Governor signs 3 cannabis bills to disrupt illicit market and address worker exploitation

On Oct. 13, Governor Newsom took the final actions of the 2023 legislative session, signing three cannabis bills that (1) address worker exploitation issues in the California cannabis industry, (2) expand flexibility for cannabis cultivators, and (3) incentivize local jurisdictions to bring enforcement actions against the illicit market in California across the cannabis supply chain.

Assembly Bill 993

An investigative reporting series conducted by the "Los Angeles Times" in 2022 highlighted worker exploitation and problems in the cannabis farming industry. Noting troubling issues in the cannabis industry, including accusations of wage theft, unfortunate living conditions, lack of sanitation, no rest breaks, no easy access to food and transportation, and deaths tied to substandard living conditions, and a shift to growing in greenhouses to increase profits, the report provided the impetus for this legislative measure, Assembly Bill 993. The Department of Industrial Relations (DIR), within the Labor and Workforce Development Agency (Labor Agency), is charged with protecting and improving the health, safety, and economic well-being of over 18 million wage earners and helps their employers comply with state labor laws. The Civil Rights Department (CRD) is the state agency charged with enforcing California's civil rights laws. The mission of the CRD is to protect the people of California from unlawful discrimination in employment, housing, businesses, state-funded programs, and from bias-motivated violence and human trafficking.

Established during last year's budget process, the state and local task force on regulation of commercial cannabis activity (Task Force) is supposed to promote communication between state and local entities engaged in the regulation of commercial cannabis activity and facilitate cooperation to enforce applicable state and local laws. This new law, Assembly Bill 993, aims to increase agency representation on the Task Force to ensure that appropriate state regulators are able to contribute to address all aspects of the cannabis industry, including worker exploitation and employee treatment. Introduced by Assemblymember Blanca Rubio, Assembly Bill 993 expands the Task Force to include representatives from the CRD and the DIR and aims to ensure that the critical issues of working conditions and employee treatment are appropriately considered in Task Force discussions.

Senate Bill 833

Currently, there are over a dozen different classifications for a cultivation license to grow cannabis plants, all of which require active cultivation operations. While Business and Professions Code Section 26066 requires that cannabis cultivation be conducted in accordance with state and local laws related to land conversion, there is no current pathway under existing law that allows cultivator licensees to change their state license type to a smaller license size, or to deactivate their license temporarily without reapplying to the DCC. For cannabis cultivators, drought, oversupply, fees, and taxes are all reasons to seek a reprieve through a smaller or inactive cultivation license. Changing their license type or moving to inactive status may also reduce costs for cultivation license holders.

Under the provisions of this new law, the DCC is required to provide cultivation licensees with an opportunity to change the size of their cultivation license or to allow their cultivation license to become inactive. Introduced by Senator Mike McGuire, Senate Bill 833 requires the DCC, by no later than March 1, 2024, to begin allowing cultivators to select a smaller license type or place their license in inactive status. Specifically, Senate Bill 833 provides:

● License Modifications: Licensees can change/restore their existing/original cultivation license to a smaller license type during renewal/subsequent renewal; maintain a smaller license type or switch to a different license type with a smaller canopy size; and are given a one-time opportunity to change license renewal date.

● Inactive License Status: Licensees can place their cultivation license in inactive status during renewal. Inactive license holders are prohibited from engaging in cannabis cultivation but may perform certain other activities. Licensees with an inactive license will pay a reduced license fee.

● Exclusions, Clarifications, and Provisional License Holders: DCC is not required to allow changes to nursery licenses or the indoor/outdoor/mixed light classification of cultivation licenses; provisional license holders have the option to continue pursuing annual licensure for an original or smaller license type.

Senate Bill 833 gives the DCC the authority to develop emergency regulations to ensure these changes are in place by March 1, 2024.

Assembly Bill 1448

As noted by the Legislature in its hearings, there have been significant concerns over cannabis operations that continue to do business outside of the regulatory scheme. Currently, two out of every three cannabis purchases in California are made in the illicit market. The illicit market avoids taxes and unfairly competes with lawful cannabis businesses. The illicit market also presents consumer and environmental harm by avoiding testing and agricultural requirements. Normally, licensing agencies regulate problematic licensed and unlicensed activity by imposing administrative penalties against an existing license (the strongest of which is revocation of the license), or by withholding the issuance of a license until any problems or deficiencies are addressed, but the difficulty in regulating unlicensed cannabis businesses is that there is no incentive for these businesses to comply with administrative penalties because the license is irrelevant to these illicit operators who continue to dominate the California cannabis market from outside the regulatory scheme.

Although California law does include various civil penalties (which are sought in court and are not tied to the licensing process) that can be brought by the DCC, the Attorney General, or local public attorneys, currently, much of the enforcement of state violations is left to local jurisdictions, and there is no significant incentive for local jurisdictions to enforce state laws because the collected penalties go to the state general fund, not to local district attorneys and county counsel bringing the prosecutions. Introduced by Assemblymember Greg Wallis, Assembly Bill 1448 authorizes local governments to assess an administrative penalty for illicit cannabis activity and amends existing law to allow a 50/50 state-local split of the statutory penalties recovered in actions brought by local jurisdictions. This new law seeks to provide additional incentives by allowing local jurisdictions to collect half of the penalties that would normally go to the state general fund. It also authorizes the recovery of penalties through local administrative processes, allowing local jurisdictions to reinvest the penalties into unlicensed cannabis activity enforcement.

These three unanimously passed measures, signed into law by Governor Newsom, reflect a need to address worker exploitation issues in the California cannabis industry, and an intended disruption to the illicit cannabis market by increasing flexibility for licensed cultivators and enhancing enforcement against illegal operators.