to have additional security as well. I had a question that I was going to ask as it related to state.

When they were asking about breakdown of ethnic breakdown, the number I've always heard is 85% white male. So is that an inaccurate number that I'm getting? Were you asking about the social equity program?

You're asking about both.

Well, overall cannabis in California is 80% to 85% white male operated. And that's the data that I've been provided since 2017. And it's only grown.

Nationwide, it's reported to be 92%.

See, nationwide is 92%. So I think we all should realize we have a problem with equity and diversity in this space and the barriers that Ms. Keith is facing is far different than her counterparts. And that's the question I need to get at. How are you facing different hurdles than those other individuals who find a way to maneuver an industry that's brand new to them as well? And you say lobbyists and lawyers and all that.

But again, I know plenty of people that look like me that have resources and are still running into roadblocks. So I'm just curious, does the state have any way of streamlining? This is a staffing issue with you guys, or where's the challenge?

The challenge with specifically collecting more information.

And also helping expedite those equity applicants as well. I know there's a local component, but on the state level of processing, it seems like it's a roadblock with you guys as well. A log jam, I should say.

Thank you, I think I understand the question. So certainly the Department has a dedicated technical assistance unit within our licensing division that provides support to business owners as they're moving through the process. I think in thinking about what opportunities are available to really streamline licensing, it does require both streamlining at the local level and streamlining at the state level.

So there are some targeted resources that are made available for people as they're applying or renewing their license at the DCC and then funds that have been distributed through GO-Biz to provide additional support.

Would extending the provisional license to the measure SB 51 help in this process at all, and if so, and what else is needed?

Thanks for that question. In light of the conversations we had earlier this morning, I think the challenge with extending the provisional license deadline is that we extend the time in which people don't achieve annual licensure. So they're still facing the same complexities. And some of the licensing issue areas that we discussed earlier this morning that are needed to streamline licensure, like CEQA, like duplication of efforts that are happening between the local and the state level.

So I want to make sure this body understands that if we extend that time frame, are we going to have people still waiting in that long line investing capital, which it seems like an area that people are struggling with, and not achieving annual licensure. So that's one thing I think we're bringing to this body to collectively think about. How do we streamline this?

I want to also add on what Eugene said earlier in terms of resources from the state that are supporting equity licensees is we also have a technical assistance team that's dedicated to supporting equity licensees that come to the state level for annual licensure and to support them through that process, guide them through what they need to achieve, work with our local partners. So just wanted to kind of double down on some of the resources that we are making available.

I just would add here, I think extending SB 51, extending that March 31 deadline would give equity applicants more of a runway to get their provisional state license while they're streamlining their process. Because otherwise, they're going to be faced with having to pay rent on property that is not operational. Yes, and that's going to kill folks. It is. That's all the analytics that we've gotten from our outreach, from Kika and her SEOWA and other trade organizations. And everybody is saying the same things who are on the ground and dealing with this every day as operators. So I think we should really look at that.

That's absolutely true. To go through your annual licensing process and then it starts at the local level, you have to have a property. And once again, all of the hoops that you have to go through and the amount of resources that are required to jump through those hoops, if you're under-capitalized, it takes months and years to make it through those hoops. Which is why the young lady that she spoke of in Hayward doesn't have her store open.

There's a lot of hoops and a lot of money to go through those hoops. So if your store is open, and this we're talking about SB 51, if I'm not mistaken, it's for retail. If you're open, you're generating revenue and then you have the ability to pay for the hoops you have to jump through. Your doors are open, you're not paying rent on an empty building.

And we all understand the hiccups in the regulatory process, and creating a streamlined process could take years, and we don't have years. These cities are opening up their retail licensing for social equity specifically. This is the biggest influx of social equity retail opportunities that are opening up across the State of California. So now that they're opening up, you're telling me we don't have the same window that the industry had? That would be completely unfair and unjust.

I'm going to be real quick. I'm not going to belabor this also. Oh, I'm sorry, you're about to answer. Respond to that.

