Nicole Elliott, executive director of California’s Department of Cannabis Control (DCC) has the toughest job in weed. She oversees a tremendous market where all the legal industries’ challenges have compounded into something near unmanageable. Many of these challenges were baked in before Elliott took the helm and/or are beyond her power to change.
Still, Elliott is as prepared for the job as anyone reasonably could be. She was San Francisco’s first top regulator then served as Gov. Newsom’s liaison to the industry. We spoke about her top priorities, her recent visit to the Emerald Triangle and her plan to expand retail access.
Given Elliott’s schedule, we spoke on Zoom and the department answered additional questions over email. Both have been edited for length and readability.
WeedWeek: Assuming there isn’t interstate trade, what, what do you want to see the market look like in, in two years and, and how do we get there?
Nicole Elliott: I’d like to reject the assumption there’s not interstate commerce in two years. California in particular has everything to benefit in seeing our product exported legally to other states. As you saw with the passage of Senator Anna M. Caballero’s (D-Salinas) bill, we have begun to work towards that in earnest. There’s a lot more to do but California is definitely a production state. It’s important that we put that as one of our north stars and work really aggressively towards that. [NB: We spoke before Biden’s announcement likely accelerated interstate trade’s arrival.]
To set the table, California is the oldest and largest market. When you think about the scale of the exercise we’re undertaking, it’s important to think about it in the context of a great length of time. And that has been borne out through our experience to date. Necessary modifications remain ever present. We need to continue to make them, aggressively. The Governor is asking the legislature and policy makers to really double down on this.
A couple of things that we will do as a department, acknowledging we’re not the legislature: Equity’s a priority for the state, for the department, for a number of policy makers and for local jurisdictions that have stood up programs. So [we aim to ] continue to prioritize the support for those businesses through existing programs and improving and refining them.
These efforts include technical assistance grant funding through GoBiz, the governor’s economic development office. That’s not necessarily our wheelhouse, but we work closely with GoBiz on that effort.
In this last year, the department has focused a lot on filling a significant number of vacancies in our law enforcement division. And we saw a significant increase in the number of operations. The department was able to either lead our support as a part of that, exceeding the $1 billion mark in product seized. There’s a lot of really important work that will continue and will continue to accelerate within the department and in partnership with other state entities.
Beyond that, we obviously continue working with licensees and stakeholders to reduce barriers to access those things within our control. We acknowledge that barriers to access have a number of variables that are outside of our control.
We were just up in the Emerald Triangle, with our partners from Metrc, speaking with farmers with a specific eye towards Metrc compliance and the challenges they face with track and trace. We had really good and hard discussions about changes that would be beneficial to those operators and also to the state. Those are the types of conversations that are driving important changes that DCC has control over, that we don’t need to seek legislative approval to enact.
We’re looking to build out important data infrastructure – that quite frankly should have been built before this entire exercise began – that will allow for us to share aggregated data to support stakeholders, whether that be local governments, the general public, academic researchers, and really importantly businesses trying to make smart decisions within the legal market. Internally, it’s gonna allow the department to more strategically deploy finite resources.
One thing that we hope to see in two years is really more local participation. There’s a lot that we’re doing to try and support that. You saw $20M in the governor’s budget to try and open up retail access across the state. There’s more that we’re gonna do in the next year.
This is a tough nut to crack, but it’s one where we’re focusing a lot of time and energy to figure out what solutions are feasible for those jurisdictions that want to [largely allow retail storefronts] and for a variety of reasons have not been able to, to date.
Then there are things outside our control.
An example I’ll flag is the tax reform package where the department played a really critical role in conveying to policymakers the challenges licensees face and really helped drive those conversations forward. We would love to see the legislature double down and make some big changes in this next session and the session after that. It’s our hope that we can support them and see some additional changes. On the tax reform bill, you saw a much more unified industry in that advocacy, and it made a huge difference.
WeedWeek: Many people are struggling and some say the market is on the brink of collapse. I’m not sure what that means, but do you agree with that assessment and what are the worst case scenarios you’re trying to avoid?
Nicole Elliott: Going back to our visit up north, we heard a lot of concerns from operators, particularly producers, about challenges in making enough to continue operating. That is why when we talk about working in earnest, despite taking the long view, we’re trying to figure out what interventions will be most helpful for those operators.
We are deeply committed to maintaining a diverse market. There are a number of different things that we’re really trying to avoid. We’re trying to avoid continued deep instability across the supply chain. We know that exists, and you saw some pretty drastic measures taken this year to start to address that. I think more will be necessary.
WeedWeek: Which measures?
Nicole Elliott: The tax reform primarily. We saw that get taken up, we saw a reduction of the tax rate for a set period of time, and those were hard conversations for policymakers to have because as the governor alluded to there are trade offs. There are stakeholders that believe that the tax rate’s, right and benefit from that tax revenue that comes in. And, there are stakeholders on the other side saying, this is killing our business. It’s, unsustainable and so really trying to thread the needle and find what can be done most quickly, which is why you saw it as a budget bill. Those are the types of changes, I would argue, continues to be necessary, uh, within the framework.
