On January 16th, we discuss our experience and first-hand knowledge on how to prepare a successful Annual California Cannabis License Application including which government agencies you will need to partner with and what information they provide.
If you want specific help with your cannabis business license, you can contact us to get started.
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You can download the slides here.
Full Webinar Transcript:
We have a very brief webinar, but also something very powerful talking about one of the most important sectors of the cannabis business, the supply side of the business, and how to actually get your annual state cultivation license in California.
All right, so for today’s agenda we’re going to go over three different things here. So first we’re going to identify the actual governing agencies that are involved in the application process and how to interface with each of those agencies and then knowing which agencies actually require specific documents and how to get the authorizations that you need to accompany your actual submission of the document. There’s things you need to grab first before actually proceeding forward and then actually what happens after you get this license issued to you. What’s the next steps on that?
So before we get started, let me just read the disclaimer here. So you know the information contained in this webinar presentation is meant for guidance purposes only and not as professional, legal or tax advice. Further, it does not give personalized legal tax investment or any business advice in general, so now that we have that out of the way. Let’s hop right in.
I want to introduce GreenGrowth CPAS as a business first, so a little bit about Green Growth CPAs. We are originally a tax preparation firm for cannabis specific only. We work specifically with cannabis clients because it takes a particular type of domain expertise to actually prepare a powerful return and a return that it’s best for the operator. We’ve completed over 500 annual returns for cannabis businesses spread across all verticals from dispensary’s to distribution, cultivation, manufacturing, delivery, and even testing. We have over 300 clients based in multiple states, including California, Colorado, Michigan, Washington, Oklahoma, all over the country, wherever cannabis is growing. That’s where we are at. We performed over a dozen audit related projects over the last year and we expect to hit over seven digits in revenue in 2018. We’ve helped a lot of clients and we’re experiencing massive growth because the opportunity in front of us right now for all cannabis operators is very, very large. And through our deep understanding of tax compliance and assurance related requirements for the cannabis industry, it puts us in a position to give you very thoughtful advice that is cannabis specific that can allow your business to thrive in this industry because everything is evolving so quickly nowadays. You have to be at the cutting edge where we are sitting and seeing what all other successful clients are getting and even what’s not working, so we don’t recommend those things in. Don’t waste your time. Now let’s hop into the meat of the presentation here.
I want to introduce Dominique Shakramy, our head of licensing.
Hey, it’s Dominique and Jim and I are both going to walk you through how to obtain your annual state cannabis cultivation license.
Hey Dom, I have a quick question. You know, we’re talking about the, the growing and the cultivations, these permits and everything we’re gonna talk about today. This covers indoor and outdoor grows and greenhouse growers, right? It’s not just the outdoor growers or just the indoor growers. Correct?
Yeah, that’s a great question. I guess I’m just so used to referring to cultivation and then thinking in my head that it’s all of the licensed types permitted by the state, which is, you know, cottage specialty, cottage, indoor, outdoor mixed like greenhouse. So yes. If you’re wondering if this applies to your specific cultivation plans or facility? It does. I do have insider tips if you have a dirt floor, even if it’s an enclosed space, it’s still considered an outdoor grow.
As Jim mentioned before. I think we’re going to start with understanding the governing agencies that actually are going to be providing you with the materials you need to get a state annual cannabis cultivation license.
So the first of the three is the Department of food and agricultural is Calcannabis, which everybody knows they issue the regulations. Then we have the department of fish and wildlife and the state water resources control board.
The first thing you’re going to want to do is visit the cal cannabis website as they are the overseeing authority. So there is a portal there where you will be submitting your complete application when you get on the portal. Actually when you get on their website, there is a lot of information, a wealth of information about how to complete your application. Some information may go way over your head because it’s very content heavy, so we’re going to break it down in this Webinar to make the process a little easier for you guys to understand.
The next governing agencies, the California Department of Fish and Wildlife, they will be issuing you an LSA or a lake and stream bed alteration agreement or a waiver saying that you don’t need one. You are going to need this before you go to the cal cannabis portal to register and submit.
This is going to be included in the complete application package.
The next governing agency is the State Water Resources Control Board. They have two programs that you are going to have to sign up for. So it’s going to be the water quality program and the small use irrigation registration program. You are going to need to do both of these things in order to submit a complete application.
