California is about to open its first legal cannabis shops and it's posing a huge problem for local pot farms

‘There’s a boatload of product and a lot of folks aren’t going to make it into the market’

Jeremy B. White
Sonoma County
Tuesday 05 September 2017 18:47 BST
California to open pot shops: The farmers, distributors and producers tackling new regulations

Growing marijuana has run in June’s family for three generations, a stretch that has seen universal prohibition give way to accelerating legalisation.

For well over a decade, June – who asked her real name not be used – and her husband have been among the thousands of Californians who cultivate pot in a state where the marijuana leaf has become as much of a symbol as the surfboard.

But, despite the grand opening of California’s recreational marijuana industry being mere months away, many of the people who have tended their plants beneath the evergreens and oaks of the state’s undulating hills aren’t sure they can stay in the business. A crop that should be becoming a boon risks becoming a burden, as many will have nowhere to sell what they’ve grown.

June and her husband, who built a consistent business supplying dispensaries and hoped to get right with the law, aren’t sure they can meet the necessary regulations – and costs – to keep selling what they grow in a newly legitimised industry.

“It’s putting us in a situation where if we’re not able to sell to that market any more we’re having to find new, illegal channels in a saturated market,” says June. “We would either have to shut down or find new avenues of sale on the black market or the unregulated market.”

They had moved from a location in the so-called Emerald Triangle, three counties in Northern California that form the state’s cultivation epicentre, to a discreet property in Sonoma County they thought would be better suited to meet the regulations they were sure were coming. But it may not be enough.

June’s struggles embody a contradiction at the heart of California’s burgeoning legal marijuana economy, which is set to fully launch in 2018. By sheer volume, the amount of cannabis grown in the state will vastly outstrip demand. But the market will also face a dearth of marijuana as farmers grapple with the prohibitive costs of going mainstream.

“Here’s the irony: there will be a huge oversupply of product and a shortage of regulated product,” says Hezekiah Allen, executive director of the California Growers Association. “We are looking at a unique situation where there’s a boatload of product and a lot of folks aren’t going to make it into the market.”

It was not supposed to be like this. The last 10 years have been boom years for cannabis cultivators. Growers who have spent decades in the business say there has been a frenzy of new and larger grows. Many attribute the explosion to California easing marijuana penalties and approving a business model of cannabis collectives that made it easier to get buds to distributors without having to worry about its final destination. Farmers have planted more to compensate for plummeting prices.

A study prepared for the state as part of the regulation effort offered a “conservative estimate” that California grows about 13.5 million pounds of marijuana a year and consumes about 2.5 million pounds. But the most probable scenario is not a glut of pot for sale, not yet anyway.

“There’s always been vastly more pot grown here than sold here, and the vast majority is shipped out to the rest of the country and that will continue,” says Charley Custer of the Humboldt Mendocino Marijuana Advocacy Project. “But with the price going down because of looser strictures against growing or possessing it… overproduction is finally going to kill the golden goose.”

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Participating in California’s legal pot economy requires both a state license and a local permit. Obtaining official permission costs money and requires navigating a bureaucratic labyrinth unfamiliar to many pot farmers, who have worked for years without having to worry about disabled access or zoning regulations or stringent testing. One indoor grower said he would need to spend more than $200,000 (£150,000) on a sprinkler system.

“These are folks who are used to jury-rigging things for themselves,” says Terry Garrett, who serves on a cannabis advisory board for Sonoma County and has studied the regional pot economy. “Record-keeping is anathema to running a clandestine, secretive business, and now you’re having to introduce QuickBooks into your operation.”

Even for larger operations with the resources and sophistication to obtain correctly zoned property and pay experts to conduct needed inspections, the road to compliance has been steep.

“It’s been a lot more difficult than we thought,” says Shivawn Brady, operations director for an Illinois-based medical cannabis company called Justice Grown that operates a farm in Sonoma County. She urges financial assistance to be given to smaller-scale growers, noting a single permit can cost $10,000 to $20,000 – not to mention land use requirements that can compel people to relocate. “It’s hurting a lot of people,” she says.

Brandon Levine, director of a dispensary called Mercy Wellness, says he doubts 10 per cent of the hundreds of growers he currently works with will be able to get licensed.

“There won’t be legal outlets for all the people that cultivate and have gone to dispensaries, so the black market is going to explode,” Levine says, calling the situation “hugely urgent”.

Suppressing the black market was a central argument for proponents of legalisation, who argued that legal outlets would undercut the illicit trade. While it is an open secret in marijuana country that the black market absorbs some of what is grown, many cultivators have embraced legalisation as a way to come out of hiding and grow conscientiously, touting environmental protections and a way to finally jettison the ever-present threat of prosecution.

But some of them won’t be able to get their products into the regulated market, and “people who work with dispensaries and can’t get permitted aren’t going to stop growing,” says Sonoma cultivator Julie Terry, voicing a widely shared sentiment.

“Many, many people will not be in that regulated market,” says Sam Magruder, a Sonoma County grower who has sunk millions into obtaining properly zoned land and getting it up to code for his growing operation.

Growers hoping to keep their businesses alive must make a rational decision, Garrett says, that balances the cost of getting state approval against the risk of selling to the black market and getting caught. And they’re vying for coveted space in a finite market, with a new track-and-trace requirement clamping down on the flow of weed outside the system.

“It’s the equivalent of blocking the exits and setting the building on fire with everyone inside,” Garrett says.

The solution, says Tawnie Logan, chair of the board for the Sonoma County Growers Alliance, is there must be a commitment to working with the growers who would happily submit to regulation but “don’t have the resources to make that leap”, a group she believes generates around half the pot grown in California.

“How do we bring that 50 per cent into compliance instead of pushing them into the black market? If this does not stay at the forefront of the conversation over the next two years we’re creating a massive problem,” Logan says. “We have to find a way to rehabilitate the business practices that are the response to decades-long prohibition and help them learn how to operate responsible businesses.”

States that preceded California in legalising cannabis provide some clues about who will survive in the nascent pot economy. Large-scale operations that can take advantage of economies of scale will likely prosper, says former Colorado pot czar Andrew Freedman, pushing out people who lack “the capacity or the capital to meet the new regulations”.

Eventually, according to Mark Kleiman, a marijuana policy expert and professor at New York University, the “legal players are going to drive the illegal players out of the system” in California.

“In the very long run, the illegal stuff just goes away – there’s no substantial moonshining in the US,” he says.

That scenario is too distant to inform what June and others like her do now. She hasn’t yet decided whether to compete with the big growers she sees proliferating around her, even though she knows the potential consequences.

“If there’s still lax enforcement then we’re going to continue and a lot of people will and there’s going to be a huge glut,” June says. “If it seems like things are going to be really grey and unorganised and the transition time will be a while, then we may just take that risk.”

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