WeedWeek: Do you think the legislature is still up for it, or they sort of cannabis’d out?
You tell me. You just saw that bill package that the governor assigned. Did you think that those were insignificant pieces of policy?
WeedWeek:Not at all. But, they might wanna put it aside for a couple years after that.
Nicole Elliott: I’m not speaking for any legislator, but when you look at 2020, 2021 the legislature was really focused on pandemic response, and ensuring stability in the state’s economy. I think there are a number of legislators who care deeply about the success of this as well, So I do think that, there is going to be momentum towards big change and good people to carry those policies.
WeedWeek: With 95% of growers apparently operating at a loss, what does the market need to stabilize?
Nicole Elliott: We did an assessment last year, we’re doing it again this year, around market health and stability. One of the biggest pain points is access, right? Access for consumers to legal product, but also access for California producers to reach consumers. It’s necessary to find an equilibrium between our supply and demand.
It’s really important that we continue to push for locals to open up and that we create, like I said, where possible easier ways for locals to participate.
Another thing is we want to make sure that we’re creating a framework, a licensing system that is actually feasible for operators to enter and stay within. You saw a lot of regulatory activity this year that remains ongoing. When we close out that big consolidated package, we’re going to focus on issue specific packages that hopefully will allow us to move a little bit more nimbly in the years ahead.
WeedWeek: What are some of your priorities?
Nicole Elliott: Priorities can always shift. But we’re looking immediately at a cultivation package as well as a lab package. Those are both significant pain points and we want to make sure we’re spending some time in those areas doing more work.
WeedWeek: What would those look like for cultivators?
Nicole Elliott: When engaging with our cultivation subcommittee, for instance, it’s gonna be asking them the questions of where are, where do you guys really see a need within the regulatory framework that’s specific to cultivators? And really have them help to find what that is versus us just arbitrarily doing.
WeedWeek: What are the DCC’s plans to enforce the provisions of AB 45, including a report outlining the steps necessary to allow for the incorporation of hemp cannabinoids (some of them intoxicating) into the cannabis supply chain? The report is several months late.
DCC: The California Department of Public Health (CDPH) is the lead agency for the implementation and enforcement of AB 45. AB 45 requires DCC to provide a report to the Legislature outlining the steps necessary to incorporate industrial hemp into the commercial cannabis market. We anticipate the report will be released soon.
WeedWeek: The state, as well as several local governments, has a great deal of power to crack down on illegal operators with heavy fines. (Upwards of $10,000/day) Why don’t authorities seem to be using those powers?
DCC: The Department determines what tool to use based on the facts and circumstances of each situation. For example, the Department is currently pursuing a civil penalties case against Vertical Bliss and Kushy Punch, as well as other individuals and entities, for illegal activity. The Department is seeking $128,061,000 in civil penalties.
WeedWeek: Why didn’t DCC recall any of the 150 product samples submitted by several lab companies that showed category 1 [banned] pesticides?
DCC: The Department takes reports of contamination that poses a significant health risk very seriously. Although the Department cannot provide details of any specific investigation, including the specific accurate facts of the situation you reference, we can address how we respond to reports of contamination.
When a person alleges that cannabis goods could be contaminated, the Department gathers and reviews relevant information to assess the situation, such as testing results, physical attributes suggesting contamination, information about how the alleged contamination occurred, and may conduct additional testing. Considering all the facts and circumstances, the Department determines the appropriate response.
The type of response is determined based on a variety of factors, such as the likelihood the cannabis good is contaminated, whether it contains a prohibited substance, how far above the allowable level is the substance, the specific human health risk associated with the particular substance at that level, and reports of illness.
When possible, the Department works with licensees to voluntarily recall or destroy cannabis goods that are suspected of being harmful to human health. If a licensee will not take action to remove a cannabis good from the supply chain, the Department can initiate an embargo to hold the cannabis goods in place, require a mandatory recall, and initiate condemnation proceedings.
WeedWeek: What kinds of enforcement are you prioritizing?
DCC: DCC’s enforcement team focuses its investigations on large-scale, criminal enterprises engaging in unlicensed distribution, manufacturing, retail, and indoor cultivation while supporting local and state law enforcement partners with outdoor unlicensed cultivations and other illegal commercial cannabis operators in their respective jurisdictions. These enforcement activities are important in eliminating unfair competition, protecting natural resources, and safeguarding our communities.
WeedWeek: Where does DCC most need more resources?
DCC: The Department has been working at an extraordinary clip to fill vacancies and hire staff, significantly reducing our vacancy rate while also prioritizing upward mobility within our ranks.
WeedWeek: What kinds of conversations are you having with your counterparts in other states?
DCC: California is a member of the Cannabis Regulators Association (CANNRA), a national organization of state government officials involved in regulating cannabis.