I totally appreciate what has been stated. I think what's key, though, is it's compensating for the complexity of that process. That's why we see people waiting in line for so long. And so all we're saying is that by fixing the process, we streamline it and we can get more people through. But extending the timeline, is that going to resolve some of the fundamental issues that we're trying to talk about today?

By not doing it, what, are you asking folks to walk away from their dreams of being a business operator? I mean, how do you address that?

I think we look at the core issues and we work on the core issues.

But when are you going to do it? I mean, they walk away while you're figuring it out? I mean, that's the problem. You guys are figuring it out. You've had six years to figure it out. You still haven't done it, or at least four and a half. And so how long should folks wait to do this? And the question earlier was asked about some of the predatory investments, some of these crazy agreements that these social equity applicants are asked to enter into.

And I think someone said that they hadn't seen that many. What safeguards do you have there? Because folks are being taken advantage of. And I've seen some of them. They've met in my office and they've showed me some of the deals that they had to sign where they almost give up 100% of their business. If they go into financial ruin or something, their investors take over their business. They own no parts of the business. They almost have to sign 50% of it away just to get it going. And that's crazy. Nobody does that.

There is an oversight and they're not checking. They leave it up to us to do it and say that it's a business deal. I think San Francisco has the most comprehensive process for looking over agreements. But unfortunately, I know from the experiences that we've had at the DCR, they say that that's a business matter and they have set up the probe on a legal program. But in the meantime, these investors are moving you fast.

You got a day or two to sign the agreement until those structures are in or that it's in law, no one is abiding by those things. And there's no departments that are protecting us from these predatory agreements.

Can I remark?

Absolutely.

So before joining the state, I worked as the Deputy Director of the San Francisco office of Cannabis, where we put in place some of those guidelines to reduce the amount of predatory practices. And I think we're seeing across the state, as time has passed, local jurisdictions try to implement that work as a part of their review. And so you see equity share agreements.

You see, as Dr. Brown mentioned, the recruitment of legal assistance to make sure that people have an opportunity to really share what they're doing about their business practice. But I think to Senator Bradford's point, that was something that was learned over time. So increasingly, you're seeing jurisdictions try to incorporate that into the frameworks of their local permitting.

So it was not present at the beginning of the process, but jurisdictions are now learning that that has to be a core feature of some of the work that they're doing. And one of the things that we're doing at the Department of Cannabis Control, when we see practices like that that seem to be really effective for business owners to really highlight that work and share it.

So available on our website are some of the things that are working for local jurisdictions, and not from the perspective of policymakers, but by using the voice of business owners to say, this is something that works for me. Right. And so we're highlighting those practices. But I do think it's a situation in which jurisdictions are continually learning and incorporating more opportunities to make sure that people are not falling prey to predatory practices.

Senator Bradford, before I go to Senator Alvarado-Gil, I mean, it seems to me that this process isn't working very well. There are calls to extend provisional licensing provisions. And I guess, I know it's above your pay grade, it's frankly above mine.

But I guess the rhetorical question is, is the Administration, along with the Department, willing to sit down and engage in the type of conversation that was had in this building several years ago to come up with a new plan, taking into account the testimony we've heard today, the accounts that have obviously been received in other settings, to come up with a new plan, a new plan that deals with the social equity issues, a new plan that deals with the fact that the local jurisdictions, for one reason or another, are not able to move these provisional licenses and the applications through the pipeline.

A new plan that takes into account the fact that we're not transitioning operators to annual licenses quickly enough, if at all. So that's certainly something we're going to have to have a conversation about. Senator Alvarez.

I want to just share a comment, and then I have a question. This, by far, is the most education that I've received about the cannabis industry, and I want to thank you and applaud you, as well as those of you who are in the audience of committing your day and your energy and your space to us today. I know sometimes as we kind of get up and move around, it may seem like we're missing what you're saying, but we've got audio and notes everywhere.

