Prop 64 Rollout: Has It Put the Cannabis Industry in Trouble?
March 12, 2018
It’s been a little more than two months since California became the latest state in the nation to legalize cannabis for recreational use. On March 1, a virtual who’s who of state lawmakers, cannabis entrepreneurs, and county and city officials spoke to a packed house in Mendocino County. Entitled the “First 60 Days of Prop 64,” the official hearing was hailed as an opportunity for California lawmakers, business people and local officials to brief attendees on the successes and challenges of legalization—and to listen to concerns from the public.
The lengthy hearing was live-streamed and co-chaired by Assembly Member Jim Wood and Senator Mike McGuire, whose districts encompass California’s North Coast and sizeable swaths of the Emerald Triangle. Both Woods and McGuire have been instrumental in their support for and rollout of Proposition 64. The third co-chair in attendance was Senator Jerry Hill (D-San Mateo).
Regulating a Previously Unregulated Cannabis Industry
Whether it was Lori Ajax, chief of the state’s Bureau of Cannabis Control (BCC), Tony Linegar, Sonoma County agriculture commissioner or Hezekiah Allen, CEO of the California Growers Association, speaker after speaker detailed the complexities of regulating a previously unregulated marijuana industry.
Rex Bohn, vice-chair for the Humboldt County Board of Supervisors addressed the overflow crowd. “The biggest problem we have is synching all the agencies together. You guys can’t be a pawn in that game,” he told the audience, referring to the difficulty of county departments coordinating with one another to ensure overall cannabis compliance with the state.
California’s cannabis program is still operating under emergency regulations. To date, 1,307 temporary licenses for cannabis retailers and manufacturers have been issued statewide. Ajax hopes feedback from this and other meetings will help a BCC advisory committee address unintended consequences arising from the emergency regulations, which expire after one year and must be replaced with finalized rules.
Are the Feds Coming for Legal Marijuana?
Attorney General Jeff Sessions has made the federal government’s position on cannabis clear. His decision to rescind the Obama-era Cole Memo once again places 29 legal and medicinal cannabis states in the Fed’s crosshairs.
With the threat of federal intervention back on the horizon, Senator McGuire asked Ajax, “What’s plan B for California?”
“We came right out of the gate, including a lot of California leaders, saying our regulations still follow the guidelines of the Cole Memo, and we will continue to do that. California has legalized both medicinal and adult-use cannabis, and we’re going to regulate it. That is the focus of all us—to follow California law and the will of the people,” said Ajax.
Taking it to the Bank? Not if You’re a Canna-Business
With few banks willing to work with the industry, cannabis distributors are forced to transport large sums of money, including state taxes they’re required to collect from retailers and cultivators. Bill Silver is the CEO of CannaCraft, which provides patients with some of California’s most popular medical cannabis products. He summed up the banking problem by asking, “How many people think it’s a good idea to drive around with tens of thousands of dollars in a pickup truck?”
“We recognize it’s really difficult to pay your taxes if you’re not in the banking system,” noted Nicolas Maduros, director of California’s Department of Tax and Fee Administration. “As yet, we have not found the answer.”
As a stopgap measure, 11 statewide offices will soon be authorized to accept cash payments of cannabis taxes and fees.
Senator Bob Hertzberg (D-Van Nuys) introduced a bill that could help financial institutions safely conduct transactions with cannabis businesses. If passed, the bill will solve some, but not all of the cannabis industry’s banking problems.
How Is Medical Cannabis Faring After Prop 64?
Jude Thilman, owner of Dragonfly Wellness Center, a medical cannabis-focused dispensary on the Mendocino Coast, expressed concern for medical cannabis patients and outlets. “There are folks out in the hills who have been creating medicines you cannot find anywhere else. They’re not getting compliant. We don’t have an avenue for them. I’m afraid we’re going to go the route of Washington and Colorado, and lose medicine altogether.” Thilman urged lawmakers to recognize and support those who produce “some of the best craft medicines in the world.”
CannaCraft’s written report outlined a massive reduction in the number of small businesses working with them, resulting in reduced access to their medical cannabis products. In 2017, CannaCraft sold products to 468 dispensaries statewide. Today, that number has plummeted to only 120 licensed dispensaries—a 75% reduction in retailers offering their medicine.
CA Grower’s Association, AG Commissioner Sound Alarms
“With Prop 64, the devil is in the details,” noted Hezekiah Allen, CEO of the California Growers Association, which has been fighting to preserve the livelihood of California’s small farmers and craft cannabis producers.
“In some ways, we are seeing the worst possible outcome,” Allen said. He stated the unregulated market is flooded with “great product grown by people who desperately want a license, but are not able to comply” due to the difficulty of obtaining licenses.
He implored lawmakers to reform tax laws that are hobbling small farmers, to create consistent departmental enforcement policies and to extend timelines to address massive environmental cleanup requirements that some farmers face. “Small growers can’t fix the problems Big Timber put on our watersheds,” said Allen.
The hearing continued with scathing testimony by Tony Linegar, who has a decade of experience administering and regulating all types of agricultural activities, first as agriculture commissioner for Mendocino County, and now in the same position in Sonoma County.
“If the overall goal of this program was to create a regulatory scheme to favor corporate, big-dollar industry, we’ve succeeded. If the goal was to create a regulatory pathway for existing cultivators to become legal, I think we’ve failed. Any other agricultural business I know of would be run out of business if they were held to this standard.” Linegar sees no compelling reason to regulate cannabis any differently than other crops, other than to ensure safety and address odor mitigation issues.
The CA Cannabis Industry in Peril Already?
Numerous members of the public addressed the panel, stating they had or were about to shutter their cannabis businesses. Their plight was addressed by Woods: “I worry that we will not have adequate product for the market, and that if we’re not cognizant of that, we could have the collapse of an industry that’s barely getting started.”
Photo credit: Esteban Lopez