Cal Growers Comments to CDFA

RE: Preliminary comments on the Pre-Regulation Workshop Survey

We appreciate the Department of Food and Agriculture’s Medical Cannabis Cultivation Program providing the opportunity for robust public participation in the rulemaking process. While the public process is a statutory requirement, program staff have gone above and beyond and lived up to these principles of participatory governance by providing an engaging and user friendly process for the regulated community and other stakeholders. We commend this collaborative approach and encourage the program to sustain its commitment to public participation. 

Today I write to provide our basic principles, our accomplishments and compromises to date and an initial overview of our regulatory priorities. I will also include discussion of the Regulatory Goals outlined in the “Pre-Regulation Workshop Survey.” 

Cannabis cultivation is agricultural. We are farmers. not criminals. 

Our organization is built on the fundamental truth that—to this day—commercial cannabis cultivation remains a crime in California. Our members have been forced to operate with limited to no access to the regulated marketplace.

For those that did find shelf space, businesses operated at cost with no allowance for profit. Growers have been completely dependent on retailers for market access, making them very vulnerable to abusive practices. This reality is reflected in the price and value trends: over the last decade average price to the producer has plummeted from around $3000 a pound to $1500, or less. The price to the consumer has remained the same with retailers leveraging regulatory advantage and a severely limited marketplace to leverage more advantageous pricing and marketing agreements. In order to offset plummeting prices operators would often increase supply as there was no other strategy to offset these losses.

Within this context, communities where cannabis cultivation is prevalent have seen increased impacts from unregulated cultivation.

It is within this context that our organization has organized. Over the last two years we have asserted the grower’s perspective for the first time in our states history—and the statute reflects our basic priorities:

  • The legislation builds on a multi-agency framework. Cultivation is regulated by agriculture with the CDFA taking the lead on rulemaking and licensure.
  • The act establishes tiered-licenses to ensure regulations and fees are correlated to the scale of the operation and license types.

The bottom line, from our perspective: there is nothing inherently criminal about growing cannabis. 

The cannabis marketplace is a unique opportunity For California

California is a global leader in cannabis—generating significant revenue and jobs every year. Unique to other crops, cannabis is grown almost exclusively on a small scale. There is a cultural and economic value that our communities derive from small, local farms that simply cannot be derived from any other source. Small local farms, using best management practices are a key component of the resilient and diversified marketplace that will help California adapt to changing climate and shifting values. Cannabis is a critical crop to the economic viability of these small farms. The Medical Cannabis Regulatory and Safety Act reflects this basic principle in a few ways:

  • Limitations on the cumulative area each licensee may cultivate rather than the number of cultivation licenses that will be issued
  • Market segmentation, preventing conglomerates that from dominating the entire supply chain and ensuring cultivation remains an independent segment of the marketplace

California is the global leader in cannabis—no other state is comparable

For decades California has been the leading producer in the world in the cannabis industry. Our growers have supplied much of the nation under the byzantine and failed system of prohibition. We are also home to several of the worlds most mature and developed consumer markets. Our state truly is the global leader in this industry.

The unique nature of our marketplace—from seed to sale, and beyond—makes comparative analysis a tool of limited utility. Often times policy makers will look to other jurisdictions for guidance on answering questions. In this case Washington and Colorado are primary examples of states that are perceived to be “leading” the way. However, these states provide few lessons of value. 

When it comes to cannabis policy, California should continue be a leader—not a follower, for several reasons:

  • Our statue is very different than other states. Our regulatory framework is decidedly small business friendly, features distinct policies segmenting the supply chain and mandatory distribution requirements, all characteristic that other states lack.
  • Our marketplace is much larger than both Colorado and Washington combined. We have a robust informal network of distribution and sales that have kept up with demand for decades.
  • The impacts caused by the unregulated and criminal cultivation are much more severe because these activities are much more prevalent. 
  • We have a lot of growers. Probably more growers than the rest of the country combined. It is a massive regulated community that is economically and geographically diverse. There is a broad spectrum of practices and businesses models that do not exist in other states.

