California Will Allow Large Cultivation Licenses

On January 1, 2023, California’s Department of Cannabis Control (DCC) will begin accepting applications for large cultivation licenses for the first time ever. California law authorized large cultivation licenses years ago. But, the law caveat was that applicants could not apply for large cultivation licenses until 2023. And on June 17, the DCC announced it was proposing regulations to start the large cultivation license application process next year. Today I’ll explore some of the key highlights of large cultivation licenses.

What sizes of cultivation licenses does California allow?

California divides licenses into three categories: outdoor, indoor, and mixed-light. For each different type, there are multiple different licenses based generally on canopy size. The smallest are specialty, followed by small, then medium. The state assigned each license a type number. For example, Type 1B is a Specialty Mixed-Light license and type 3A is a Medium Indoor license. Medium licenses are the biggest, and can include up to 22,000 square feet of canopy (area where mature plants grow) for indoor and mixed-light, or up to 1 acre of canopy for outdoor. There is also a nursery license (Type 4) for applicants that produce propagative materials.

Up until now, an applicant could not own more than one medium license. So lots of larger farms or indoor operations would “stack” one medium license and many small licenses on the same farm or facility. This is a very onerous process because it would require licensees to obtain and maintain, in some cases, dozens and dozens of licenses. And to make matters worse, recent regulations attempted to stamp out applicants’ ability to secure stacked licenses in a single facility or farm.

Why large cultivation licenses are special

Here’s how the DCC’s proposed regulations define the three types of large cultivation licenses:

(1) “Large Outdoor” is an outdoor cultivation site with more than one acre of total canopy.
(2) “Large Indoor” is an indoor cultivation site with more than 22,000 square feet of total canopy.
(3) “Large Mixed-Light” is a mixed-light cultivation site with more than 22,000 square feet of total canopy.

As you can see, these licenses include anything bigger than medium. This is good news to folks who are stacking presently and want to minimize the intense regulatory burden of having dozens of licenses in one facility.

To make life easier on cultivators, DCC will allow licensees to combine existing cultivation licenses into either medium or large cultivation licenses for currently licensed properties so long as the holder of the combined licenses is the same person that held the pre-existing licenses. The holder must submit an application along with certain application documents. There won’t be a separate application fee for conversion, though the fees for large cultivation licenses will be somewhat complicated.

How do large cultivation license fees work?

Applications for large cultivation licenses will have the following fees:

  • Large Outdoor License – $1,555
  • Large Mixed Light Tier 1 License – $2,885
  • Large Mixed Light Tier 2 License – $4,945
  • Large Indoor License – $8,655

Keep in mind that these are just the application fees, not the annual license fees. Annual license fees for large cultivation licenses are going to be potentially very expensive:

  • Large Outdoor License – Base annual fee of $13,990 plus $640 per 2,000 square feet of canopy over 1 acre
  • Large Mixed Light Tier 1 License – Base annual fee of $25,970 plus $2,360 per 2,000 square feet of canopy over 22,000 square feet
  • Large Mixed Light Tier 2 License – Base annual fee of $44,517 plus $4,040 per 2,000 square feet of canopy over 22,000 square feet
  • Large Indoor License – Base annual fee of $77,905 plus $7,080 per 2,000 square feet of canopy over 22,000 square feet

These licenses are not going to be cheap. It’s conceivably possible that some of these license may have annual fees well into six figures. Applicants eyeing large licenses will need to get their calculators out early, as these fees will be significant.

One other point here – fee structures for large cultivation licenses will get even more complicated during conversion. At the time of conversion, there will necessarily be some active licenses. So the proposed rules say that ” if time remains on any of the licenses to be converted, the prorated value for each day remaining on each license approved for conversion will be credited to the license fee amount for the converted license. The amount credited shall not exceed the license fee for the converted license.” The good news is that we’ll see proration. The bad news is that calculating it could be difficult and it’s not clear what would happen if the applicant and DCC disagree on the calculation.

Prohibitions for large cultivation license holders

The proposed rules state that large license holders are not eligible to apply for or hold Type 8 (testing lab), Type 11 (distributor), or Type 12 (microbusiness) licenses. The prohibition on holding a Type 8 is no surprise – that’s already the case now. But many cultivators also hold distributor licenses and some may hold microbusiness licenses, so things will start to get complicated for those folks.

DCC’s implementation of large cultivation license rules is a good thing. We’re sure that we’ll see lots of applications for them in early 2023. Stay tuned to the Canna Law Blog for more updates on California cannabis cultivation.