So we're moving throughout the building but consuming all the information. So I know that we've gone quite long today, and thank you for continuing it so that we can hear from everyone. One of the most compelling pieces for me and what you shared was the inequity pieces. And when I look at California, born and raised here in California, I know that what works in one part of California does not necessarily work in another part of California.

My communities are, the counties that I represent are widely rural, as many of the communities here in the state. And even within my own 13 counties, there is no pattern in terms of which communities have the cannabis industry, retail distribution. It's across the map. So I don't even see that pattern in terms of how do I help to build that.

And then when I hear the testimony from all of you and I look at this document, that was one of the most compelling to me is I see a real problem here. I see that this disproportionate value between the amount of African Americans represented in our 2020 census compared to the amount of grant money that is going to those communities. And I'll tell you, I've probably either lived or been to extensively to each one of these communities here in California.

So I recognize the diversity and culture in them. But it does floor me to know that when we're talking about equity and we're talking about grant distribution, that the top cities or the top communities are Coachella and Watsonville. And I know for a fact, without looking at this chart and living in California for the amount of time that I have, that these are not communities that have a high proportion of black and brown residents, and on the same vein, black and brown businesses.

So my first question around this is, who makes the decision around this graph? Who makes the decisions around the distribution of grants? Is that the DCC? Gobiz?

No, and I'm not sure what the reference is for that document.

So this was in our packet.

We pulled that data from the 2022 California Gobiz report on which jurisdictions received what capital.

Okay, so this is based on Gobiz report? Yes. Okay. All right. So going back on here, my question is, who makes the decisions around the grants distribution? So can you help educate me on that?

I asked the same question when we got our last grant, and I asked in terms of how do they calibrate, how do they calculate how the grants are dispersed? We are 10 times the scale of all of the jurisdictions, and we might get 100 k less than another jurisdiction that has 10 times less than we do. So I asked that question, how are we able to service our community when we don't get the resources? And then another jurisdiction who has 10 times less the scale.

Correct.

It's basically the same amount of money that we get. How is that equity?

So is there a lack of transparency?

Well, I've never gotten the answer of how that works.

I see other Members of the panel are looking at it.

Sorry, not familiar with this packet.

So that's why I'm referencing it.

Sure. So there's a list of the jurisdictions that have received Gobiz funding. And this looks to be a distribution based on race.

Right.

So not the absolute number of funds that have been received in each jurisdiction, but applied against the percentage of black residents. So I think the decision made, and I'm not a representative from the governor's office of Business and Economic Development, but my understanding is that they're responsible for overseeing the grant program.

Okay. And is there any input from any of the groups, advocacy groups, consumers, business owners? Is there any input into that decision?

I wouldn't be able to speak on behalf of.

I see a lot of heads nodding. Okay. So I seem to be asking questions that we're all kind of asking and don't have answers to. Okay. All right. That helps me. And then the other piece that I wanted to just comment on and see if you have. If you can shed some light on this for me. So I am conflicted on this issue because I have seen generations of Latino families be consumed by the cannabis industry. And I talk about the illicit cannabis industry.

So what are the incentives for us here in California to ensure that we are moving away from an illicit cannabis industry into a legal cannabis industry, and to ensure that we are then peeling away the unintended consequences? If, you know, the guns, the other drugs that come along, the violence, the criminality that comes along with the illicit side of the cannabis industry, what is that incentive for us to go legal?

Well, to be honest, I don't see a lot of incentive, to be very candid here. I mean, we all know that the industry is highly taxed and over regulated, and so that doesn't give folks in the illicit market incentive to come out of that and to go into generational debt.

I appreciate your candidness.

There's a quote from a former colleague that I like to borrow or steal, if you will, that organizations move in the direction of the questions they ask. And I think that's the multimillion $1.0 billion question right there. And I think following all the. As all the panels have been discussing today, there's almost nothing but hoops in the regulated market. So what incentive is there?