Regulate existing activity to mitigate existing impacts

California Has lots of small farms. A few mid sized farms. Even fewer big farms. These farms are having an impact on our natural resources—today. In order to mitigate those impacts the existing activities must be regulated. It will do no good to create new opportunity alongside the existing market. The existing activities and impacts will remain and it will be much more challenging to address those impacts without access to a regulated marketplace as an incentive. Care must be taken to provide a pathway forward for as many producers as possible.

A brief history of cal cannabis policy: Accomplishments and compromises

Reviewing the accomplishments and compromises our organization has made provides a good opportunity to understand the trends and benchmark features of the Medical Cannabis Regulatory and Safety Act.

The last year of failure: 2014

Growers had been organizing at the local and regional level for several years, but it was July of 2014 when the Emerald Growers Association (now California Growers Association) took the growers focused advocacy to the next level by establishing a full time presence in Sacramento. In addition, 2014 was a major year for growers at the local level, with a new level of organization and focus coming to county and city level advocacy groups in communities throughout the state.

The task at hand was immediate and urgent. For the first time in history, local government and law enforcement came to the table in 2014, intent to support cannabis regulation. This changed the policy dynamic dramatically. For the last several years the cannabis industry said “yes” while more conservative stakeholders said “no.” Now, both camps were saying “yes” but to dramatically different frameworks. This changing dynamic was reflected in the success of SB 1262 (Correa), legislation sponsored by the California Police Chiefs Association and the League of Cities.

While growers had a low level of confidence in the rest of the industry—many feeling that industry advocates represented a very small subset of business and were shamelessly self-interested—it was clear that local government and law enforcement meant business. Growers could no longer afford to not be at the table.

In the Summer of 2014 there was a groundswell of support within California’s cannabis community. The grower’s association had new leadership and the threat was clear: SB 1262 threatened to limit the number of cultivations licenses statewide, a policy provision that would create a “choke-point” in the supply chain and allow regulators—including public health, the Board of Equalization and law enforcement—to effectively audit the supply chain to protect quality, ensure taxes were paid and protect against inversion and diversion.

Our fundamental accomplishment in 2014 was successfully opposing SB 1262, specifically provisions in the legislation that limited the number of licenses that would be issued. Our basic message in 2014 is simple and remains true to this day:  

  • A limit on the number of cultivation license for small cannabis farms would be an expensive boondoggle.

Rather, care must be taken to create opportunity for as many small growers as possible. Every small grower that is displaced from the regulated market detracts from the public health and safety. From our perspective the success of the regulatory program will depend on the ability of the program to create licensing opportunities for a broad base of operators. The more licenses issued the more successful the program will be.

A year of compromise and Breakthrough: 2015

While we successfully advocated against limits on the number of licenses, we quickly found that addressing the public health and safety concerns that had led to the development of those provisions was much more challenging.

The existing cannabis marketplace is informal—opaque and with few “choke points” where products could be tracked, tested and accounted for.

The Medical Cannabis Regulatory and Safety Act of 2015 consisted of three bills (AB 243, AB 266 and SB 643) and provides a robust and comprehensive framework for regulating commercial cannabis activity. This framework was actively supported by local government, law enforcement and growers. It also had supported by professionals in the medical community labor and several other stakeholders. Each of the bills received strong bi-partisan support.

The legislation was built on three fundamental compromises:

  • Cannabis cultivation is agriculture and shall be licensed and regulated by the Department of Food and Agriculture. There will be tiered licenses for different scales of productions and there will be a limit on the size of each grow rather than the number of grows. There will be no limit on the number of licenses issued for small and medium grows.
  • Local permits are the first step. The law specifics that no person or entity shall be eligible for licensure by the state for any commercial cannabis activity without first obtaining a local license, permit or other authorization.
  • Mandatory distribution will create a choke point ensuring supply chain integrity, quality control and minimizing tax evasion. A distributor must take custody, possession or ownership of all cannabis products—both agricultural and manufactured—before they are able to be sold into the retail market.

Contrasting visions become clear: 2016

When the governor signed the Medical Cannabis Regulatory and Safety Act, the risk of participating in the cannabis industry was reduced significantly and significant new resources and business owners took an interest in starting businesses. To some, economic growth and making money is a primary concern. However, this is not imperative to the public interest. In order to achieve the public health and safety goals of the MCRSA it is important to focus efforts on regulating the existing cannabis activity.