So let’s dive right into what you need to do with the State Water Resources Control Board. So when you do, when you sign up to the enrollment program, you will be issued one document of the two types that they would they issue to cultivation operators. It’s going to be the conditional waiver of waste discharge or notice of applicability. Do not forget to get this. It’s very important because this is one of the required documents on the cal cannabis checklist. If you are already a cultivator and you have registered or enrolled in the north coast order or the central valley order, they will accept evidence of enrollment, but you have to transition into the general order and register with the State Water Resources Control Board by July 1st of this year.
So you still have some time if you’ve been sitting on, you know, procrastinating. Oh, should I switch over to the general order now? Yes, you should do it now. That way you have no problems transitioning closer to the deadline. So you’re probably expecting some fees. The fees for enrolling in this program are scaled. There are two tiers. They will determine whether or not you belong to tier one or tier two. Tier one fees range between 600 to $4,800. They qualify the tiers based on risk. How risky your cultivation operation is on water quality in tier two ranges between $1000 to $8,000. The second document you’re going to be getting from the State Water Resources Control Board is the small use irrigation registration. This controls, you know, cannabis cultivation, water rights, and so if you’re a cultivator and you plan to divert surface water, you are going to need to sign up for this program and the small use irrigation registration as a small appropriative water right. There is a small fee compared to the other fees that they’re going to be charging you and it’s a $750 to register.
Another thing, you don’t have to get it from them, but they can help you, is a documentation of your water supply sources. So you guys are probably wondering if you aren’t in the know already, probably asking what are the water sources like? I mean, what are they really? So the State Water Resources Control Board has outlined several types of water sources. So the first is a public water system, which is usually through your city, the municipality to show proof of your water source. You just have to show the most recent water bill that you guys had. The second is water hauling either through a commercial water hauler or a small commercial water hauler. So a small commercial water hauler only has 10 clients and they usually take this from surface water.
The next one is a complete well report. So if you’re taking water from a ground a well, you’re going to need to get a report, a well log and a well completion report to show that you are in fact getting your water from a well. So if you don’t know exactly where your water’s coming from, you can contact the State Water Resources Control Board Cannabis registration unit to help you identify your water category. Their information is on their website, or you can email them at CannabisReg@waterboard.ca.gov.
So let’s move on to the California Department of fish and wildlife. They are the second governing agency in this process and the document or authorization you’re going to be needing from them is a lake and stream bed agreement or written verification that one isn’t needed. There are three types of LSAs, that’s what they’re called: self-certification, a general agreement or a standard agreement. If you do not have any substantial modifications to your operation, then you could probably qualify for a self certification LSA. This particular LSA doesn’t require any fees upfront, but of course if you’re not sure, then you should definitely reach out to the CDFW to see exactly what type of LSA your operation falls under.
AndOne thing I want to point out here is that when you’re working with these governing agencies, you want to see them as a partner in this process. You’re not here to put up any roadblocks and it may seem like a complicated process, but they just want to make sure that all of the environment is being taken care of and that things are being done above the board. They don’t want to hinder your ability to start growing cannabis. They just want to make sure that everything is documented so that this is a sustainable process and they know where everything is coming from. They’re protecting the environment as well as protecting the consumer in as well as protecting yourself. If they make it and they have these hurdles here and there, I wouldn’t even see them as hurdles. These are just things you have to do as a business. You know that it excludes a lot more of these bad actors. People that are just going to go out here and start dumping in, poisoning the water table in doing things that impact the environment in a negative way and then bring that negative press over to the cannabis space. If we keep things above the board and we partner with these agencies instead of seeing them as people that are holding us back, the mindset makes this process much easier. They’re here to help us out.
There are some other environmental reviews that the CDFW could request from you. If you are, let’s say an outdoor grower in an area with rich biodiversity, meaning lots of plants, animals, streams, seasonal stream, stuff like that. They may want you to get a California endangered species report. This is just to make sure that you know your operations are not going to harm any of the endangered species in the area. Just because you don’t see a lot of animals around during the day doesn’t mean there might not be an endangered species or a few endangered species in the area. So it’s always best if you are an outdoor grower or a greenhouse grower that is situated in a very lively neck of the woods. Then you should probably reach out to the CDFW to come out and make an assessment just to make sure that you are not encroaching on any wildlife in the area.
