California’s Emerging Cannabis Crisis
February 28th, 2018
In less than two months that recreational cannabis has become legal in California, the state’s cannabis industry could be on the verge of a major crisis.
On February 19, the California Growers Association (CGA) released a lengthy report entitled An Emerging Crisis: Barriers to Entry in California Cannabis. In it, the CGA discusses the consequences of larger companies having more access to the cannabis marketplace than smaller businesses due to strict licensing requirements that favor companies with abundant resources.
At present, less than one percent of California farmers have received licensure from the state so far. However, it’s still unknown just how many of those farmers are actively interested in acquiring a cannabis cultivation license. The CGA report suggests that it could be anywhere from 25 to 75 percent of state growers who are interested, but even if it’s the lower end of that spectrum, the CGA warns the consequences for the industry as a whole are dire.
The report insists that strict regulation rules and high associated costs force independent and artisan growers out of the marketplace and into the black market. It quotes a Sonoma County cultivator who summarizes the problem:
“The unintended consequence of making it so difficult at the local and state level to enter the regulated market is that 80-90% of those who were working with dispensaries prior to 1/1/2018 are being pushed to the black market. This is not only bad for the regulated market because so much high-quality produce is now flooding the black market, but crime is increasing as a result as well. I am truly heartbroken to see what the regulatory system has done to the artisan cultivators and manufacturers who were creative diverse, boutique products. These people who built this industry are not allowed to participate.”
In other words, many of the people responsible for pushing Proposition 64 to the forefront of the political landscape and getting marijuana legalized in the state are being pushed out of the market by large companies with more resources.
And given the current state of conditions, it seems the CGA right to be concerned. As of February 7th, less than one percent of grower applicants received a license.
According to the report, the small number of licenses going to independent growers has little to do with operational problems on their part—many of these artisanal and small businesses have developed some of the most diverse and sustainable cultivation and distribution methods in the market. CGA argues that their failure to obtain licensure is due to, “the one-time costs of regulations or the inability to comply with regulations because of local land-use policy.”
Currently, California county regulations are all over the map in terms of what local businesses can do, diverging on fundamental rules by county. So far, 25 counties have approved a local ban on commercial cannabis activity “with no clear plan to reconsider the issue.” Meanwhile, 13 counties approved ordinances allowing for and regulating commercial cannabis activity. Complicating things even further is the fact that the 13 counties who approved it also have diverging rules.
“The systematic risk is that large businesses with more flexibility will locate in a small pool of friendly cities and counties, saturating the regulated California market, while existing small businesses will be left without a path to compliance.”
But even small growers in supportive jurisdictions face substantial barriers. The report cites those barriers in detail, which include the exclusion of growers from state cannabis event licenses, the prohibition on direct cannabis marketing, a dearth of licensed testing laboratories, and complications with respect to transportation licenses and recreational vs. medicinal production licenses.
Beyond the ethical and moral implications of pushing small growers out of the market, the market consolidation from larger operators could lead to four critical consequences:
Because the majority of large businesses depend on standardization and reliability, a consolidated market is likely to lead to less cannabis strain diversity while limiting new strain discovery.
According to the CGA, California produces 15 million pounds of cannabis per year but only consumes three million. Because there’s an overabundance of product, increasing large-scale businesses could ultimately lead to overproduction.
Industrial agriculture relies on pesticides in cultivation, and this rings particularly true for large-scale cannabis growers. On the other hand, smaller businesses are better able to manage the quality and standardization of their product without the use of pesticides.
The CGA reports that there are 68,000 small cannabis farms in California that employ an average of 3.6 employees per farm, totaling more than 258,000 employees in all. If these farms fail, so do the livelihoods of hundreds of thousands of people, which could lead to a dire economic fallout.
In response to these problems, CGA executive director, Hezekiah Allen said he’s keeping a close eye on “no less than 99 [cannabis] bills” in the state legislature. Most of said bills address a range of regulatory issues such as cultivator sales at events, marketing and advertising, delivery oversight, hemp cultivar certification, and many others designed to push back against the marketplace marginalization of small growers.
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