California must resist the urge to put growth first as the regulated marketplace emerges. Policies that seek to facilitate new participation in the cannabis marketplace deny the reality of our existing marketplace: we are over-producing cannabis and cannabis products. The regulatory program must seek to license existing grows and stabilize the marketplace first; inhibiting new growing opportunities is important to ensuring that existing grows—with existing impacts—are regulated and mitigated. It is critical to the success of the regulatory program that existing activity be the primary focus.

Regulatory Goals

Regulatory Goal #1: DEFINE TERMS USED IN CANNABIS CULTIVATION

The Program will need to define terms not defined by the MCRSA such as canopy, flowering, immature, mixed light cultivation, premises and propagate to ensure regulations are implemented uniformly across the state. What do these terms mean to you?

“Premises” means a distinct and definite location, which may include a building, part of a building, a room, or any other definite contiguous area occupied by a Licensee and within which the Licensee is permitted to cultivate marijuana in accordance with the provisions of the Medical Cannabis Cultivation Program and is entitled to non-exclusive use of common areas including but not limited to driveways, loading areas, parking areas and restrooms.  For the purposes of the Medical Cannabis Cultivation Program, multiple premises may be located within a single building or legal parcel of property.

We suggest that each licensed premise be required to have a perimeter fence or enclosure (greenhouse or room) that is easy to measure. A single premise may contain multiple greenhouses, enclosures or rooms if they are in close proximity to each other and the cumulative square footage is consistent with the license type applied for.

Each premise must be licensed individually. This should be visible from aerial surveillance (if outdoor or greenhouse) and easy to measure (open access to exterior walls) if indoor. This will allow for ease of measurement and validation while still accommodating flexibility.

For license Type 1A that allows for a 50 plants, these plants should be clearly visible from aerial surveillance and accessible during an inspection. These plants should be clearly associated with a residence or single access point.

Multiple “premises” should be allowed at one site or parcel to allow for clustering and cooperative cultivation.

We suggest that “canopy” be defined as .75 of a clearly designated “premise” to allow for walkways, work space and safe access. So, a 5,000 square foot grow would allow for 6,250 square foot “premise.”

Regulatory Goal #2: DEFINE THE APPLICATION PROCESS AND REQUIREMENTS FOR LICENSING

The Program is considering using an online application process, as well as a traditional paper method. Which application method would you prefer?

We suggest both. If choosing one is required, we would prefer online.

The Program is considering a weapons and firearm ban at cultivation sites to protect State enforcement staff. How will that affect you?

This would be unworkable, particularly in rural areas. Excluding firearms from “premises” would be workable, provided that term is defined so as to clearly specify the premise as a clearly designated space and not the entire parcel.

Regulatory Goal #3: IDENTIFY THE CULTIVATOR LICENSE TYPES BY LIGHT SOURCE AND SITE SIZE; CLARIFY ALLOWABLE LICENSE COMBINATIONS; OUTLINE RENEWAL PROCESS AND SET LICENSING FEES

What is the acreage you feel is reasonable for the cap? How about for indoor and mixed light?

This is a critical question and is central to the success of the regulatory program. There are tens of thousands of existing cultivators. In order to mitigate the impacts caused by this unregulated commerce it is critical to create opportunity to bring these businesses into the regulated marketplace. A cap on cultivation is a critical component to the success of the regulatory program.

It is also important to note that a small amount of land is required to produce all of the cannabis consumed in the state; estimates are as low as 12 to 15 hundred acres. If the cap on cultivation is too high a smaller number of growers will have access to the regulated marketplace and the negative impacts of unregulated agriculture and commerce will persist.

Generally, our members think that a limit at 1 acre (cumulative total per owner) is an appropriate limit. We recommend that a single licensee be allowed to hold up to four cultivation licenses, with an initial limitation to one Type 3 Outdoor license and two Type 3A Mixed-light licenses or Type 3B Indoor licenses.

