California’s cannabis law—the Medicinal and Adult Use Cannabis Regulation and Safety Act and its corresponding regulations (or “MAUCRSA”)—doesn’t put a cap on the number of licenses that will be issued. MAUCRSA even envisions that large size (Type 5) cultivation licenses will be issued in 2023. In theory, the state could issue unlimited licenses, but that’s extremely unlikely to happen in light of how municipalities across the state have limited commercial cannabis activity. Even though we don’t have explicit license caps at the state level, in a few years, there probably won’t be many (or any) licenses left to give out.
One of the reasons for this is the fact that most of the cities and unincorporated county areas in the state prohibit cannabis activity altogether. Unless that changes, licenses will never be available in those areas. Legislation this year that would have required localities to issue more licenses essentially failed. And even if it does change, those jurisdictions are highly unlikely to open up their doors to dozens of different operators—if they weren’t cannabis-friendly before, we doubt they would be in the future.
Even in cities that allow cannabis activity, the majority have caps in one form or another. If you’ve been reading this blog at all, you’re probably familiar with the City of LA’s ultra-competitive retail licensing process that’s about to open up for 100 social equity applicant businesses, Pasadena’s recent process for 14 total licenses, or Culver City or West Hollywood’s previous competitive licensing processes.
And even in cities that don’t have caps, it’s unlikely that they’ll give out unlimited licenses. City and state laws incorporate sensitive use “buffer zones” or other similar requirements that can make it hard to physically find space to set up shop. In some jurisdictions, pushback from locals has led to the proposal of caps where there were none. For example, Santa Barbara County is in the process of adopting caps on cultivation in light of strong resistance from local residents, many of whom were unsatisfied with even the size of the new cap. (Santa Barbara County retail cannabis licenses were already subject to a tight cap, to boot.)
What all of this means is that even though MAUCRSA doesn’t limit licenses in California, local laws may run the well dry sooner than you think. We expect that in a few years, most jurisdictions will be “full” and occasionally, new jurisdictions will open up for highly limited permitting. If this happens, it’s safe to say that these new permit opportunities will be extremely competitive.
Companies that are considering applying for California cannabis licenses should act sooner rather than later, so they aren’t left behind. Otherwise, companies will have to turn acquiring interests in licensed businesses, which can be a big challenge in and of itself.