2021 HCGA Policy Strategic Plan

2020 was a challenging year for cannabis policy, with initially promising conversations on tax reform and other issues largely derailed by the COVID crisis. Despite these obstacles, however, HCGA was able to move our top appellations priority through the legislature and successfully pass SB 67 into law. With appellations policy largely established at the state level, 2021 provides an opportunity to shift focus to other emerging and ongoing issues affecting Humboldt cannabis businesses.

Like 2020, staff anticipates that policy discussions in 2021 will continue to be heavily framed by the ongoing COVID crisis. Cannabis policy conversations are likely to take place within the larger context of California’s economic, fiscal, and health-related challenges, and the legislature itself may be limited in capacity due to the effects of the pandemic.

Based on the results of the HCGA policy survey, discussions with membership, historic HCGA policy priorities, and a sense for the policy issues most likely to emerge in 2021, staff has proposed, and HCGA’s policy commitee has approved, the following policy priorities.

• Ensure rural and small business concerns are addressed in agency consolidation.
• Reduce regulatory burden on small and independent businesses.
• Reform track-and-trace to work for rural cultivators.
• Eliminate the cultivation tax.
• Support effective development and implementation of equity programs.
• Engage on provisional license expiration to ensure 1) Humboldt businesses retain state licensure, and 2) other legacy cannabis regions maintain a path to compliance.
• Develop a federal policy platform and ensure that Humboldt is represented in federal policy conversations.

Ensure Rural and Small Business Concerns are Addressed in Agency Consolidation

The Governor has proposed consolidating the three cannabis regulatory agencies into a single agency in 2021, and CDFA, BCC, and DPH have already been working under the assumption that consolidation will move forward. Historically, CDFA’s responsibility for cultivation licensing was intended to ensure that cannabis cultivation was regulated consistent with agriculture and that regulators would understand the dynamics of farming in rural areas. If this authority is removed from CDFA, it is essential that the consolidated regulatory agency have the expertise and experience to understand how cannabis regulations affect farms in rural areas. Additionally, agency consolidation provides an opportunity to push for wide-ranging improvements in bureaucracy, such as addressing agency enforcement culture and increasing coordination between the agency, Water Board, and CDFW.

Reduce Regulatory Burden on Small and Independent Businesses

As part of agency consolidation, state agencies have signalled that they intend to reconsider state cannabis regulations, the first time this process has been open since 2018. Throughout Fall of 2020, HCGA has worked to develop a comprehensive regulatory platform in preparation for the opening of this process. Major issues included in the regulatory platform include access to trade samples for independent producers, access to shared processing spaces for cultivators with multiple licenses, reform to track-and-trace, and other changes that would reduce regulatory barriers for small and independent producers.

Reform Track-and-Trace to Work for Rural Cultivators

2020 was the first full year that cultivators were universally required to utilize the METRC system. Prior to that point, discussions on METRC – including the development of CDFA regulations related to track-and-trace – were purely theoretical from licensees’ perspective.

Following METRC’s implementation, however, there has been no clear opportunity for licensees to provide feedback on the performance of the METRC system. The absence of such an opportunity means that, while licensees are governed by METRC in every aspect of their day-to-day operations, METRC is not subject to the same forms of transparency and accountability as public regulatory agencies. METRC is a multi-state for-profit operation based in Florida, whose systems were developed in the context of large indoor cultivation operations, and which has limited direct experience with North Coast cannabis cultivators.

Humboldt farmer perceptions of METRC are strongly negative, and getting worse with time. In a survey of HCGA membership conducted in November 2020, METRC received an average rating of 1.71/5 among cultivators. When the same survey question was asked of Humboldt cultivators in November 2019 – when METRC was first universally implemented for farmers – the average rating assigned to METC was 2.42/5. These survey results suggest that, the more that licensed cultivators utilize the METRC system, the more strongly negative their perception of it becomes.

Staff recommends METRC reform as a major priority for 2021, with goals including 1) ensuring that there is a process to hold METRC accountable and provide feedback on the system’s performance, 2) eliminating duplicative and unnecessary METRC tasks, 3) improving METRC IT, usability, and support, particularly in rural areas, and 4) exploring the possibility of advocating for a new track-and-trace provider if METRC’s performance cannot be improved.