So I think that's a fantastic question, and I think that's the lens by which all of us at all of our different levels need to be asking and trying to adjust our policies to make sure there is an incentive.

I have one more statement and I'll be quiet. I think we have a wonderful opportunity in the state to have a sustainable, dynamic cannabis economic engine. This could be a wonderful economic, sustainable economic development program in this state. But we have all these self inflicted wounds and we have an opportunity to get it right. All of the country and the world are looking at California, and we have the opportunity to get this right.

And we can do this, but we have to really look at ourselves and not be afraid to be progressive. And there's enough out here for everyone to flourish and thrive and participate. But we're doing so many things that are self inflicted, that are prohibiting us from enjoying the benefits that this market can bring the state as a whole in terms of jobs, in terms of thriving businesses, the tax dollars that the state and local jurisdictions will retain from that.

But right now, we have a lot of work to do, and I just challenge everybody to think about what that looks like. If it was more progressive and equitable, what could we glean from that?

Thank you. Thank you for your comments, and thank you for allowing me to expose my naivete around this industry and ask those questions that, for me, feel like common sense questions, but that continue to kind of pull apart at the seams some of the issues, some of the problems that you're bringing forward. So thank you, colleagues.

Any other questions? Seeing that, I want to thank our panelists. It was a superb conversation with a lot of great points and ideas. This Committee will hear Senate Bill 51 in the coming weeks, and I know that this conversation about fulfilling state's commitment to operators and protecting progress will continue in much more detail. We've arrived at our final panel of the day, cannabis tax funded programs and expenditures. Where has the money gone?

So, for those involved in the final panel, if you would make your way to the table in the front of the room, we will begin. Okay, well, let's do some introductions. If you would introduce yourself with your name and who you represent. Starting my left and your right, sir. So that's you.

I'm Brian Cash. I'm with the natural Resources Agency. I'm the assistant secretary there over everything, budgets.

I'm Igor Grant, Professor of psychiatry at the University of California, San Diego, and I direct the Center for Medicinal Cannabis Research. Doctor, thank you for being here.

Thank you, Mr. Chair, my name is Corey Ball. I'm an assistant chief with the California Highway Patrol, currently assigned to our enforcement planning division, and I oversee our impaired driving section.

Chief, thank you for being here, ma'am.

Good afternoon. My name is Denise Galvez. I am the chief of the prevention and youth branch at the Department of Healthcare Services, overseeing the youth education prevention treatment account.

And my name is Paula Wilhelm, and I'm an assistant Deputy Director for behavioral health at the Department of Healthcare Services.

Thank you all for being here. It's my understanding that Ms. Wilhelm and Ms. Galvez will start.

Thank you. Good afternoon or evening, chair and Committee Members, as noted, I'm Paula Wilhelm, assistant Deputy Director of behavioral health for the Department of Healthcare Services. Thank you for inviting our Department today to provide an overview and update of our activities associated with cannabis tax allocation three, which, as your background packet breaks down, is one of three allocations included within the larger cannabis tax Fund. So, as you may know, allocation three provides funding for three broad types of activities.

20% is for environmental programs, 20% is for law enforcement activities, and 60% is allocated for the youth education, prevention, early intervention and treatment account. We refer to this as Yapeta because that is a lot of words for one account. So you'll hear us talking about this today because that is the focus of DHCS's remarks. And before we discuss the Yupeda funded grants that are administered directly by DHCs. We did want to speak to another question we saw in the background packet.

There is a portion of YUpEDA funds that are administered by other state agencies, and they receive dollars through annual interagency agreements with DHCs. So we wanted to briefly summarize and acknowledge those other programs funded by our fellow agencies. First, the California Department of Social Services, or CDSs, administers the General Childcare Program, the California Alternative Payment Program, and the Emergency Childcare Bridge program. Each of these programs provides childcare vouchers to underserved and under resourced communities.