One of the current, important conversation topics is related to the intersection between hemp and cannabis markets, including the recent proliferation of intoxicating hemp products. California’s Assembly Bill 45 (2021), which created a legal framework for hemp products within our state, was informed in part by lessons learned in other states in establishing hemp markets. California contributed to two white papers, recently released by CANNRA, describing regulatory challenges within the hemp market, particularly for cannabis markets. These white papers are not only intended to inform state officials, but also to inform federal government officials.
We’re eagerly watching the rollout of adult-use legalization in New York, particularly new and novel approaches to creating opportunities and support systems for equity operators. We’ve poured funding and resources into supporting equity programs at the local level, which have in turn piloted multiple approaches tailored to their specific communities. New York appears to be taking the best approaches from California cities and counties, and from states across the country, and driving at those from the state level.
WeedWeek: What needs to be done about the illegal market? Is it realistic? [The response came before Gov. Newsom announced an escalation of enforcement against the illegal market.]
DCC: Californians have overwhelmingly embraced the legal, regulated market [Editor’s note: By all estimates we’ve seen, more than 50% of California sales go to unlicensed product.] Areas of prohibition challenge this reality and lend to an environment where illegal activity can thrive, threatening consumer safety and the vision of legalization.
Tackling illegal activity requires working with our state, local, and federal partners through coordinated intelligence-sharing and joint enforcement actions. In a little over a year, DCC has coordinated hundreds of enforcement actions with local sheriffs and local police departments, and state and federal partners to remove more than $1 billion in untested, illegal cannabis products from California streets since DCC was formed in July 2021.
In just over a year, DCC has issued:
- 286 Search Warrants
- Removed 600,000 pounds of untested illegal product
- Removed close to 1.5 million illicit cannabis plants undermining the legal market
- And removed close to 135 illegal firearms, including semi-automatic weapons from cartel and criminal enterprises.
That said, tackling the illegal market requires a holistic and multi-pronged effort that includes working to streamline licensing requirements, transition legacy operators into the legal market, and provide technical guidance to help support compliance. DCC has and will continue to take steps to support the legal market while continuing to take aggressive actions against illegal operators.
More information: We know that more needs to be done to help support the legal market, as well. As of August 2022, more than half of local governments (56%) do not permit any commercial cannabis activity and nearly two-thirds (61%) do not allow any legal cannabis retailers. These continued prohibitions limit opportunities for businesses to operate legally, create economic incentives for illegal behavior, and restrict consumer access to regulated, tested cannabis.
To continue supporting local jurisdictions, DCC received $20 million in the state budget this year to provide grant funding to local jurisdictions opening legal pathways for cannabis businesses. Later this year we will issue a more than $6 million RFP to support a consumer awareness campaign that will help Californians understand the benefits of purchasing from the legal cannabis market and the dangers of purchasing from the illegal market.
WeedWeek: Is social equity, the idea of government support for entrepreneurs from hard hit communities, a realistic approach to building viable businesses in this industry? Have you thought about other forms equity might take?
DCC: Yes, government support for equity entrepreneurs is a realistic way to encourage business development. Resources, including financial and technical assistance, provide needed capital for equity businesses. The Department of Cannabis Control is in the process of spotlighting promising practices from local jurisdictions across the state with programs that have improved outcomes for equity business owners. The state is committed to improving efforts over time, with the goal of increasing the number of equity businesses in the state of California.
In addition to that, efforts across the state are underway to support stakeholders negatively impacted by the criminalization of cannabis, not just entrepreneurs. This includes community investment through reinvestment grants, reducing the stigma of previous criminal convictions through expungement, hosting job fairs for individuals impacted, and providing incentives for non-equity businesses to support equity efforts.
More information: The state has done significant work to support cannabis equity businesses and will continue to prioritize support for equity cannabis businesses. Most recently, in FY 2021-22 the Governor’s Office of Business and Economic Development provided $35 million in grants to local governments to pass through to equity applicants in the form of no interest loans or grants. In developing DCC’s Local Jurisdiction Assistance Grant in FY 21-22, the department earmarked half of its $100 million to further support the businesses in eligible cities and counties that had equity programs. Similarly, the DCC will be prioritizing support for equity businesses when developing it’s $20 million Local Retail Assistance Grant Program this year. Also in FY 21-22, the DCC began implementation of the Equity Fee Waiver Program, to-date issuing almost $13 million in state licensing fee waivers to eligible equity licensees. An Equity State License Fee Deferral Program will begin next year. Finally, in the FY 22-23 Budget, via AB 195, the Legislature and Governor approved two new programs to support equity licensees: a $10,000 yearly Equity Tax Credit for eligible equity licensees and an Equity Vendor Compensation Program for eligible equity retailers, allowing them to retain up to 20% of the state cannabis excise tax they collect. Lastly, DCC continues to provide enhanced technical assistance and direct support to equity businesses and local jurisdictions supporting equity businesses.