More ‘extinction events’ for CA cannabis companies: Q&A with consultant Jackie McGowan

The past 12 months have been a rough ride for the California marijuana industry, and many business owners are hoping for a comparatively dull 2019 to get back to some sense of normalcy.

But there’s more turmoil on the way, according to K Street Consulting’s Jackie McGowan, whose Sacramento-based firm recently produced a report for clients that included a white paper outlining anticipated “extinction events” in the California cannabis industry.

The paper identified six potentially major hurdles still facing the California marijuana sector:

  • A possible shortage of disposable vaporizer cartridges stemming from lead contamination.
  • A lack of local industry ordinances that help businesses comply with the California Environmental Quality Act (CEQA).
  • Ongoing market consolidation.
  • Upcoming financial and tax audits by state regulators despite “hundreds” of licensed businesses not having yet paid state taxes.
  • Testing-related issues, such as lengthy wait times, faulty equipment and a general lack of labs.
  • Expected problems with both the rollout and maintenance of the state’s inventory track-and-trace system.

Marijuana Business Daily sat down with McGowan to dig deeper into the paper and some of the potential ramifications for marijuana entrepreneurs.

“Extinction events” is a pretty dramatic phrase. What does that mean in the context of this analysis?

I absolutely believe this marketplace will not look the same – it will not have the same set of players, it won’t have the same set of rules – a year from now.

The July 1 deadline of last year was probably our most visible extinction event, and I believe that term was coined a little after we realized how severe that impact was.

The backlog of testing facilities was one that many smaller manufacturers were not able to endure. We probably experienced that jam for five weeks, and we’re sure that put a lot of small operators out of business.

Do you have any educated guess as to how much the market contracted this past July and how much more the market could contract this year due to these red flags that you’re warning about?

We believe that the extinction rate will be 90% in the next year.

You seem to be suggesting in the paper that California’s legal market may not have access to any disposable vape cartridges that would pass Phase 3 testing.

I have a client who has independently tested, I believe it’s up to 10 manufacturers now. That client is using a third-party (agriculture) lab instead of a cannabis lab, because we’re just testing hardware.

So far, nine out of 10 have come back with very actionable levels of lead, and this is within the components being broken down.

Our advice to our clients right now is to have the glass tested, have the springs tested, have the internal coils tested.

Break this product down into as many pieces as possible to figure out where the lead is coming from, so then, upon assembly, you can figure out if you can contain the lead outside of the glass.

The problem is that most cannabis (oil) has two very acidic terpenes in it that are causing the leaching and the erosion from inside.

I have no way of knowing if that’s a harmful product once that has lead in it. There are obviously no studies done on this. But I just know that there is clean oil going into these cartridges and it’s coming out dirty, and this is a problem.

Given that we have that Dec. 31 loophole of when a product could be harvested or manufactured, it only needs to be compliant with Phase 2 testing and not heavy metals, so when this problem is actually going to affect the marketplace is open to interpretation.

How much supply did we actually have in 2018 to supply the 2019 market?

And how long that supply will last …

Exactly.

The state came out with another recent report on testing results on Jan. 22, but it goes all the way back to January 2018. There hasn’t been an obvious spike yet in heavy-metal failures for MJ products, but it sounds like you’re expecting that and it’s just a question of when.

Right. I don’t think there are more than three or four labs in the state that are doing Phase 3 testing, and only two of them are capable and willing to test the hardware.

So, now we’re starting to get labs online, but if they’re not able to solve where the problem is coming from, there’s not much they can do about it.

CEQA is another amazingly complex issue. What happens July 1, 2019, as you mention in the paper?

The state had given a grace period for CEQA compliance to the industry, and that expires July 1. What that means right now, we don’t have enough information from the state to say.

I’ve submitted a list of questions to the California Bureau of Cannabis Control’s attorneys to get some more clarification on this, because the questions I’m getting are coming from attorneys in major metro areas.

Are we supposed to be auditing those cities to find out if what they’ve submitted for CEQA compliance is enough or sufficient? I have no clue. So stay tuned for more information on that.

But local jurisdictions are going to need to pay for an environmental impact report, city- or county-wide, or they pass the burden off to the operator and require CEQA compliance to be conducted individually on a project-by-project basis.

We don’t really know the impacts of this one, but a friend of mine who’s a CEQA expert calls it the “silent killer” for a reason.

