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The Commercial Cannabis Business and Santa Cruz Real Estate

With the passage of Prop 64 and Senate Bill 94*, the Medicinal And Adult-use Cannabis Regulation And Safety Act (MAUCRSA) made the sale and taxation of commercial cannabis legal in the state of California. MAUCRSA also created the general framework for the regulation of both commercial medicinal and adult-use cannabis in California.


To legally cultivate, manufacture, and/or distribute cannabis, both a state and local license will be required. Additionally, both unincorporated and incorporated areas in Santa Cruz County specify specific zones in which real estate can be used for cannabis related business activities. Read on for information about the California and Santa Cruz County cannabis licensing agencies and laws.


* The State’s Emergency Regulations, SB 94, have allowed regulatory bodies to regulate both medical and recreational commercial cannabis businesses under the Medicinal and Adult-Use Cannabis Regulation and Safety Act.


State Licensing


In the state of California, the following agencies issue licenses for commercial cannabis activities:


If you are running a “Microbusiness” you may obtain one license which permits the cultivation (on an area less than 10,000 square feet), manufacturing (Level 1 manufacturing, Type 6), distribution, and retail sale, or any combination of the four activities. All other businesses must obtain individual licenses for the activities listed above from respective agencies.


All holders of state-issued annual cannabis licenses are required to use the California Cannabis Track-and-Trace-METRC system to record, track, and maintain information about their cannabis and cannabis-product inventories and activities. This system is maintained by CalCannabis Cultivation Licensing, a division of the California Department of Food and Agriculture.


When Prop 64 was originally passed, the three regulatory agencies listed above created emergency cannabis regulations. Since that time, regulators have modified these laws to provide greater clarity to licensees and to address issues that have arisen since the emergency regulations went into effect in December 2017.


According to the California Cannabis Portal, these emergency cannabis regulations were officially re-adopted on June 4, 2018, and are now in effect as of June 6, 2018. The readopted emergency regulations will remain in effect for 180 days. During this time, the three licensing authorities will engage in the regular rulemaking process to adopt its final non-emergency regulations. A draft of these final regulations have been released and can be found here.


Note: All local licenses (i.e. Santa Cruz County) must be obtained prior to state licenses.


Local Licensing


Santa Cruz County Licensing


In unincorporated Santa Cruz County, cannabis cultivators, manufacturers, and distributors can apply for non-retail licenses. Retail licenses are needed for dispensaries, and other storefront shops. The County has already distributed 12 retail license, and does not plan to issue more in the near future.


If you’re considering buying real estate with the intent of cultivating, manufacturing, or distributing cannabis, various types of licenses are available depending on the size and location of your operation. Take a look at this summary of basic eligibility criteria for non-retail commercial cannabis business license which outlines the parcel size, maximum cultivation area (as applicable), and permitted zoning for these operations.


You can find Licensing regulations and operational requirements as well as zoning requirements in recently updated chapter 7.128 and chapter 13.10 of the Santa Cruz County Code respectively.


If you are ready to fill out the application for your cannabis-operation, use the County Application and Resources page found here.


You can find additional information about both retail and non-retail licenses using the Santa Cruz County Cannabis Licensing Office webpage found here.


City of Santa Cruz


According to the Santa Cruz City Website, Santa Cruz City Council adopted Cannabis Regulations on November 28, 2017. Under this ordinance, the City will permit five licenses for  retail outlets in industrial and limited commercial zones. This number includes the two existing dispensaries originally approved as medical marijuana provider association dispensaries.


Commercial cultivation is limited to 10,000 square feet of indoor growth in industrial zones. Manufacturing and distribution are also allowed in industrial zones. All commercial cannabis uses require the approval of an administrative use permit at a public hearing.


Each license type is outlined in this flowchart. Note that AUP stands for Administrative User Permit. You can find the city ordinance pertaining to cannabis business activities here.


City of Capitola


The City of Capitola will have a ballot measure in November to allow voters to decide if two cannabis dispensaries will be allowed in the City of Capitola.


If approved, these retail stores will only be allowed in regional commercial zones, which encompasses the area north of capitola road, 41st Ave, and Clares, as well as Auto Plaza Drive. No other cannabis related business activity will be permitted in the City.


City of Watsonville


The City Council adopted the Medical Cannabis Facilities Ordinance No. 1352-17 (CM) which went into effect on June 20, 2017 and can be found in the Watsonville Municipal code. Subsequently, the City Council adopted an ordinance which amended the Code to allow existing licensed cannabis cultivators and manufacturers to produce and sell cannabis for both the medical and adult-use markets. This amendment went into effect on March 13, 2018.


The Ordinance allows the establishment of up to nine cannabis manufacturing facilities in Watsonville. The application period has closed and no new applications will be accepted at this time.


In 2016, the Watsonville City Council adopted Ordinance No. 1326-16 (CM) to regulate the establishment of cannabis cultivation facilities. The maximum number of six permits have been approved, and no applications for new cultivation facilities are being accepted at this time.


Distribution is only allowed in conjunction with licensed cultivation or manufacturing, and no separate distribution licenses are permitted in the City.



City of Scotts Valley


All commercial cultivation, manufacturing, and distribution of cannabis is prohibited in the City of Scotts Valley. Additionally, no dispensaries will be permitted in the city limits. Click here to read Chapter 17.64 section 020, which states the above in the City Code.




Commercial cannabis activities are closely tracked on a state and local level. If you are interested in exploring the possibility to purchasing a piece of real estate with the intent of engaging in such activities, we suggest you review the above information carefully and determine the licenses that will be required.


Usually, you will need to identify the parcel that you intend to operate from before obtaining the licenses. If you feel ready to start looking for the right property for your cannabis-business, we can help. Feel free to give us a call or email us today if you’d like to start exploring the possibility of purchasing a piece of real estate zones for cannabis related activity in Santa Cruz County.

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