Another environmental review that they may require from you is called the CEQA compliance. This also is required in the cal cannabis application itself. So CEQA is the California Environmental Quality Act. It’s a statute that requires local and state agencies to identify significant environmental impacts and how to avoid or mitigate them. So an environmental impact report is usually what it’s called, that counties and cities have done by professional agencies such as HDL consultants and these reports for really big areas will run between $250,000 to $2 million dollars.
So there are a few cities and counties out there that have these reports already that say they are a CEQA compliant or it’s a non impact kind of thing. So if that is the case, this information can be found online. And if they do ask you for it, you can just access it online. Take a screenshot, print it out, you know, show it, attach it to an email, what have you, but if the county or the locality, the city that you want to set up in does not have one, then the burden of proof is on you as the operator.
Environmental site assessment specifically for your operation will probably cost anywhere between 1,500 to $6,000. So that’s a pretty big fee and price to pay. So I guess moving forward, before you decide if you want to cultivate cannabis in a certain area, that might be something you want to look into if you do not want to shoulder these costs.
So now we’re going to jump into the heavy hitter, which is the cal cannabis application itself. Pretty much like any other cannabis commercial cannabis permit application or a temporary state license application that you’ve seen. There are going to be your usual suspects that they’re asking for, which is owner information, copies of government issued identification property and facility information, financial information.
But let’s jump back to property and facility information. When they ask you for all of that, good stuff usually means that they want to see your property diagram.
This will have your parcel boundaries, your premises boundaries, your perimeter dimensions, entrances and exits onto the property. All the roads surrounding the property or crossing in the property, water crossings, including seasonal streams, all the water diversions that are occurring on your property, so this includes storage facilities for your water. You have to label the type and storage capacity of each storage facility. All your water sources, like I said, if it’s a commercial water source, you’re going to attach your water bill, stuff like that, and water delivery system. So if you’re using a pump or a distribution system, you’re going to want to include that as well. As you know, they’re really particular about you, including the geographical coordinates of your property. You’re also going to include the APN assessor parcels number, the non-cannabis activities occurring onsite, and you need to make sure that all of this is scaled and measured in feet without any highlights.
So usually you’d get an architect or a civil engineer or somebody like that to draw up these diagrams to outline the systems for you. A great way to approach this is by getting ahead of the curve and making sure this is all done, but since you’ve already gotten your local permit, you’ve probably already gotten this out of the way so you can check that off your list.
Another thing that a lot of people ask us often that could be helpful to you moving forward if it still confuses you at this point, who is an owner. Owners can be individuals or business entities or other groups with an aggregate ownership interest of 20 percent or more in the business applying for a license. So sometimes you’ll hear, oh, financial interest without ownership. That is completely different than an owner. Owners are also classified as chief executive officers, members of the Board of a nonprofit or individuals who participate in the direction, control or management of the business. This is outlined in the California business and Professions Code specifically in division 10 section 26001Al.
So you know this might be a little overwhelming to discover that anybody who actually manages your company is an owner, but when it comes down to it, an owner really owns 20 percent of the company or more. The next thing on the list of annual state cannabis cultivation license application which you cannot forget to have before you apply because if you don’t have it, you won’t be able to apply is your local authorization or permit. So if you’re set up, for example, in Los Angeles City, you will not be able to apply for a state annual license without the local authorization or permit from the city of Los Angeles.
Another important piece that needs to definitely go into this application is a right to occupy. If you are leasing the property you are currently cultivating on or have a local permit on. You’re going to need to submit your lease agreement and a letter from land owners seeing that he knows you’re going to be growing cannabis on his property and he’s okay with it, pretty much, but if you have purchased the property and you are the land owner, you’re going to have to show the title and deed or deed of the property.
Unlike a local permit application process, the state is going to ask for copies of your business formation documents with the secretary of state. I’m not sure if any of you know, probably don’t, but some of you may know that there is a portal on the secretary of state’s website called cannabiz file, where all the business information documents of cannabis businesses can be found and uploaded directly to the submission portal on the cal cannabis website.
