As Acreage Cap Lawsuit Plods On, the Stakes Grow 

The California Department of Food and Agriculture is asking a judge to dismiss the lawsuit alleging it acted inappropriately when it effectively declined to institute a cap on the acreage a single entity can get licensed for cannabis cultivation.

Brought in January by the California Growers Association, the lawsuit takes aim at the emergency regulations released by the department late last year and specifically alleges the department violated one of the "expressly stated purposes" of Proposition 64, which legalized recreational cannabis in California and had pledged to create an industry "built around small and medium size businesses" by prohibiting large-scale cultivation licenses for a period of five years. While the department's emergency regulations don't allow large-scale licenses, they also don't prohibit "stacking licenses," meaning there's nothing to stop someone from acquiring as many small-scale cultivation licenses as he or she wants.

Filed earlier this month, the state's response to the lawsuit argues that the department has acted in good faith to comply with the law and that the lawsuit should be dismissed because the rules are just "emergency" regulations that will soon expire and be replaced by final regulations. In addition to asking a judge to dismiss the suit, the department asks that it be awarded costs.

The issue and lawsuit have fractured segments of the cannabis community, locally and statewide. It's also already had a substantial impact on the way permits have been issued throughout the state.

Last month, the Sacramento Business Journal analyzed the first 540 temporary cultivation licenses issued for "small" cultivation operations by the Department of Food and Agriculture. The analysis found that of the 250 businesses awarded the licenses, 10 combined to control about 30 percent of the licensed cultivation acreage. Humboldt County's own Honeydew Farms LLC had been awarded 30 licenses, the Business Journal found, or about a quarter of those issued in Humboldt County at the time.

In an interview with the Business Journal, Honeydew Farms owner Alex Moore said the situation has left some established cultivators like himself feeling unfairly vilified for playing by the rules that were set. But some smaller farmers worry the regulatory loophole that allows growers to stack licenses butchers the protections pledged on the Proposition 64 campaign trail and allows those with deep pockets to corner the market.

Interestingly, the California Grower's Association originally supported a 4-acre cultivation cap, a stance that seemed to align with the Department of Food and Agriculture, which included the cap in its environmental impact report. But after the department omitted the small license cap from its emergency guidelines, the association revised its stance and began advocating for a 1-acre cap, arguing it would allow more small farmers to participate in the state's new regulatory framework.

Where things go from here is a bit unclear. As the lawsuit meanders through the system, the state continues to issue temporary licenses. The longer the uncertainty continues, the more untenable the situation becomes. Farmers who have been able to stack permits while playing by the rules continue to invest accordingly in their properties and their businesses and — in the eyes of some — grow their advantage in the market. But if the court decides in the California Grower's Association's favor, it would force these farmers to substantially reduce the footprints of their operations.

With each passing day the case remains pending, the stakes seem to grow higher.

Thadeus Greenson is the news editor at the Journal. Reach him at 442-1400, extension 321, or [email protected]. Follow him on Twitter @thadeusgreenson.