While Cultivators Struggle in the Legal Market, Mendocino County’s Cannabis Grant Funding is Caught in Red Tape

In the wake of a Mendocino County Grand Jury report that found layers of delay in distributing a grant, a policy manual has been updated, an affidavit is being drafted, and legal review will start up again next week.

In 2020, the County received $2.2 million from the state, to administer individual grants to applicants who are eligible to run a cannabis business in the unincorporated areas of Mendocino County; and who can demonstrate that they have been harmed by the war on drugs. The Board of Supervisors also put up $100,000 as a grant match for the program.

But most of that money is held up in legal review. Out of 52 applications, five grants have been awarded. The other 47 approved grant applications are waiting for County Counsel to determine that they won’t run afoul of the state’s policy about misuse of funds. The county hired a contractor, Elevate Impact, to administer the grant for no more than 10% of the award.

The Local Equity Entrepreneur Program, or LEEP, is supposed to allocate direct assistance awards to individuals, which puts the county in the position of vouching for the recipients.  If the county were to award a grant that doesn’t meet the state’s strict requirements, the county would have to collect the misused funds as it would any other debt, possibly becoming ineligible to receive further grants.

But if the money is not awarded by the end of August, the state could take it back. And if 80% of the first few rounds of money have not been spent by November, the county will not be eligible to apply for the next round.

The Grand Jury report says that after receiving notifications of their awards from Elevate Impact, in late 2021, applicants learned about a secondary review process called Cobblestone, which involves multiple county departments. But they didn’t learn about further reporting requirements until the monthly LEEP meeting in April. The report did note improvements in community outreach, with the regular LEEP meetings as well as weekly cannabis department meetings that include question and answer sessions. 

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Michael Katz, the Executive Director of the Mendocino Cannabis Alliance, an industry advocacy group, noted that the Grand Jury report aligns closely with complaints and policy proposals that the MCA has been making for a while. In addition to findings about delays and poor staffing, the report recommends that the Board of Supervisors create a standing committee to address the issue, rather than the temporary ad hoc committee that’s working on it now. This is something the MCA has long called for, but only Supervisor John Haschak has expressed a willingness to take it on. He and Supervisor Glenn McGourty currently serve on the ad hoc.

The report’s first finding is that “There was no process developed for the distribution of grant funds to individuals prior to applications being received. This has resulted in extended delays at every step from eligibility to application to communication to contract negotiation,” which prevents the timely distribution of funds.

“The results of that, unfortunately, have been that some operators have been in this application process since February of last year, counting on these funds to help them move forward in this incredibly challenging business at this incredibly challenging time,” Katz said last week.

Kristin Nevedal, the Mendocino County Cannabis Department Manager, uses similar language for what she’s faced in her role. Asked about the same finding at July’s LEEP meeting, she said, “I think that’s absolutely correct. I think the program has been incredibly challenged by changes and lack of leadership, frankly, in the cannabis program as a whole.” Shortly after the county received the first round of funding in February 2021, Megan Dukett, the cannabis program manager at the time, left her position. She had been on the job for just over a year. Her predecessor lasted ten months, and the first cannabis program manager quit after four months to walk across the desert to Mexico. During Dukett’s tenure, the county had hired Elevate Impact, but Nevedal said, “It is completely unfair to expect a contract administrator to develop a program for any local jurisdiction solely on their own.”

She said she found out about the Cobblestone portion of the program at the end of 2021, when she had one part-time helper and had been on the job herself for nine months.  “So I had no clue how underdeveloped the program was until we started getting into the review of applications and then how we would essentially issue checks,” she acknowledged. “You don’t know what you don’t know,” she added, explaining that many applicants plan to use the funds for capital improvement projects that are not always easy to reconcile with the nuances of the county’s permitting system. Elevate Impact does not have a team of planners on staff, and Nevedal said she doesn’t think the county knew enough about the applications in advance “to have the foresight to understand that we needed planner time available to also conduct these reviews.”

The Grand Jury also found that “the county did not ask the state for requirements on record keeping…until May 2022,” and that this should have been done much earlier in the process. Haschak said that in mid-June, he was in a meeting with a Department of Cannabis Control representative who clarified the state’s policy about misuse of funds. County Counsel then began reviewing the applications to make sure the funds would not be misused.

That portion of the process has led to several rounds of fine-tuning the Local Equity Program Manual. Katz is especially concerned that the county cannabis department is making requirements that are not demanded by the state. “There are certain things that are certainly not allowed to be covered, like penalties and fees related to delinquencies, those types of things,” he explained. “We know they’re to be used for startup and ongoing costs, and people who are equity designated as equity operators. But there are still barriers that are being placed on certain requests by the department that are not demanded by the state. So for example, solar. There are many folks who are working to create solar usage opportunities on their cultivation sites in various ways. And solar is desirable, obviously…but the cannabis department has been objecting to specific types of solar, being concerned with how much power the solar would provide, and really just putting what seem like unnecessary restrictions that are not demanded by the state on the uses that would benefit the operator. So if they actually revised the manual to allow anything that is not explicitly disallowed, there wouldn’t be the need to dig into every item and go back and forth on the minutiae that we’ve seen happening for applicants.”

Haschak said the ad hoc committee met with Nevedal on Thursday, the day after the July LEEP meeting. The next day, the cannabis program issued V5, the latest edition of the Local Equity Program Manual. In an email, Nevedal wrote that, “The program is still working on a form/affidavit for awardees to sign stating that they’ve read and understand the grant agreement,” as well as the much-edited manual. Nevedal added that “County Counsel plans to resume the review of approved grant applications next week.” However, the changes to the manual consist of several sets and subsets of requirements for documentation, and do not address what the money can and cannot be used for.

County Counsel did not immediately return a call requesting more information, but Katz said yesterday that he thinks that’s what County Counsel needs in order to complete its review.

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“We hope it turns into money in people’s hands soon,” he said. He expects the next round of edits will include language expanding the allowable uses of the grant funds.  “We’re hoping to see V6 sometime next week,” he concluded.

“I think they understand that there is a sense of urgency,” Haschak added.

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