California's $100M Cannabis Grant Program To Help New Businesses Was Mismanaged, Audit Reveals

California’s Department of Cannabis Control (DCC) faces scrutiny after a state audit revealed significant mismanagement of a $100 million grant program intended to streamline cannabis business licensing across 17 jurisdictions.

Established in 2021, this program was meant to assist cannabis companies in transitioning from provisional to annual licenses – a process that has proven complex and slow-moving. With the program set to expire in June 2025, concerns are mounting about whether the funds will effectively achieve this goal.

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Troubling Report

According to Green Market Report, State Auditor Grant Parks‘ report, released the week before Labor Day, highlights numerous deficiencies in the program’s oversight.

By January 2023, nearly a year after the state disbursed the initial $100 million, the audit found that many cities and counties had mismanaged the funds. This mismanagement potentially hindered thousands of cannabis businesses from transitioning from provisional to full annual licenses, which they must complete by January 2026.

According to the audit, only 535 businesses out of the thousands still awaiting licensing had successfully obtained their annual permits by 2022, despite the DCC distributing approximately $80 million to the participating jurisdictions.

“DCC's inadequate oversight and the local jurisdictions' inappropriate expenditures during the first year of the Grant Program have weakened the program's ability to assist certain local jurisdictions needing assistance in transitioning cannabis businesses that hold provisional licenses to obtain annual state licenses,” Parks said.

“The relatively small number of provisional licenses transitioned to annual state licenses in the first year of the four‑year program is not promising,” he added.

Provisional Licenses: A Temporary Fix Gone Awry

The issue arises from the nature of provisional licenses, which were never meant to be permanent permits. Authorities introduced them as a temporary solution to help cannabis businesses navigate California’s complex and often slow regulatory environment, including compliance with the California Environmental Quality Act (CEQA).

However, with local governments having the initial say in permitting marijuana, the process has become cumbersome and inconsistent across different regions.

The $100 million grant program sought to alleviate these delays, but the audit shows that by January 2023, the program had barely made a dent. Parks noted that if the current pace continues, “more than half of the provisional license holders in the grantees' jurisdictions will still not have obtained an annual state license by 2026.”

Mismanagement And Misuse Of Funds

The audit uncovered several alarming issues, including the misuse of grant funds by some of the cities and counties involved.

Four jurisdictions failed to adequately track their use of the grant money, while others spent funds on unrelated expenditures. This misuse of funds has raised concerns about the program’s ability to achieve its intended outcomes, with the possibility that the DCC may demand the return of improperly used money.

Compounding these issues was the DCC's own understaffing and inexperience in managing large grant programs. Initially, just two part-time staff members were responsible for overseeing the $100 million program. Although the DCC has since increased staff to four, the audit pointed out that the department’s lack of experience played a significant role in the program’s early failures.

Response And Recent Progress

The DCC has acknowledged the audit’s findings and stated that it has already begun addressing many of the concerns raised.

“Throughout the grant program's operations, the Department has actively worked to implement changes to address CSA concerns and address opportunities for improvement,” the department said in a statement to KCRA. These changes include hiring dedicated grant management staff, consolidating licensing systems, and adopting best practices for administering similar grant programs.

While the audit paints a bleak picture, there has been progress. As of September 3, 2024, the DCC’s licensing database shows that the number of provisional licenses statewide has decreased to 2,594, with 6,201 full annual licenses now active, bringing the total number of active business permits to 8,800.

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