So if you don’t want to dig around for all your formation documents, you know your statement of information, your bylaws and all that stuff. Then you can try to hop onto the SOS secretary of state website cannabiz file where all the business formation documents of cannabis businesses aren’t. And see if yours are there. And you can just cut the hunting time down.
I mentioned earlier that the California Department of fish and wildlife may ask you for your CEQA compliance documents. If they do not ask that from you, cal cannabis requires you to include that in the application packet that you’re going to submit on the portal. Like I said earlier, if your city and county have not conducted a CEQA study or an environmental impact report study, then the burden of proof is going to be on you. You’re not going to be paying $250,000 or 2 million bucks like the county had to, but you will have to pay a fee that ranges between $1,500 to $6,000 to have your site assessed.
Couple of other requirements on the cal cannabis application is they will ask for a copy of your seller’s permit from the CD Tfa. And that’s the California Department of tax and fee administration. There are no fees associated with applying for a seller’s permit. If you do not need a seller’s permit, the CDTFA will have to issue a waiver that you know, shows that you don’t need a permit. In that case, that’s what you would submit to cal cannabis.
Cal Cannabis will also be asking for a Labor peace agreement in the event or if you already have at least 20 employees or more. That’s pretty much industry standard right now that Labor peace agreements are required of any kind of commercial cannabis operations if they do have at least 20 or more employees. I have seen that some cities like San Francisco will lower that threshold and say, Oh, if you have 10 employees, then you have to enter into a labor peace agreement, but pretty much all around this is the industry standard and you should enter into one if you have 20 or more employees.
A labor peace agreement basically is entering into agreement with the union that will protect your workers rights. Entering into these agreements shows that you are working in good faith to protect the interest of your employees. You know, that’s always a good thing and it’s one of the requirements, so best to comply and do something good at the same time.
The state will ask you to submit a surety bond of $5,000. You have to use the surety bond form that you can find on the cal cannabis website and provide that to the state, the corporate surety company that is licensed in the state of California. So first thing you do is find a licensed corporate surety company. Then download the form off the website. Once you’ve found the people you want, provide them that form, they sign off on it and you pay your fees and then submitted along with everything else once you’re ready to upload onto portal.
As many of you know, obviously for local permits you’ve had to undergo live scan, background checks. Same thing here. You will have to undergo a live scan background check once more.
There are a couple other things that local permit application processes don’t require. For example, for the cal cannabis application, they will ask you to submit evidence that a hazardous materials record search of the envirostor database was completed, so you take a screenshot of the search results. Envirostor is pretty much a data management system of the Department of toxic substances control. It tracks cleanups, enforcement and investigation effort into hazardous waste facilities and sites with the known contamination or sites with reasons to investigate these problems. Generally speaking, if you find that your location is within an area with some sort of a hit on hazardous waste and could potentially endanger your employees, you will have to submit an outline of an employee health and safety protocol that will ensure that your employees don’t get sick because of whatever’s in the area.
Next, you’re going to have to attach a pest management plan. All of you growers are familiar with a pest management plan. Pretty good stuff. It’s a longterm management suppression of unwanted pests that integrates pest management protocols involving cultural, biological, and chemical aspects. Pretty much all you’re going to include is the product name and active ingredients of all the pesticides you are going to apply to the cannabis at every stage of growth. It’s pretty cut and paste. There is a form available on the cal cannabis website to help you along with this process.
Next is a waste management plan. This plan is pretty much just identifying the methods for managing cannabis waste generated on the premises. There variety of solutions to this. There’s on premise composting, there’s collection and processing by local agency or a waste hauler or you could self hall the waste to a solid waste landfill, a composting facility, in vessel digestion, facility transfer processing facility, or even a chip and grind operation or facility. So there are variety of options. Whatever suits the needs of your operations, but you will have to outline how you will go about doing this.
Then there is the cultivation plan, which is pretty much your property diagram. As I mentioned earlier. It’s all about, you know, providing the geographic coordinates of your property, all the entrances and exits, the boundaries, the water diversions on the property, the water crossings. All the roads to map a very detailed map of where your operations are going to be located.
Then of course there is the power source requirement. You’re going to have to identify whether you’re using grid solar or a generator, operating at more or less than 50 horsepower.