These childcare voucher programs were initially administered by the California Department of Education. So from July 2019 through June 2021, the Department of Education received contracts from DHCs totaling over 226,000,000. Then, in fiscal year 2122 Department of Social Services assumed the contract for the Childcare voucher program and received 274,000,000 in funding, with 292,000,000 additional available for the current fiscal year 2223.

The Department of Public Health, or CDPH, also administers the California Cannabis Data surveillance system, and they perform public education and outreach for youth, families, caregivers, and schools. From 2019 through 2023, CDPH has been allocated 48 million in YupeDa funding. And finally, our colleagues at the California Natural Resources Agency, or CNRA, administers programs that offer youth access to natural and cultural resources, including community education and recreational programs that support substance use prevention for youth in Low income communities.

And between 2019 and 2023, CNRA has been allocated 54.2 million in Yupeda funds through our interagency agreements. So I will now pass it off to my colleague Denise to discuss the Yupeda funding that DHCs implements directly through our Elevate Youth California grant program.

Thank you, Paula, and thank you to the chair and the Members of this Committee. So the Yapetta funding that DHCs specifically administers is the local assistance portion of YapEta. It has been specifically appropriated to DHCs since fiscal year 1920 and has been used to implement the Elevate Youth California program, a program that was specifically created for this funding source. The Prop. 64 Advisory Group has played a very key role in program design and continues to advise the Department on Implementation of the Elevate Youth California program.

Elevate Youth is a statewide program that invests in youth leadership. It teaches young people civic engagement skills and primarily serves youth of color ages 12 to 26. Elevate youth California prioritizes youth empowerment, cultural empathy, and systematic change for communities that have been disproportionately affected by the war on drugs. Annual funding is released through requests for applications to prospective grantees in rounds. Each round runs approximately three years. To date, DHCS is pleased to award 246 grants for almost 190,000,000 across 53 counties.

Depending on the track, grantees may include community based grassroots organizations, tribal entities, or behavioral health departments who provide these direct services. There are three components or tracks to elevate youth California the standard track, which focuses on substance use, prevention policy system and environmental change through youth leadership, mentorship, and peer led support. These grants are for 36 months and are up to $1.0 million per grantee for three years.

The capacity building track focuses on strengthening the organizational structure of startup, grassroots, community based, and tribal organizations implementing SUD prevention programs in communities of color. These grants are for 30 months and range from 75,000 to up to 400,000 for three years. The innovation track tests nontraditional methods for policy systems and environmental change utilizing an appreciative inquiry evaluation method. So this track is being formally evaluated for effectiveness.

According to the Elevate Youth California Annual report, which you can find online, the first three cohorts of grantees have served over 220,000 individuals created over 3000 community partnerships during the reporting period of July 19 to December 2022. Elevate Youth California has achieved its goal of reaching a more culturally diverse population with this funding, serving well over half of all youth selfidentifying as people of color.

DHCs also contracts with the center at Sierra Health foundation to provide technical assistance to help uplift the community based organizations that are youth serving. They have provided over 3500 hours of technical assistance and training. This is individualized TTA to each recipient and they also have done multiple statewide events and webinars. As a next step, DHCS plans to award a capacity building track for approximately 16 million next month and then we are launching round five in August of 2023.

Throughout all elevate use California cohorts, DHCS has received 1004 applications totaling a need of 657,000,000 in requested funding, while DHCs has been appropriated 216,000,000 to operate. Challenges that we have faced in implementing its local assistance program include the difficult decisions being made in funding these community based organizations, which ones since there is such a great need and I will close with that and we, PauLA and I appreciate this opportunity and are happy to answer any questions.

Thank you very much.

Thanks.

Let's now hear from Chief Ball with California Highway Patrol.

Thank you Mr. Chair. Other Committee Members thank you for allowing our Department to come and provide an overview of our allocation three program that we've implemented within our Department. Shortly after the passage of Proposition 64, our Department began planning, developing and implementing processes to oversee the funding that would eventually come to the Department that we would give out to other agencies.