Nestle, which sells Arrowhead bottled water, may have to stop taking millions of gallons of water from Southern California's San Bernardino National Forest because state regulators concluded it lacks valid permits.
The State Water Resources Control Board notified the company last week that an investigation concluded it doesn't have proper rights to about three-quarters of the water it withdraws for bottling.
"Nestle appears to be taking more water than they likely have the right to take," said David Rose, an attorney for the water board's enforcement section.
In 2015, his agency began investigating claims that Nestle Waters North America was taking spring water from the San Bernardino Mountains that it did not, legally, have the rights to.
Environmentalists also argued the company should not be allowed to tap groundwater during the drought.
In its letter to the company, the water board told Nestle to cut back on its water withdrawals unless it can prove it actually does have the right to use that water, or to additional groundwater.
The company, a division of the Swiss food giant, also was given 60 days to submit an interim compliance plan.
Nestle said it was too soon to say what impact, if any, the letter would have on Arrowhead bottled water. A spokeswoman said she was pleased that the report reaffirms Nestle holds valid rights to "a significant amount" of water.
"We will continue to operate lawfully according to these existing rights and will comply fully with California law," she added in a statement.
The report was applauded by activists who have fought to turn off Nestle's tap in the forest.
Amanda Frye, who filed one of the complaints that prompted the investigation, said she was pleased with the result although she hadn't read the entire report.
"I feel like it's a victory," Frye told the Desert Sun of Palm Springs. "I'm happy that the State Water Resources Control Board did pursue it and look into it. I feel that they're protecting the people of California."
According to the water board, Nestle takes 62 million gallons of water from the San Bernardino National Forest every year. A nearly two-year long investigation concluded that it only had the right to withdraw about 8.5 million gallons.
Nestle has contended that it inherited rights dating back more than a century to collect water from the forest northeast of Los Angeles. But opponents of the water withdrawal have long sought to turn off Nestle's tap, arguing that it lacked proper permits and that the water usage could harm the environment and wildlife, particularly in the midst of California's drought.
In 2015, the U.S. Forest Service was sued by environmental and public interest groups who allege the company was being allowed to operate its Strawberry Canyon pipeline on a permit that expired in 1988.
However, the court ruled that the company could continue water operations while its application to renew the permit was pending.
Rose said the water board's investigation is separate from the USFS's decision to issue Nestle a permit for its pipeline.
This story has been updated.