The problem is the pH of the actual peppers that's why they are not allowing it. He can even acidify the finished product to spec and it still would not be allowed. This is because cottage laws are strict, but going commercial would solve all that.
:welcome:
You will want to look into the cottage laws of California. Jellies are almost always allowed under cottage law, meaning you could make them at home and still legally sell them, but your market would be restricted to local sales and farmers markets, nothing online or out of state. But...
Your sauces do not expire with the license so yes you can still sell them. You might want to print a batch number or manufacturing date on them just in case anyone comes around asking... and then you can show them they were made pre-expiry of said license.