If a licensee is growing cannabis exclusively for manufacture, our members would support a higher cap on cumulative square footage, however we strongly oppose any cap on cultivation that is higher than 4 acres (consistent with the Type 10A license).

When does a cultivator also need a manufacturing license?

A cultivator should be required to obtain a manufacturing license any time they:

  1. Manufacture products using agricultural products they did not cultivate themselves. In other words, any time a licensee obtains products from another licensee to use in manufacturing processes.
  2. Engage in manufacturing processes that require a “Level 2 Manufacturing” license
  3. Cultivate more than 10,000 square feet of cumulative area

Are joints, dry sieving, and water concentrating a form of manufacturing or within the scope of cultivation?

Yes, we think that joints, dry sieve and water concentrates are “processed agricultural products” or “manufactured products.” We think these processes—in addition to alcohol extraction should be authorized by cultivation licenses.  

The Program is responsible for establishing the amount of artificial light units considered reasonable for a mixed light/light deprivation cultivation sites. What do you think is a reasonable amount of lighting to be used and still be considered a mixed light cultivation site?

We recommend that the lighting requirement is based on the licensed “premise” not the life cycle of the plant. For example, a clone propagated under artificial light could be grown “outdoors” if there was no supplemental lighting on the “premises.”

The Program is required to limit the number of Type 3 (largest license type) licenses issued. What method do you consider fair for establishing these limits?

State law mandates that there will be a limit on the number of Type 3 licenses issued. We posed this question to our membership as part of our recent strategic planning survey. We found:

  • 27 percent of our members think think no Type 3 licenses should be issued in 2018;
  • 13 percent think there should be less than 250;
  • 13 percent think there should be between 250 and 500;
  • 7 percent think there should be more than 500;
  • 40 percent think there should be unlimited Type 3 licenses.

There is a breaking point at 500 licenses; 53 percent favor less and 47 percent favor more.

The state should be extremely conservative in the issuance of licenses. Licensing more, smaller cultivation operations will provide significantly improved outcomes for the state. The agency should ensure that there is a market demand for more product prior to issuing Type 3 licenses. The highest priority of the state must be reducing the number of unregulated cultivation operations and this will best be achieved by bringing as many growers as possible into the regulated marketplace. Licensing too many Type 3 cultivation sites too early in the process will inhibit participation and limit the opportunity for existing growers to participate in the regulated marketplace.

We recommend that Type 3 licenses be issued based on performance metrics. For example, preference should be given to applicants who are offsetting their energy use or who do not divert stream or ground water. Environmental mitigations should be mandatory for Type 3 licenses.

Regulatory Goal #4 SPECIFY REQUIREMENTS TO MITIGATE ENVIRONMENTAL HEALTH AND PUBLIC SAFETY ISSUES

Rain water harvest and storing peak flows are critical strategies for mitigating stream flow impacts. SB 837 provides a pathway for streamlined water storage permitting. This program must be developed and implemented expeditiously. It will be critical to to the overall success of the regulatory program to ensure that there are options to forebear from water diversions.

Additionally, indoor cultivation requires significant energy. Incentives should be developed and implemented for energy reduction technologies and offsets should be required.

Fencing is reasonable, but beyond that security measures should be up to local governments to determine.

Regulatory Goal #5 OUTLINE CULTIVATOR RESPONSIBILITIES FOR COMPLIANCE INSPECTION

Require a site plan in addition to the following:

  • Clearly label the address. Lack of addresses in rural communities is an acute issue for emergency services and law enforcement. It will also impact inspectors.
  • Clear walkways
  • Access to perimeter fence and/ or perimeter walls to enable streamlined measuring

Regulatory Goal #6 SPECIFY TRACK AND TRACE REQUIREMENTS

Cultivators generally retain very few records. This type of information was often used as evidence in prosecution and limiting record keeping is standard operating procedure and has been a key component of success in this industry historically. We strongly recommend sensitivity to this reality. The operators and the state share responsibility for this bad business culture and we must collaborate to implement better practices but it will take time.

We suggest the following reports be required for all cultivation license types:

“Planting” report: report on the number of plants that are planted. Report should include:

  • Number of plants
  • Varietals (strains) to be grown
  • Recognized appellation (if applicable)
  • Total square footage planted
  • Estimated harvest date
  • Appellation of origin

“Harvest” report: report detailing the total number of plants harvested and the estimated total yield of marketable products.