Eliminate the Cultivation Tax

For three consecutive years, conversations on tax reduction have stalled early in the state legislative process. Given the history of the issue, combined with the state’s current economic and fiscal challenges, staff’s view is that a reduction of the cannabis tax is unlikely to be achievable in 2021.

Revenue-neutral changes to the administration of the state cannabis tax, however, are more realistic and currently under serious discussion. In 2020, the Governor proposed moving excise tax collection from distribution to retail and moving cultivation tax remittance to the first distributor. The Governor also signalled an openness to elimination of the cultivation tax with a corresponding increase to the excise tax, as recommended by a 2020 report from the Legislative Analysts’ Office. Staff anticipates that this conversation will continue in 2021.

Elimination of the cultivation tax, even with a corresponding revenue-neutral increase to the excise tax, would bring significant benefits to cultivators, manufacturers, and distributors. Elimination of the cultivation tax is likely to be supported by all cannabis industry stakeholders, would increase administrative efficiency for CDTFA, and is unlikely to face significant opposition. Considering the difficulty in advocating for a tax reduction, staff recommends that HCGA’s involvement on tax policy focus on the elimination of the cultivation tax.

Support Effective Development and Implementation of Equity Programs

Discussion on the effective development and implementation of equity programs continues at the local, state, and federal level. Although all levels of government have signalled an interest in prioritizing cannabis equity, designing programs that effectively promote equity is more difficult, and these programs are sometimes not well-informed by the practical realities of the industry. Staff recommends supporting the development of equity programs where appropriate, particularly at the local level, while supporting broader movements towards equity in the industry.

Engage on Provisional License Expiration to Ensure 1) Humboldt Businesses Retain State Licensure, and 2) Other Legacy Cannabis Regions Maintain a Path to Compliance

In July 2019, the California legislature voted to extend the state’s provisional cannabis licensing program from January 1, 2020, until January 1, 2022. Provisional licenses extensions were intended to provide a “bridge” to bring licensees into compliance while providing additional time to complete the full CEQA and land use process.

With the January 1, 2022 deadline approaching, however, large parts of the state have not yet successfully transitioned into annual licensure. As of November 24, just 17% of state-licensed cultivators have obtained annual licenses.

Among local governments statewide, Humboldt County is currently in the strongest position to successfully transition all of its licensees into annual licensure. 27% of Humboldt cultivation licenses are currently annual licenses, and local authorities are hopeful that all cultivators can be transitioned into annual licensure by the end of 2021. However, Humboldt policymakers have also suggested that processing the ~600 currently-outstanding licenses will be challenging, and that an extension to the existing deadline would be helpful.

Additionally, other regions in the state currently face disastrous outcomes – potentially losing nearly all of their state licenses – if no action is taken on the provisional licensing issue. Some of these regions are major legacy cultivation regions. Although this issue does not directly affect Humboldt in the short-term, over the longer-term, the loss of licensure for other legacy cultivators statewide is not an acceptable outcome and weakens the long-term viability of all origin-based legacy cultivation regions. Staff recommends that HCGA support other legacy cultivation regions that are working to develop a solution to provisional licensing challenges.

Develop a Federal Policy Platform and Ensure that Humboldt is Represented in Federal Policy Conversations

Following the passage of the MORE Act in the U.S. House of Representatives on December 4, 2020, staff anticipates that federal policy developments will be a major area of focus in 2021. While the MORE Act is not expected to pass the Senate in the coming months, it is likely that 2021 will include substantial negotiations on the details of a federal legalization framework, regardless of whether such a framework becomes law.

• In HCGA’s policy survey, top federal priorities identified by members included protection for appellations and county of origin, access to direct-to-consumer sales options, and fair taxation. However, HCGA has not yet undertaken a substantial strategic planning process informed by the details of the actual policy currently under consideration at a federal level. Staff recommends adopting the above principles as an initial provisional federal platform, while working for the first months of 2021 to develop a more substantial platform. Additionally, staff recommends strongly opposing provisions currently included in the MORE Act that would allow the federal government to deny licensure based on previous cannabis convictions.

Because HCGA is unlikely to be able to contract with a federal lobbyist for the foreseeable future, HCGA will need to pursue other creative strategic pathways for engaging at the federal level. Potential strategies include: engaging directly with our Congressional representatives; working with allies in county and state government; working in coalition with other California cannabis associations; pursuing a media strategy; and partnering with federal cannabis trade associations.