The first quarter of the calendar year has passed and California cannabis consumers, industry members and activists are still on the fence regarding the success of Proposition 64. Touted by state officials as a work in progress, it’s been about 100 days since marijuana became legal for adults 21 and over. Experts agree the law is just beginning to get tested.
At an official hearing in March, the state’s Bureau of Cannabis Control expressed a willingness to listen to concerns from the farming community, many of whom feel that several components of the state’s regulatory scheme have all but decimated the craft cannabis industry. Dispensaries have had challenges keeping regulated, tested products on the shelves. Meanwhile, distributors have the burden of collecting state taxes from farmers, but have nowhere to bank all of the fees.
So, has the Green Rush been successful? Let’s take a look.
The High Cost of Doing Business in the Legal Cannabis Industry
With wholesale cannabis prices plummeting, stiff state taxes and exorbitant consultant’s fees to bring businesses into compliance, the plight of craft cannabis farmers and manufacturers is reaching crisis levels. Taxes are at the heart of this conundrum, with some analysts predicting that the combined state and local taxes are keeping marijuana farmers from entering the regulated market and may reduce the state’s 2016 projection of a $1 billion cannabis tax windfall.
Though California grows more cannabis than any state in the nation does, the small number of licensed farmers can’t easily supply the state’s dispensaries, resulting in cannabis shortages at the retail level and significantly reduced options for consumers.
Back to Black? The Continuation of the Unregulated Cannabis Market
As larger, more southern-reaching municipalities like Santa Barbara are scooping up licenses for large greenhouse operations, some Emerald Triangle farmers feel they’re being left in the dust. Unable to raise the tens or even hundreds of thousands of dollars to comply with county and state regulations, they’re forced to make a decision to retire or continue as renegade, unregulated farmers. They still make up the majority of the estimated 69,000 California cannabis farmers who provide the majority of cannabis to California and other states without legal marijuana industries.
The state’s Bureau of Cannabis Control recently sent out cease and desist letters to nearly 1,000 cannabis-related businesses. Almost 400 of these businesses are located in the Greater Los Angeles area.
The majority of these businesses appear to be delivery and retail outlets. A few are in the process of licensure and are attempting to get their names cleared with the state. This action makes clear that state lawmakers are taking a strong stance on those who choose to continue in the unregulated cannabis market.
Prepare to Travel Long Distances to Buy Legal Cannabis
Cities and counties have the choice to opt-in or opt-out of any aspect of Proposition 64, which means that huge swaths of the state aren’t growing or selling cannabis. Currently, as reported by the Sacramento Bee, 38% of the state remains between 60 and 120 miles away from a licensed dispensary.
Want a Medical Marijuana State ID? Hurry Up & Wait
Due to added state and local taxes, medical marijuana patients are lining up in droves to obtain state-issued ID cards from the Medical Marijuana Identification Card Program, which exempt patients from paying sales and use taxes at dispensaries. Though the cards have been available for 14 years, interest in obtaining them has skyrocketed, as patients search for ways to make higher-priced cannabis products more affordable. Cards are issued through your county, and reports of month-long waits for the card indicate that patients are clamoring for ways to reduce the cost of their medicine.
Will Cannabis Prices Drop—And Is That a Good Thing?
No one’s happy about the higher prices dispensaries are charging consumers. In some jurisdictions, cannabis is being taxed at 40%.
But at the same time, farmers are receiving far less for their crop. Farmers selling premium-grade flower for $1,200 per pound in 2017 are lucky to receive $800 per pound today. Historically, farmers could make ends meet by selling shake to concentrate and edibles producers. Today, a state-authorized $40 tax per pound of shake makes this option unrealistic.
Legalization’s exorbitant operations costs combined with stiff taxes leads some researchers to believe that the adult-use cannabis industry is stacked against small farmers, as only large-scale operators can survive a precipitous price drop. This was what happened in Washington, where the state allows 90,000-square-foot cannabis operations that sell the majority of cannabis statewide.
CA Growers Association Sounds the Alarm
Hezekiah Allen, director of the California Growers Association (CGA) has been repeating the same two words at every meeting he attends regarding the rollout of Prop 64: “unintended consequences.” A landmark report by the CGA underscores exactly what those consequences are, including the inability of small- and medium-size operators to enter the regulated market, and large-scale operators allowed to stack licenses together to create mega-growing operations.
The CGA is concerned that “big cannabis” will result in an increased dependence on synthetics, pesticides and questionable farming practices, all of which could hamstring a biodiverse industry and result in cannabis monocropping and the loss of diverse, exciting, and healing strains and products.
Some would argue that cannabis farmers prefer to operate in the shadows. Though there will always be bad actors, most are eager to enter the regulated market, but can’t.
The CGA addresses specific barriers to entry that prohibit people from moving forward. The first barrier is the extremely limited amount of time people were given to enter the legal sphere. The ability of counties to overlay local policy over state regulations has resulted in only 13 of the state’s 58 counties passing ordinances to allow and regulate cannabis activity. Local zoning restrictions further limit small operators from successfully navigating the road to legalization.
As of February, the state had issued fewer than 60 licenses for delivery services, reducing options for patients and consumers. This is only a handful of the issues the report addresses.
The CGA does offer solutions to some of the problems that have surfaced post-legalization such as:
- Expanding transportation licenses
- Allowing small farmers to composite-test lab samples to reduce costs
- Letting cottage businesses share kitchen or manufacturing space
- Perhaps most importantly, lowering tax rates
Cannabis Legislation to Watch
Some lawmakers have responded swiftly in order to address the emerging challenges of Proposition 64. Several bills have been introduced, including:
- AB 1793, which would remove cannabis-related convictions from a person’s criminal history under specific conditions
- AB 2069, which would provide new workplace protections for medical marijuana patients
- AB 3157, which would reduce the state cannabis sales tax rate from 15% to 11% and suspend all cultivation taxes until June 2021
Stay Engaged With State & Local Marijuana Laws
- Learn what the rules are for your county, remembering that individual cities can adopt their own cannabis regulations.
- Speak with your elected officials and stay informed on evolving legislative changes.
- Support small farmers by purchasing responsibly grown cannabis from licensed operators.
- Need a tax break? Talk to your county about getting a state-issued Medical Marijuana Identification Card, available to medical marijuana patients with a valid physician’s recommendation.
Photo credit: Mark