Audit Reveals Inconsistencies in Cannabis Permitting Processes in Santa Barbara and Other California Counties

In a recent audit conducted by the California State Auditor, the permitting processes for cannabis businesses in various areas were evaluated with several issues found.

The audit reviewed six regions including Santa Barbara and Monterey counties, as well as the cities of Fresno, Sacramento, San Diego, and South Lake Tahoe. These areas were selected because of their geographical diversity, comparatively large and small populations, a high number of state licenses vs a low number, and a variety of permitting processes.

Santa Barbara County, specifically, has the highest number of active licenses in this group and one of the lowest total sales, per the report. As of 2022, the report states Santa Barbara County had 2,052 active licenses with the unincorporated county population total of 137,900 making the population per state license 67, and a total sales number of almost $16.4 million.

In contrast, Monterey County had only 532 licenses with a 107,540 population size garnering $17.7 million in sales. Sacramento had 334 licenses with 525,000 in population that earned $62.8 million.

The findings shed light on inconsistencies and deficiencies in ensuring fairness and preventing conflicts of interest, thereby highlighting the significant control that local jurisdictions have over the regulation of cannabis businesses.

The audit found the local jurisdictions did not always include several best practices in their permitting policies that help to ensure fairness and prevent conflicts of interest, abuse, and favoritism. Only two of the local jurisdictions used blind scoring of applications, wherein the identities of the applicants are kept from those reviewing and scoring applications, and four of the local jurisdictions did not require that all individuals involved in reviewing applications agree to impartiality statements.

Through California voters legalizing the non-medical use of cannabis, the resulting state law ensures that local jurisdictions retain significant control over the authorization and regulation of cannabis businesses within their jurisdiction.

The audit makes recommendations and identifies best practices to bolster the public’s confidence in the fairness and transparency of their permitting processes.

Blind Scoring and Impartiality

Out of the jurisdictions reviewed, only two (Sacramento and South Lake Tahoe) require blind scoring of applications, which helps prevent preferential treatment towards certain applicants by keeping their identities hidden from evaluators.

Four of the reviewed jurisdictions, including Santa Barbara County, do not require individuals involved in reviewing applications to agree to impartiality statements, which the audit states is the best practice for reducing the risk of conflicts of interest between evaluators and applicants.

Santa Barbara County contracted with a third party for the initial review of applications. It included in its contract a conflict-of-interest clause that states that the contractor agrees that it presently has no employment or interest and shall not acquire any employment or interest, direct or indirect, including any interest in business, property, or sources of income that would conflict with the performance of services.

In addition, Santa Barbara County indicated that local jurisdiction staff who were responsible for ranking the final application and performing site inspections had discussed the importance of impartiality with the county’s legal counsel, after which the staff verbally affirmed their impartiality. Therefore, the local jurisdiction had not considered further requiring the staff to sign an impartiality statement.

“Nevertheless, in any process that requires impartiality or that may be susceptible to bias, it is important to consider and implement safeguards, such as using impartiality statements, to prevent undue influence and strengthen confidence in the integrity of the process,” the audit report states.

Policies and Background Checks

All local jurisdictions were found to have inconsistently documented whether they followed their policies and procedures when ensuring that background checks occurred and that permit applications were complete.

The audit found the majority of applications that should have received background checks in Santa Barbara County did not receive them.

“Santa Barbara does not require the department that oversees cannabis to document evidence that each individual passed the background check, resulting in its permitting 11 of the 13 applicants we reviewed without first verifying and documenting that the sheriff’s office performed background checks on each owner,” the report states.

Santa Barbara County argues its permitting staff only receives notification from the Sheriff’s Office if a background check indicates a potentially disqualifying conviction, but agrees the county should document approval verifying an individuals passing of the background check.

Permit Processing Time

Although Santa Barbara County included in its ordinance a required time frame for processing applications, that jurisdiction had some of the longest application‑processing times among the applications, although one of the most lenient.

“Ordinance limits the maximum number of retail permits and limits other permit types by acreage. Issues permit as long as there are no grounds for denial,” the report states.

Santa Barbara County amended its ordinance in November 2021 to require applicants to submit a business permit application within 30 days of receiving approval of their land-use permit. Of the seven applications the audit evaluated that received land-use approval after November 2021, the county allowed four applicants to apply for their business licenses after the 30-day window had closed, and it allowed one applicant to submit a business license application after 183 days.

Santa Barbara County issued 10 permits the auditors reviewed, the processing time of which averaged 3.4 years, the second longest of the six local jurisdictions.

Santa Barbara County’s deputy executive officer explained that the jurisdiction does not enforce this processing-time requirement because it is primarily concerned with the applicants beginning to prepare the necessary documents for the next step of the application process.

“Nevertheless, required time frames in local ordinances may not shorten the amount of time taken to process applications if local jurisdictions do not consistently enforce these requirements,” the report states.

Cannabis Equity Act

Under the California Cannabis Equity Act, local equity programs adopted or operated by a local jurisdiction focus on the inclusion and support of individuals and communities in the cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization (populations negatively impacted by cannabis criminalization).

Although the California Cannabis Equity Act defines what constitutes a local equity program for its purposes, it does not require that local jurisdictions conduct an equity assessment or develop an equity program.

“Santa Barbara County’s deputy county executive officer told us that the county does not currently plan to develop an equity program and the public has not voiced a specific concern about it,” the report states.

The audit report highlights the significant control that local jurisdictions maintain over the regulation of cannabis businesses and the crucial need for consistency and fairness in their permitting processes. While the findings indicate deficiencies across the six reviewed jurisdictions, they also provide an opportunity to reassess and enhance their permitting practices to align with best practices and regulatory requirements.

Santa Barbara County’s Response

In a written response, Santa Barbara County acknowledged the value in considering some best practices as it assesses and enhances its permitting processes.

Chief Assistant Executive Officer Nancy Anderson wrote the county has implemented policies adhering to current state law and requires key staff to file financial disclosure statements. However, she acknowledges that introducing impartiality statements for all staff involved in the application review process would provide additional protections.

Anderson continued to state the County has a consistent process for background checks, with the Santa Barbara County Sheriff’s Office holding verified records. She acknowledged the benefit of enhancing the documentation process to include evidence consistent with the Sheriff’s Office’s files.

“As noted in the report, state law does not require that local jurisdictions conduct equity assessments nor develop an equity program intended to lower some of the barriers to entry into the cannabis industry,” Anderson wrote while adding it may be considered in the future if deemed necessary.

The full audit report can be seen here.

[Update on April 17, 2024: One day after this article was published the county issued a press release about its “action plan” to improve cannabis licensing due to the audit report. The full press release can be read here.]