Setting the Record Straight: What’s Really in Governor Newsom’s Cannabis Enforcement Proposal

Laura Braden
Jun 3
5 min read

By Amy Jenkins, Executive Director, California Cannabis Operators Association

Governor Newsom’s revised 2025–26 state budget proposes a comprehensive strategy to combat California’s persistent illicit cannabis market.

This strategy is operationalized through two complementary trailer bills: (1) expanded enforcement authority for the Department of Cannabis Control (DCC), and (2) amendments to Proposition 64 to reallocate enforcement funding.

Expanded Enforcement Authority

The first trailer bill adds § 26038.2 to the Business and Professions Code, giving DCC clear authority to take action against illicit operators that undermine the legal market and endanger consumers with untested, unregulated products.

It authorizes the DCC to seal unlicensed premises engaged in substantial illicit cannabis activity, impose fines of up to $100,000 for breaches, and ensure due process through emergency and non-emergency hearings. The bill also enables the DCC to coordinate with local jurisdictions to enforce compliance and monitor sealed sites.

Reallocation of Enforcement Funding and Expanded BSCC Grant Eligibility

The second trailer bill amends Revenue and Taxation Code § 34019 to authorize using the Cannabis Tax Fund for DCC illicit market enforcement and track-and-trace costs.

These costs are funded through the Cannabis Control Fund, which receives its revenue from licensing fees. In other words, licensed businesses are currently shouldering the costs of illicit market enforcement and a multi-million dollar tracking system. This shift addresses a structural deficit—projected at $50 million—and avoids licensing fee increases of up to 40% on legal operators.

The trailer bill also expands eligibility for Board of State and Community Corrections (BSCC) grants, provided they allow retail sales. It also directs the BSCC to prioritize grants for illicit market enforcement. According to the DCC, these reforms will bolster DCC’s enforcement capacity and rebalance California’s cannabis regulatory framework to support legal operators.

Bill language can be found on the Department of Finance’s website:

Expanded Enforcement Authority: Key Provisions by Section Code

Regulatory Authority: Amends Business and Professions Code § 26013: Amends § 26013, which authorizes the DCC to adopt and re-adopt emergency regulations to implement a newly proposed section§ 26038.2—as further described below.

Under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), emergency regulations are deemed necessary for public health and safety and remain in effect for 180 days. Regulations must be commercially feasible and evidence-based and cannot make operations unreasonably difficult for licensed businesses.

Order to Seal Premises: New Business and Professions Code § 26038.2: Creates a new enforcement tool authorizing DCC to seal buildings or premises engaged in substantial unlicensed cannabis activity. Provides that an order to seal may occur immediately following a warrant execution based on clear and convincing evidence. Residential properties are excluded.

Criteria Used to Seal a Premises: Provides that these provisions may be triggered if there is clear and convincing evidence of substantial illicit cannabis activity. The criteria for assessing whether the activity is substantial include:

The volume and variety of illicit cannabis products associated with the building or premises
Signs, symbols, advertising, social media, or other marketing content indicating the sale of cannabis are associated with the building or premises
Information regarding the building’s or premises’ connection to direct or indirect illicit cannabis sales or other violations of cannabis laws

Expanded DCC Authority: Key Procedures

The proposed language authorizes the DCC to padlock and seal an unlicensed premises when there is an imminent threat to public safety or when illegal cannabis products are found. Once sealed, the premises may remain closed to the public for up to one year, or until the DCC formally vacates the order, whichever is earlier. An order may be vacated if the illicit cannabis activity is abated at the site, including by removing any equipment or supplies used for the illegal activity.

Notice must be served to property owners and any occupants and posted conspicuously on the property. The language also provides limited access to the sealed building, solely for building safety, security, maintenance, or the abatement of illicit cannabis activity.

Due Process Provisions: The proposed language includes several due process safeguards for those impacted by a sealing order. Affected parties may request an emergency hearing within 10 calendar days, which must be held within three business days of the request. They may also request a non-emergency hearing at any time while the building is sealed, which must be granted within 30 days.

Applicants must submit all relevant lease documents when seeking to vacate a sealing order. The order may be lifted if issued in error or the unlicensed activity has been fully abated. Any unauthorized seal breach while the order is in effect may result in fines of up to $100,000 on the person who violates the seal.

Local Law Enforcement Coordination: Additionally, the DCC may coordinate with local jurisdictions and agencies to enforce compliance and monitor sealed premises. This authority supplements, rather than replaces, existing enforcement powers.

Appeals: Amends Business and Professions Code § 26043: Allows parties aggrieved by DCC enforcement, including sealing orders, to appeal. An Administrative Law Judge would hear initial appeals. A second layer of appeal is available through the Cannabis Appeals Panel (CAP). CAP appeals are limited to procedural and evidentiary review. The panel must adopt expedited procedures for appeals involving sealing.

Expanded BSCC Grant Eligibility & Background

Amends Revenue and Taxation Code § 34019(f)(3)(C): to broaden eligibility for the Proposition 64 Public Health & Safety (Prop 64 PH&S) Grant Program, administered by the Board of State and Community Corrections (BSCC). Currently, local governments that authorize cultivation and retail sales of cannabis are eligible to receive grant funding.

The revised language removes the requirement for a jurisdiction to authorize commercial cannabis cultivation and allows any jurisdiction that authorizes the establishment of cannabis retail businesses to receive funding. Local jurisdictions would be required to allow storefront retail to qualify, except small jurisdictions with fewer than 3,500 residents will be eligible if they allow cannabis delivery. In addition, it requires the BSCC to prioritize grant proposals that target illicit market enforcement and permits funding allocations to be awarded through competitive and formula-based methods to ensure more consistent support.

Background and Prior Legislation: § 34019(f)(3)(C) was originally enacted to direct cannabis tax revenues to local governments for public safety and health programs associated with the implementation of Proposition 64. In 2019, statutory language was added that restricted grant eligibility to jurisdictions that permitted some form of cannabis activity. This was later amended by AB 1872 (Budget Committee, 2020), which clarified that eligibility could be based on allowing either commercial cannabis cultivation or retail, rather than both.

Grant Funding: To date, the BSCC has awarded nearly $123 million in Prop 64 PH&S Grant Program funds across three cohorts:

Cohort 1 (2020–2023): $10 million awarded to 10 jurisdictions.
Cohort 2 (2021–2024): $21 million awarded to 22 jurisdictions.
Cohort 3 (2023–2028): $94 million awarded to 37 jurisdictions.

However, a review of Cohort 3 awards found that only 37% of jurisdictions partially addressed illicit activity in their proposals, and just two jurisdictions (5%) dedicated their entire grant to illicit market enforcement. One city even allocated a portion of its funding to skate park improvements—a worthy community investment, but arguably misaligned with the core intent of the grant.

Legislative History: The current trailer bill language reflects a prior year proposal outlined in AB 1616 (Lackey, 2023), which was supported by the licensed cannabis industry. The bill sought to reform BSCC grant criteria to prioritize enforcement, but the author ultimately pulled it following opposition from some existing grant recipients.

The proposed budget trailer bill strengthens the DCC’s enforcement toolkit and redirects enforcement funding to better support California’s legal cannabis industry. By leveraging the Cannabis Tax Fund, the proposal stabilizes licensing costs while enabling the DCC to shut down illicit operators swiftly and effectively.