California county’s cannabis industry on ‘the brink of irreversible failure’

Mendocino County is one of the best places in the world to grow cannabis. Wet air from the Pacific washes over the county’s mountain valleys, creating perfect microclimates for growing pungent pot, and the “Mendo” nickname has become an international shorthand for high quality pot. But when it comes to the legal cannabis market, this historical cannabis county’s government can’t seem to get much of anything done.

After six years of pot legalization, only 12 of the county’s 832 active cannabis farms have received annual licenses, according to an SFGATE analysis of county and Department of Cannabis Control (DCC) records. That means only 1% of the county’s cultivators are fully licensed – one of the worst rates in the state. Overall, 49% of California’s cultivation licenses have annual status and over 63% of farms in Humboldt County, a neighboring county also known for cannabis cultivation, have received annual licenses.

The remaining businesses are at risk of losing their temporary licenses, and the cannabis farmers are blaming dysfunction at the county government.

The situation is so dire that his month, the Mendocino Cannabis Alliance (MCA), a coalition of local cannabis businesses, sent an open letter to Gov. Gavin Newsom and DCC Director Nicole Elliott warning that the county’s cannabis industry is “on the brink of irreversible failure” because of negligence by the county government. Michael Katz, the executive director of the MCA, said that the county government has been a “roadblock” stopping pot farmers from getting full licenses, costing pot farmers thousands of dollars in the process.

“The time is basically out and we basically don’t have a lot more flexibility to get people through [the licensing process],” Katz told SFGATE. “… These people have no money left and they’re still being told to this day that they don’t know if they can get their annual permits.”

A spokesperson for Newsom’s office declined to confirm whether the governor received the letter or plans to take any action on the farmer’s behalf. David Hafner, a spokesperson for the DCC, confirmed that they received MCA’s letter and said the department is “currently assessing all options” in how it can respond to Mendocino County.

What’s causing the backlog? Kristin Nevedal, the director of Mendocino County’s Cannabis Department, blamed the lack of annual licenses on delays caused by the county’s cannabis ordinance and defended the management of the department. She said the government is working on hiring more than 16 new employees to process applications faster.

“The department has an amazing and dedicated staff. I do not believe the department is mismanaged,” Nevedal wrote in an email to SFGATE.

John Haschak, a county supervisor, agreed that Mendocino is “way behind” other counties in terms of licensing.

“With deadlines approaching quickly, I am concerned that the County’s Cannabis Department will be able to appropriately process the hundreds of cultivation applications we have,” Haschak said in an email. “We can’t have any more delays.”

Hundreds of Mendocino County cannabis licenses could be lost

California has struggled for years to push cannabis businesses into full “annual” licenses. Following the legalization of cannabis in 2016, the state has used a series of temporary permits for pot businesses to transition the state from the largely unregulated medical market to the fully regulated recreational market. The state hoped to have all pot businesses fully licensed by 2019, but the state legislature has repeatedly delayed licensing deadlines.

California’s pot companies are now facing a July 1 deadline to either have an annual license or satisfy an increasingly long list of other requirements. With 99% of Mendocino’s pot farms still lacking annual licenses, there’s a real risk that hundreds of license holders could be blocked from renewing their provisional license, according to Hannah Nelson, an attorney based in Mendocino County.

“Historically, and even recent history, demonstrates that the local cannabis department is not equipped to process the number of applications that would need to be processed,” Nelson said.

Nelson said the Mendocino County Cannabis Department has repeatedly made mistakes processing applications, including losing files and misunderstanding the county’s own laws. She said “it’s maddening” how the county has handled the applications.

“I have clients who have submitted three, four and even five times and the county keeps losing things, changing what was required, and failing to track its own steps along the way,” Nelson said.

Nevedal, of the county cannabis department, defended her agency’s actions and said the delay was largely caused by a disagreement between the county and state over how farms must comply with the California Environmental Quality Act. The department was unable to fully process license applications until the state and county clarified the CEQA process in July of 2021, according to Nevedal.

The Mendocino County Cannabis Department said in January that it is prioritizing 256 of the remaining 832 applicants for renewal. Nevedal said the county is processing these licenses in order of when their provisional permits expire.

Katz, of the local trade organization, said he doubts the county can handle even this limited workload.

“We still don’t understand how the county actually plans to even get through those 200 to 300 people, but the bigger picture issue beyond that is the 400 to 500 additional operators that have been deprioritized,” Katz told SFGATE. “All of those folks are in danger of losing their provisional licenses because they’re not even having their permits reviewed in this timeline. And that is a choice being made by the county.”

Nevedal said in an email that the county had deprioritized more than 300 applications for not paying local cannabis taxes or not having a DCC license. However, both Katz and Nelson said that the county has used incorrect information to deprioritize applicants. Nevedal defended the deprioritization decisions.

“While I’m sure there has been some human error, there is no evidence that the department has wrongfully deprioritized significant numbers of applicants or permit holders,” Nevedal said.

Nelson, the attorney, said seeing the county mismanage the licensing process has been like watching a “slow-motion murder” and she is now considering suing the county for due process violations related to its licensing procedure.

“I did not want to focus on litigating against the county. I wanted to work with the county as a partner to help make sure that these businesses survived and help their communities continue to thrive,” Nelson said. “But … I’m to the point that I can no longer ignore litigation as a mechanism for change.”

‘Worried about the economic fallout’ of licensing roadblocks

Mendocino’s licensing problems come as pot companies across the state go out of business, particularly the small family cannabis farms of Northern California. Haschak, the county supervisor, said he is worried that the county’s licensing difficulties could cause financial problems for the entire county.

“I am worried about the economic fallout from not having a viable legal cannabis industry. This County has relied on cannabis dollars to boost the economy,” Haschak said in an email. “Our legacy of high quality cannabis is world renowned. Opportunities for cannatourism, niche marketing, and Mendocino branding are all dependent on a legal industry.”

Pot farms going out of business are already contributing to the financial decline of some small towns in Northern California that have historically depended on the cannabis industry.

“If things continue as they are there will only be a really small handful of these small batch legacy cultivators,” Katz said.

Lester Black