Sonoma County cannabis growers rack up fees and fines waiting years for permits, crippling some businesses

In 2017, Ron Ferraro, CEO and owner of Elyon Cannabis, entered into Sonoma County’s new Penalty Relief Program, a process set up after California legalized recreational marijuana to encourage growers to legitimize their operations by entering the legal regulated market.

The idea was to allow cannabis businesses in eligible locations that applied for full permits to operate without facing land-use fines while they went through the permitting process and awaited a final determination from the county.

Ferraro hired consultants and lawyers and submitted the extensive paperwork and environmental reports necessary for conditional use permit applications on three sites to be considered.

These permits have special constraints to ensure compatibility with the surrounding area and neighbors and can take some time.

But now, five years later, his permits are yet to be approved or denied, and Ferraro told me the long delays, mixed messages and fees and fines along the way have driven his farms to the brink of failure.

“It's this Catch-22 that we’re stuck in for all these years,” said Ferraro, who comes from the construction industry. “Who wants to run a business where you don't have electricity; you can't build anything?”

That’s because without an approved conditional use permit, business can’t get permits for almost anything else, like building simple structures or adding electrical.

In some cases, that prevents applicants stuck in limbo from legally setting up basic infrastructure necessary to run successful operations or easily complying with state rules that require, for instance, security cameras or secure places to store chemicals.

Those who forge ahead anyway can then face steep fines for violations from code inspection and enforcement through Permit Sonoma, the county's land use planning and development agency, or the Department of Agriculture.

Sometimes they move forward with clear violations, but at least in some instances, according to emails with code inspectors I reviewed, they get conflicting messages giving the impression they’re in the clear.

“They put you in a in a situation where it’s designed to fail,” Ferraro said. “Sometimes we call this the penalty relief vortex.”

Ferraro's frustrations were echoed by several other Sonoma County growers to whom I spoke.

Sonoma County Supervisor James Gore acknowledged that getting through the permitting system can be “difficult and expensive” and that “there needs to be a timeline” for penalty relief, in particular, so many years in.

He’s been adamant that permits need to be processed, he said, but, in the meantime, Gore noted, too, that there are cases where codes are clearly violated and Permit Sonoma is following its mandate to keep operations safe and legal.

It’s part of a larger problem that goes beyond just Permit Sonoma. “The cannabis program from the cultivation side has not been widely successful,” Gore said.

Tension between the two sides are mounting.

"That solid foundation that the industry was hoping for no longer being in the black market, well, now they have the worst of both worlds,“ said Nick Caston, who’s worked in the wine and weed industries as a policy, land use and compliance consultant in California and other states.

“They had all the regulatory compliance and tax requirements that come with being a legal industry and none of the certainty or ability to plan long-term that comes with the legal market to build their businesses," Caston said.

Jeremy Freitas, owner of Patriot Valley Farms in northern Sonoma County and Brothers Mark, a veteran-owned and operated cannabis brand, is also struggling to stay afloat in Sonoma County.

“We’re in a dying business because we can't get to the next phase of our project,” he said.

For one thing, Freitas said he got caught between conflicting local and state guidance on what kind of growing he could do where. He paid $30,000 for a state license for mixed-light growing (which happens in greenhouses or hoop houses), but Permit Sonoma told him he was only eligible for outdoor growing.

It meant Freitas had to move 1,400 plants.

“I was trying to get these plants that we spent so much money on to harvest, and it basically ruined us,” he told me.

Meanwhile, after already spending an estimated $90,000 just on required fees, Freitas said he goes months without updates on the status of his permit application. Still, his farm’s been inspected seven times by the county and three times by the state in 14 months.

“I've never felt like a criminal like I feel like I am now,” Freitas told me. “Everybody's watching us, but who's watching them?...I can't run a successful business like this.”

A long road

Not all projects take so long to approve.

Any outdoor cultivation under 10,000 square feet in size that does not require structures is permitted, with less steps, through the Agriculture Department. Other operations are processed through Permit Sonoma and require use permits.

The simplest ones include testing labs and distribution centers set up in existing industrially zoned buildings.

The real difficulties set in for grows in rural agricultural areas that require hearings and technical studies and wildfire safety assessments and can face challenges from neighboring residents.

Right now, growers are also limited to an acre of cultivation on a minimum 10 acres of land.

Officials at one point estimated use-permit processing would take six months to a year, according to a 2018 Sonoma County Board of Supervisors report.

The Sonoma County Cannabis Program website currently estimates use permits on the simple end to take nine months “or longer” to process and the more complex conditional use permits to typically take 18 to 24 months “or longer.”

"Longer” is indeed the operative word for many businesses. According to data provided by Permit Sonoma, 61, or 35%, of the 175 use permit applications submitted have been approved. 56 are in process, and 58 applications have been withdrawn.

Twenty-nine applicants in the penalty relief program have had use permits approved, but, four to five years later, 19 are still in process while another 19 dropped out.

The dozen lawyers, consultants and growers I interviewed described a process where some applicants are passed from planner to planner as years drag on, adding confusion and delay and duplication or redirection. Sometimes, expensive environmental studies expire and need to be redone.

All the while, hopeful businesses are responsible for 100% of accumulating review and processing costs.

With permits pending, limits to operations for those in penalty relief, and no ability to operate for some others who applied outside the program, only add to an increasingly dire cost-benefit analysis that many smaller businesses with less capital can’t weather.

“The biggest challenge is there's no accountability in the process,” said land use and permit consultant Jake McKee of Santa Rosa.

