AB 1356 Cannabis Retail - State Proposal says No More NIMBY

AB 1356 Cannabis Retail - State Proposal says No More NIMBY

Despite the passage of Proposition 64 by California voters almost three years ago to tax and regulate commercial cannabis, to this day, over 75% of the 482 cities and 58 counties in California ban cannabis retail. The result has been that the black market continues to thrive in the Golden State, and many would-be-cannabis retailers have not been able to obtain the necessary licenses to open legal storefronts. In February, Assembly Member Phil Ting introduced a bill (AB 1356) to combat the issue of illegal activity with a statewide demand on the availability of local dispensaries. The bill is continuing to advance through the CA Assembly.

The bill would create a minimum ratio of cannabis to liquor licenses if the local jurisdiction voted 50% or more in favor of Prop 64

The bill would create a minimum ratio of cannabis to liquor licenses if the local jurisdiction voted 50% or more in favor of Prop 64

What would AB 1356 do?

Under AB 1356, if a local jurisdiction voted in favor of legalization in 2016 (over 50% of the electorate), that jurisdiction will be required to issue a minimum number of local cannabis retail licenses. Furthermore, the minimum number of cannabis retailers must equate to about one-sixth (roughly 17%) of the current number of liquor licenses issued in that jurisdiction. That is unless the number of retailers would exceed a ratio of one retail cannabis license for every 15,000 residents in that jurisdiction, in which case the number of retail licenses would be calculated as follows: number of residents ÷ 15,000 = number of licenses.

Ratio of 1:6 cannabis retail stores to liquor licenses

If, for instance, there are 12 establishments with liquor licenses (e.g. liquor stores, restaurants, gas stations) in a town, then this bill would require that town to have a minimum of 2 licenses. However, if the town only has 20,000 residents, then only 1 license would be required. In Sacramento, there are 423 active liquor licenses, so this bill would ensure that 70 retail cannabis licenses are issued in that city (currently there are approximately 30 retailers). If the bill passes, the number of licenses available to cannabis retail businesses would increase drastically, effectively eliminating the need for an illegal market.

The importance of such a bill cannot be overstated at a time in which the number of illegal grows continues to thrive. A New York Times article published a few weeks ago claims that the illegal market has even caused certain licensed cannabis retailers to go out of business. Over 80% of the 14 million pounds of cannabis produced in California is consumed in the state, and the vast majority is still disseminated across state lines illegally. Perhaps it is due to the increased visibility of the cannabis market that illegal grows have in fact increased in certain areas, but an increasing amount of resources have been used to quash these unlicensed grows over the past few years. In fact, over twice as many illegally grown plants (1.6 million) were destroyed last year than in 2017, and the governor even pulled in the National Guard in February to deal with the issue.

AB 1356 cannabis retail

AB 1356 cannabis retail

Number of CA Legal Cannabis Retail Licenses Much Lower than Originally Expected

So far, the state has awarded approximately 10% of the number of retail licenses it had originally anticipated. Ultimately, the local bans on cannabis licensing has enabled the activity of an illegal market, wasted the resources of law enforcement and government employees, and has ruptured the economic potential of the cannabis industry in California. It is estimated that cannabis sales will account for $156 million less in taxes than was previously anticipated.

Assembly Bill 1356 is a vital step in rectifying the ambivalence of state action in addressing the electorate’s support of Prop. 64 three years ago. At the very least, it is a step towards encouraging local jurisdictions to address these issues, rather than turning a blind eye to them. We will continue to track AB 1356 as it makes its way through the California legislature.

Lauren Estevez,  LME Law

Lauren Estevez, LME Law

Lauren Estevez is an attorney who advises international, multi-state and California cannabis brands, operators, and investors. She is nationally recognized as a subject matter expert in Cannabis Law and her work has been featured on CNBC, Bloomberg Law, and SXSW. The National Law Journal awarded Lauren the recognition of Cannabis Law Trailblazer in 2019. Lauren is the founder of LME Law.