Fresno’s legal cannabis approval process creates potential for corruption and conflicts of interest, according to the California Auditor’s Office.

The Auditor’s office reviewed the cannabis approval processes and oversight of six jurisdictions in the state. They found shortfalls that could lead to corruption in each of them, but some Fresno procedures stood out in particular.

The auditor pointed out how the Fresno city manager and councilmembers have more influence than other governments in the approval process. Fresno is also the only government to not provide an appeals process for applicants who may feel they’ve been unjustly denied. The auditor additionally cited other shortfalls.

“Only two of the local jurisdictions we reviewed used blind scoring of applications, wherein the identities of the applicants are kept from those reviewing and scoring applications. ..” said California State Auditor Grant Parks in his report. “My office also found that all six of the local jurisdictions we reviewed were inconsistent in following key steps that their permitting policies required.”

Fresno doesn’t utilize a blind scoring method. Instead, reviewers have access to all applicants’ information.

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Fresno’s City Manager Has Too Much Control in Cannabis Process: Auditor

The report looked at four cities: Fresno, Sacramento, San Diego, and South Lake Tahoe. It also looked at Monterey and Santa Barbara counties.

Fresno, like other jurisdictions, has a competitive approval process where applicants submit forms detailing how they meet city goals for security, appearance, and how much they give back to the community.

The report cited the influence the city manager and councilmembers have on the approval process. Even though applications are scored, ultimately the decision to award or deny a permit falls to the city manager.

“In our view, such a process lacks transparency for how potentially lucrative cannabis-related permits are being issued by the city manager, possibly eroding public trust in the process,” the report stated. “In an environment where a city sets a cap on cannabis-related permits, it is even more important that the public fully understand the permitting process and decision-making criteria.”

Catalyst Fresno LLC applied for a permit in the city. In 2021, the company filed a lawsuit against the city of Fresno, saying the city manager — Tommy Esqueda at the time — had unjustly removed the company from the application process.

“Catalyst contends (the city) abused their discretion, that their actions and determinations on such matters were/are arbitrary, capricious, unfair, unlawful, corrupt, and against the overwhelming weight of facts and evidence available to the City at the time,” the lawsuit stated.

The lawsuit is still making its way through the Fresno County Superior Court.

The mayor and city council can appeal a city manager’s decision, said Sontaya Rose, director of communications with the city.

“The ordinance gives the City Manager responsibility and authority for developing the permit application evaluation process and for issuing permits,” Rose said in an email to GV Wire. “However, the Mayor and City Council (have) the authority to appeal that decision.”

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City Should Implement Blind Scoring, Ability to Appeal Denials

The report credited the city for requiring almost all reviewers to sign statements affirming they had no financial interest in an applicant.

The city also doesn’t protect the identity of applicants by redacting personal information during the review process — something the report stated would help ensure a fair approval process. Both Sacramento and Santa Barbara County require blind scoring.

A response from Fresno administration to the auditor’s office said requiring blind scoring would “significantly delay the process.”

Fresno is the only jurisdiction of the six audited that doesn’t allow applicants to appeal decisions.

Councilmembers and the mayor are allowed to appeal an approval. The auditor said allowing councilmembers to appeal an approval and then vote on the appeal gives them outsized influence in the procedure. The auditor pointed out one occasion where a cannabis application was appealed, resulting in the approval of an application with a lower score.

“By allowing councilmembers to appeal the decision to award a permit and also vote on the appeal, the process provides an opportunity for a single councilmember to exercise significant influence over which applicants ultimately obtain cannabis-related permits,” the report stated.

All Jurisdictions Examined Need to Bolster Background Check Process: Auditor

The auditor found holes in each jurisdiction’s background check process.

In Sacramento, of 16 applications reviewed, 10 were not complete. In Santa Barbara, of 13 applications reviewed, cannabis officials approved 11 without getting documentation from their sheriff’s office showing the applicant passed the background check.

Fresno officials only document failed background checks. For third-party auditors, that means difficulty seeing background checks used in every case. One application the auditor reviewed showed an applicant with a conviction for battery. The city approved the applicant’s permit.

Fresno’s Cannabis Fees Highest of the Six Governments Reviewed

Of the six jurisdictions evaluated, only Fresno’s total cannabis sales were not available. In Sacramento, a city nearly the size of Fresno, $62.8 million had been reported since it was legalized in 2017 through the first quarter of 2023. The city has 334 licensed businesses.

Cannabis operators have been on an opening spree of late in Fresno. In July 2022, the first two dispensaries in Fresno opened. For nearly a year, the city had only two dispensaries.

By summer, 11 of the 21 stores the city has permitted will be open — if not more.

But the process does not come cheaply.

The state auditor found it cost $41,710 in fees to open a dispensary in Fresno. That amount surpassed the other five jurisdictions examined. The next highest was South Lake Tahoe at $40,855.

Fees to open a dispensary in San Diego came in less than $30,000.

Rose said the city would consider implementing changes recommended by the auditor’s office.

“We appreciate the State Auditor’s work to review and understand local cannabis permitting practices,” Rose said. “We will consider their recommendations as we continue to improve and refine cannabis permitting processes for the City of Fresno.”