“There's no way to say this is about how long your use permit is going to take, this is what it's going to cost,” McKee added. “There's no way to manage expectations, and there's no way still today for an applicant to go back and say, ‘It's been four years, we're now well into the six figures on our fees and revised this application multiple times even though the project hasn't changed.’ There's no way to resolve that or move the needle forward.”

McKee, who had an estimated 37 cannabis clients at one point is now down to a handful. He’s gotten through the conditional use process for three, he said.

As years pass, too, state and local regulations over the new legal industry have shifted, and cultivators’ violations that could have been fixed through a use permit stack up.

“When interpretations or the application of policies change quarter over quarter, year over year, that's where the wheels start falling off,” McKee said. “Obviously, there are some folks who just run a very poor operation or constantly violate, but even the cleanest operators I've dealt with are now running into challenges with the enforcement side of this.”

“It's important that the county have some leniency with these folks who came into the light and have been trying to do things the right way,” said Lauren Mendelsohn, an attorney with the Sebastopol-based Law Offices of Omar Figueroa, which focuses on cannabis law. “If they have minor violations, I don't think they should be treated the same way as someone who's not even trying to be part of the legal system.”

The recourse for businesses who want to challenge violations or fines is through an administrative hearing. But, the applicant bears all associated costs, which, on top of their own lawyer or experts, include the time of any hearing officer, court reporter and county witnesses who appear.

On the high end, one such hearing cost a client of McKee’s $47,000.

“In cases where you can't get a permit for something that you're actually not allowed to do, they either decide, ‘I'm going to wait until I get my use permit to fix my building or I'm going to demo it,’” said Crystal Acker, supervising planner at Permit Sonoma.

“It is true that sometimes they can't legalize a building that they shouldn't have built while they're still trying to get authorization.”

She said that processing times are hard to estimate because there’s such a wide range. “Pretty much every permit has project specific things that make it different from every other,” Acker said.

Once trickier applications go through an initial review with a staff planner, they’re sent out to various technical agencies that look at traffic, cultural resources, fire prevention or environmental issues, for example, that might each require technical studies.

“It can take time to go the back and forth,” Acker said, noting that winery use permits can take multiple years as well.

Then, residents or organizations concerned about water use or safety or smell can appeal any approval, which can add a year to the process.

The cannabis ordinance came with a separate code section and special restrictions that Permit Sonoma had to learn to apply as a rush of applications that came in all at once, “and there just weren’t enough staff,” Acker told me.

Along the way, the department was stretched thin by a string of wildfires and the COVID-19 pandemic. A state grant has enabled Permit Sonoma to hire dedicated staff to process cannabis use permits, starting with penalty relief applicants.

Compounding challenges

Indeed, many problems faced by the cannabis industry are out of Sonoma County’s control. Access to capital is limited as traditional banking and lending is largely out of reach since marijuana is still federally illegal.

Loopholes, tax schedules and complex and shifting regulations in state cannabis law have also put a burden on local officials and cultivators, especially small operators, allowing a black market to thrive.

“You don't have any real places that did it right,” Caston said. “Sonoma County did it particularly bad, but that's amongst a universe of poor policymaking.”

Some operators who make it through the process are still critical.

“It took two years to get our permits,” said Alexa Wall, co-owner of Luma California Farms in Penngrove. “I wouldn't call that fair by any means, and we spent hundreds of thousands of dollars.”

Still, she knows many others haven’t made it that far. “We feel like we've been screaming from the rooftops this is not right. We need help… but a lot of us farmers? We’re tired, and we're broke.”

Despite this backdrop, the value produced by the 50 acres worth of permitted cannabis in the county in 2021 exceeded $122 million, coming in behind only wine grapes and dairy, according to the Sonoma County Crop Report, which included cannabis as an addendum for the first time.

The Board of Supervisors has acknowledged onerous demands on growers. At the same time, they face pressure from vocal opponents of cannabis to limit or halt operations and farms in the county.

A cannabis policy and processes where environmental reviews and other important requirements aren’t timely assessed and determined may have aggravated some opposition.

“The County has fallen short in bringing cannabis cultivators into the regulated market,” a 2019 Deputy County Administrator report stated. “This has raised or exacerbated issues related to safety, neighborhood compatibility, code enforcement, penalty relief, and appropriate fee, penalty, and tax structures.”

After considering various fixes, in 2021, county supervisors voted for a complete overhaul of the cannabis program, based on an extensive countywide environmental impact report.

Having such an analysis, proponents point out, has the potential to streamline the permit process by reducing the need for environmental analyses on a project by project basis and more clearly indicate where operations can or can’t be supported.

Though a new ordinance could bring welcome reform to the system, or at least clarity, any changes are a long way off.

A draft environmental report isn’t expected until February 2024, and a new law isn’t slated for a Board of Supervisors hearing until that fall.

There are opportunities for cannabis operators and other members of the public to weigh in along the way, but for some businesses it will be too late.

“We had a whole bunch of Sonoma County permit clients, and honestly, we have few left,” Mendelsohn said. “A lot of folks have either given up or they've run out of money for their lawyers.”

Freitas hasn’t given up, but he can no longer afford attorneys, so he’s now navigating and fighting the system alone.

Ferraro has sued Permit Sonoma but isn’t sure it will make a difference.

“We built something really special in Sonoma County, and instead of trying to embrace that, they basically put us out of business,” he said.

“I wish looking back that they just told us from the start, ‘You guys can't operate here,’” Ferraro told me. “I could have went and built my company anywhere else, but I got stuck, and now I have this company and millions of dollars invested, and I can't move.”

“In Your Corner” is a new column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.