California Cannabis Industry in Danger of Death by a Thousand Papercuts
There are certain industries that are just inherently geared for success based on some primal tap into our DNA as human beings. If you’re selling sex and/or donuts, for example, business ought to be pretty darn good and you’d think that the same would be true for selling legal cannabis…especially in California.
The truth is, now more than a full year into the implementation of Prop64 – aka the Adult Use of Marijuana Act – virtually nothing is going as planned or promised and it has many hardworking people on the verge of being bounced out of the industry before they can even get all the way in.
In California there are over 10,000 temporary cannabis businesses licenses that are due to expire this year and as many as 6,200 are set to expire by April. As of right now, the state has no mechanism or plan in place to extend those expiring licenses and many operators face the prospect of major business disruptions, or even collapse, before they receive their annual licenses from the state.
The danger that this licensing bottleneck presents to what is supposed to be the largest cannabis market on the planet is clear, it is impacting all aspects of the supply chain and is among the leading reasons why Year 1 revenues from that market were drastically lower than expected.
The War on Weed is so similar to the War on Terror it would be funny if it weren’t so tragic. Just like dropping a bomb tends to create more terrorists than it kills, the way the regulations were dropped on an already thriving cannabis culture in Cali has only emboldened and fueled the black market in the state.
DUDE WHERE’S MY WEED
At the root of the cannabis industry is the plant itself. Without it, quite literally none of this is possible.
The cost commitment to get a cultivation license in the state of California is so high under Prop64 that the process itself is starving out thousands of viable and worthy candidates simply due to the fact that they cannot afford to lay out tens of thousands of dollars in application fees and substantially more than that to secure and build out a facility that will just have to wait months and months until the state gets around to approving it, or not.
There is a multiheaded beast of regulatory agencies overseeing the entirety of the California cannabis industry, but in charge of the cultivation sector is the California Department of Food and Agriculture (CDFA).
Since November of 2016, the CDFA has issued just NINE annual licenses.
For comparison, the state of Oklahoma began accepting applications for its new medical marijuana program in August of last year and has already approved nearly 1,400 cultivation licenses.
Here in Cali we have nine who can rest their heads at night knowing that their business will remain legal at least through this year.
That number could be as high as 48 – still pathetic – but 39 pending annual licenses are being held up because the grower on the other end cannot or will not pony up the hefty $44,000 fee to the state.
By July of this year, all temporary licenses will expire, but at their current pace, the CDFA might be able to approve 144 of the 6,924 temporary licenses that were at one point deemed worthy of that paperwork but now may not survive to see their annual license.
What do you do if your farm is in full swing in late summer with everything you have already invested in turning that legal October crop and then the state tells you to stop, to somehow put the natural growth of plants on hold until they eventually sort out your 44-lage cultivation application and render their final decision?
Indoor and light dep grows can harvest multiple times per year and have primarily kept dispensary shelves stocked with compliant product up until now, but thousands of them will soon be forced to shut off the lights to avoid operating in the black market.
Their collective and justified gripes about the snail’s-pace at which the state is moving on this issue has not gone totally unheard.
On February 19th, the California State Legislature released Senate Bill 67. The bill is marked as urgent and is aimed at keeping cannabis farms with temp licenses open and operating while they wait for their annual license approval.
It is currently making its way through the process and is expected to have Gov. Newsom’s support when it arrives at his desk. But is it enough?
BREAKING THE CHAIN
Those stats about cultivators in California are eye-opening for sure, but that is just the first stop on a multilevel supply chain that the state has constructed to ensure that they press every tax dollar out of every bud like rosin.
Thousands of manufacturers, distributors, and retailers currently operating under state-issued temporary licenses face the uncertainty of whether they will be allowed to legally reap the harvest of the work that they have put in so far.
While regulation is necessary in any industry, especially one as new and untested as legal weed, it just seems like the powers that be cannot see the forest for the trees.
California is the 5th largest economy in the world.
Getting viable applicants approved should have been, and needs to be, the state’s highest priority. For the requirements that they have set and the amount of money it takes in order to even be considered, the least that they can do is make the process as expeditious as possible.
If they’d loosen the reins on the industry just a bit it would be off to the races.
The state would finally realize the revenue they predict and expect and the legacy operators who laid the foundation for this whole thing might finally get the opportunity they have earned.