  • Product types described should include flower, trim, leaf and stems. Anything not reported in the harvest report cannot be “distributed” or used in manufacturing processes.

“Distribution” report: report detailing all products that are sold or transferred to a distributor for testing and eventual distribution to dispensaries for sale to consumers

“Miscellaneous” report: report detailing unexpected events, crop failures or any significant change to the information provided in the planting or harvest report. This report helps cultivators document unexpected events that mat may lead to discrepancies between expected yield and distributed products.

In addition, we suggest the following reports be required for mixed light and indoor grows:

“Addendum to Planting” Report should include:

  • Dates you will change the photo-period, i.e. when will you flip the plants from “vegetative” growth to “flowering”

Regulatory Goal #7 STATE LICENSE VIOLATIONS AND APPROPRIATE PENALTIES

Hearings should be held within 30 days of the alleged violation.  

Crops must not be destroyed until after the hearing unless the violation involves an activity that would endanger consumers.  

General Comments on the CEQA EIR PROCESS

As set forth in the Notice of Preparation (NOP), the Program Objectives include the following objective:

“Develop a cultivation checklist tool that can be used by CDFA, other agencies, and local governments to evaluate environmental impacts of cannabis cultivation license programs.”

The NOP provides no additional guidance concerning the intended purpose of this “checklist tool” or its relationship to the California Environmental Quality Act (CEQA) (Public Resources Code 21000–21189).  A clear explanation concerning the purpose of this “checklist tool” is critical to avoid conflicts or confusion as related to the type of future CEQA review that may be required as local agencies develop their cannabis cultivation license programs and/or issue individual cultivation licenses.  

For example, as set forth in a number of jurisdictions’ zoning codes, cultivation operations may be permitted by right subject only to a ministerial approval.  Ministerial approvals are not subject to environmental review pursuant to CEQA. (See, e.g., CEQA Guidelines, § 15268 [building permits and business licenses are generally presumed to be ministerial].)  For these ministerial projects, no “checklist tool” is necessary to assist a local agency in complying with CEQA.  

Additionally, based on a fact specific inquiry by the relevant local jurisdiction, many local cultivation license programs and/or individual cultivation projects have been, and may continue to be, found exempt from CEQA pursuant to one or more statutory or categorical exemption. (See, e.g., CEQA Guidelines, §§ 15301 [existing facilities], 15303 [new construction or conversion of small structures], 15304 [minor alternations to land], 15332 [in-fill development projects].)  It is unclear how the “checklist tool” will relate to projects that are found exempt from CEQA. To avoid confusion, we suggest that the regulations provide that the “checklist tool,” like a standard CEQA initial study, is considered as part of the second stage of the CEQA analysis following the preliminary review to consider whether a project is exempt from CEQA. (See, e.g., CEQA Guidelines, § 15063 [initial study, if needed, is considered “[f]ollowing preliminary review”].)

Finally, as the regulations require existing operations to obtain cultivation licenses, for the purposes of CEQA, many existing cultivation operations will have no impacts above baseline conditions.  We recommend that “checklist tool” be drafted to make clear that, consistent with CEQA’s standard approach, existing conditions should normally be treated as baseline for the purposes of environmental review.  

We suggest the EIR include language that explains that the intent of the program level analysis is to allow local projects to tier from, and—ultimately—rely on, the statewide PEIR to reduce the need for future CEQA review of those local projects.  The PEIR could include mitigation measures that, if adopted by locals, could be relied upon to determine the local impacts are less than significant.  

Lastly, we encourage the development of a certified regulatory program consistent with Section 21080.5 of the Public Resources Code. This program will help ensure a high degree of professionalism and effective implementation of regulations.

In closing, thank you for the opportunity to comment on this historic rulemaking process. Also, we would like to thank the regulatory and EIR staff for their great work throughout the scoping process.  This type of dialogue is critical to successful implementation of the regulatory program. We look forward to continued engagement with agency staff as the rulemaking process proceeds. 


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