Report: Pot permitting has ‘potential for fraud’
The Humboldt County Civil Grand Jury released a report finding the county has a “lack of transparent accounting for cannabis-related revenues,” and noted several other shortcomings as it pertains to how the county facilitates and keeps track of cannabis growing permits and the associated cash intake.
Monday’s report, the seventh this year, examines how the county Planning and Building Department facilitates the permitting process for cannabis growers and how the department handles the large lump sums of cash flowing in and out of its office in Eureka.
The report found the county’s “handling of large sums of cash … lacks transparency and creates the perception of potential for fraud.”
The report also found a “lack of robust security infrastructure” puts personnel and the public at risk; a “lack of transparent accounting” makes it hard to calculate economic effects of legalization and the “cumbersome permitting process” disincentivizes leaving the illicit market.
The report also took issue with the lack of a user-friendly website that lacks clear instructions and “appears to be out of date.”
It’s important to note the grand jury did not find evidence of fraud, but rather asserts the county’s cash-handling practices do no favors for public perception.
A spokesperson declined to respond to the report stating “we will deliver an official response to the Grand Jury within the appropriate timeframe.”
The report notes that because banks will not allow cannabis growers to open business accounts or establish lines of credit because cannabis is a
Schedule I controlled substance according to the federal government, making the permitting system inherently cash-heavy.
And that’s one of the biggest challenges facing the industry, Humboldt County Growers Alliance Executive Director Terra Carver told the Times-Standard.
“The nature of handling large amounts of cash is not an efficient way to manage an industry this large,” Carver said. “This remains one of the biggest reasons federal prohibition (of cannabis) needs to end. … It’s unsafe for the government and for the industry … (no one wants to do it this way) but we have to.”
When asked about the jury’s finding that the way in which the county handles cash can lead to a perception of fraud, Carver said she’s never heard of any instances of fraud during the permitting process from any cultivators she’s worked with.
Carver praised the county’s permitting process.
“(The county) has done an incredible job establishing its permitting process,” she said. “This process was never designed to be rubber-stamped, nor should it be. (It has to be taken on a case by case basis) because each permit has to factor in surrounding natural resources, the community and a lot of other factors.”
According to data from the alliance, Humboldt County leads the state — and nation — in cannabis cultivation licenses.
As of May 27, cultivators in the county held 1,366 state-issued licenses. Those licenses are spread across 794 independent cannabis farms and constitute 28.6% of all state-issued licenses. The county’s nearly 800 farms represent 30.7% of all licensed farms in the state.
Carver noted that its inherently difficult to set up an online one-stop-shop for permitting — which the jury report more or less asks for — for that reason.
Although the process may not be an easy one to undertake, Carver said once growers get though the county’s process they are well situated to navigate through the state’s process — which according to her is not the case in many other counties.
Carver said in her eyes one of the biggest challenges facing the industry, especially when the permitting process was first established, was navigating through a flood of bad consultants.
“There are good ones out there, but there are also a host of bad consultants which have cost the cannabis industry a lot of time, money and emotional health,” she said.
The jury’s report concluded with a set of recommendations for the county including regularly updating its website to reflect current guidelines; assigning the auditor-controller to do an annual review of cash receipts and sharing that audit to the board of supervisors; hiring within the planning department to maintain financial records; and to funneling all cash payments through the treasurer-tax collector’s office.