And then the elusive limited waiver of sovereign immunity. I’m pretty sure you guys have heard of it before. Basically all it’s saying is that you know, if you belong to a tribe or if a tribe says you belong to their tribe, you can’t use the same laws that govern those tribes and protect them from federal government. You’re just signing off and saying, Hey, even if I belong to a tribe or they say I do, you can still come in and check my records, my products, my facility, my operation. So that’s what a limited waiver of sovereign immunity is.
Cal Cannabis will ask you to give a list of persons with a financial interests. So on top of the owners, you will have to provide information on the individuals with financial interest in your operation. You will have to provide proof of joining the waste discharge program with the State Water Resources Control Board as well as the water quality protection program with the state water resources control board and if applicable, the small use irrigation registration also with the State Water Resources Control Board.
The next thing on the list that you need to check off that you probably already got because we’ve gone down this list, is the LSA or lake or stream bed alteration agreement or written verification of non applicability from the California Department of fish and wildlife and of course your water sources. Are you using a retail water supplier groundwater well, rainwater catchment system, or are you diverting from a water body? That’s pretty much it.
The application itself looks difficult. It doesn’t have to be. There are lots of moving parts for sure, but if you plan ahead, you manage your time, give yourself some wiggle room for delays, then you should be fine. Cal cannabis will reach out to you in the event that your application is incomplete. You might have to do it again. You might have to revise a couple of things, but like Jim said earlier, the departments in the state, they want to help you out. As long as you’re doing everything compliantly and you’re on board, they will make the time to help you get a complete application in and issue you a license.
So moving on, you’re probably wondering, oh, what happens after your cannabis state license?
Well, METRC happens. I’m sure you guys have all heard about METRC. Probably come up with another webinar about METRC here pretty soon, but basically, you know, once you get issued that license, you have 10 days to complete the cal cannabis California track and trace training for METRC. So you’re going to have a registered user, which is probably going to be your operations manager and they’re going to handle everything regarding METRC. And once you complete training, you will have five days to order your RFID tags. You know, the UID tags that everyone’s been talking about. It’s pretty much what the rollout is at the moment. There is some material on the cal cannabis website about CCTT METRC. If you want to jump ahead of the game and find out you know how you’re going to register and what to expect, I suggest you guys hit up cal cannabis and checkout the material they’ve released on CCTT METRC.
I guess that’s pretty much it for now. I guess the key takeaways from this Webinar that I’m hoping you guys get is that you need to start gathering your materials early. I know you been through the local permitting process so you do have a lot of relevant material moving forward that you can use on the annual state cannabis cultivation license application, but you have to give yourself time and you probably already know that because of all the setbacks you guys have had on a local level, so don’t stress about it. I know it’s hard if you can’t get operational, make all this money up, but you know there’s no rushing the system. I also hope you guys understand that there are three separate agencies you need to get documentation from in order to submit a complete application. And the first one is the state water resources control board. The second one is the California Department of fish and wildlife, and of course the third is the California Department of Food and Agriculture is cal cannabis.
And one of the last takeaways that we want to share here is that you know you’re not at this process alone. You can get guidance throughout this entire application process with GreenGrowth CPAS. We’re here to help out, if you’ve got 90 percent of it there and you don’t want to like waste time with Dom said like if you have an incomplete application, they may ask you to do it again. If you don’t want to go down that road and you want just another pair of eyes to look at it, we can help with that, but we can also help you right from the beginning. If you’re someone that has the wherewithal and wants to get into the actual cannabis growing industry than hey, reach out to us. You can reach out to us via our website greengrowthCPAS.com. Or give us a call at 800-674-9050.
Now I know we covered a lot here. Again, if you have any questions, reach out to us on our website. Give us a call. Again, w’de love to partner with you. We’re here to walk you through this process and be your partner. It’s about the team that you have on your side because once you get this application in and you get going, now you have a business operation to get into. Now you have taxes to prepare. You have expansion plans and all these other things that come along with starting and operating and growing your cannabis business. So feel free to reach out to us even just for a few questions or to take care of your full application. Thank you again for your time. We really enjoyed spending time with you today and we’ll talk to you soon.