It’s a giant question at this point whether all of these jurisdictions that have been handing out permits have even been paying attention to that.

This interview has been edited for length and clarity.

John Schroyer can be reached at [email protected]

9 comments on “More ‘extinction events’ for CA cannabis companies: Q&A with consultant Jackie McGowan
  1. Rod Gass on

    McGowan’s deflection to vape manufacturers makes her stance as tenable as surfing on a melting glacier.

    The real reason legal didn’t work in California is…the Newsom/Ajax loophole. Everybody watched in horror as the licenses were delivered to close-by cronies. Hundreds of small-scale cultivation licenses were “stacked” and delivered to a very small handful of “chosen ones”. Meanwhile thousands of cultivators were automatically labeled “illegal” “black market” “outlaws”.

    A forthcoming extinction event is justified, not for the legal reasons, but for the crimes against the California Cannabis Community.

    The legalization in California was a calculated joke played upon the non-discriminating voters of state. The voters didn’t vote for that which is here nor what legal has created.

    Reply
  2. thomas blank on

    “Very acidic terpenes”? Ge uh, I only have a PhD in chemistry, I’m not a “consultant”. There are no “very acidic terpenes” in cannabis … Water is more acidic than terpenes, perhaps its tap water on a weld with lead in it. As far as extinction events, follow the money and there is a ton of it to be had AFTER these extinction events that will surely occur. Once the testing hurdles are overcome, the 20 year black market in CA is well established, and a temporary tax break will do little to change that. California got greedy and added too many taxes so buyers not wanting a 40% tax go to the black market. Big government got greedy and its going to kill lots of jobs as this industry shrinks to a handful of big, well heeled players. And once again the powers of the elites take away the economy from the average Californian. Did you think your liberal politicians weren’t corruptible? The cannabis business in CA will go like Amazon, Google, Microsoft, WallMart and every other economic bloodsucking monster that killed off half the jobs in its own industry.

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  3. Good Luck on

    I have done my share of heavy metal testing, yes there have been issues, but there are plenty of vapes that don’t have issues. Non issue. What she and all the regulators out there don’t realize is that none of these smaller businesses are actually going out of business. They are simply returning back to business as usual on the black market, and thriving! Waiting for the legal market to be enticing enough to get back in. I watched the BCC step foot in a manufacturers lab and go down there checklist not knowing what they were looking for, then left! All they had was a State and local license. None of there equipment was permitted, or listed. None of their biomass was from the legal market, None of their manifests had a legal vehicle attached. The BCC is a joke when it comes to enforcement. Nothing will change for a while. If you can sell your legal cannabis business and get out, I would.

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  4. mike on

    well if as she sez 90% shakeout means 90% go black market to survive minus those that were foolish enough to come in out of the cold and gave all info about their plans and dreams to run a legal business to the government because if you can’t trust the gov, who can you trust. now law enforcement knows who and where to find those that have been forced to be criminals because the state and locals refuse to allow them to be legal. this slow walk by gov is meant to get as many out of the way as possible so when the friends and campaign contributors want licenses there is less competition.

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  5. Dan Green on

    Ms. McGowan and an entire group of Lawyers, went on the record to assure us that Prop 64 would not present a unfair disadvantage to medical patients or small growers! They assured us it would give existing growers licensing priority, one acre caps and anti-monopoly language would protect from some of the very things, she now warns of!

    When concerns about small growers and patients were brought up, they responded, “your selfish concerns are thin rationalizations for denying legal pot to millions of adult Californians, that don’t grow, or smoke pot for medical reasons.”

    They said we had a ethical duty, to the greater good, to vote for this deeply flawed and misleading legislation.

    They also assured us fixing flaws in the law after it passed, would be better than trying to pass a better written law. It’s been two years and not a single problem caused by legalization, like delivery, has yet to be resolved!

    How many patients, growers and their communities are being devastated by these, “extinction events” and resulting economic capital punishment? Besides the Lawyers & a few major steak holders is anyone else better off, post legalization?

    Ironically, as the market continues to consolidate, even Lawyers and Consultants will likely find themselves in the same position as patients and small growers have found themselves in.

    Reply
  6. The Mad Yooper on

    If I lied, cheated, and stole from you what would you do?
    I suspect that you would see to it that I was punished to the extent the law allows. Justifiably so.
    You gave your representation the benefit of the doubt. Take a good look at your local, county, state, and federal representation. Are you being treated honestly and fairly in return? If not Change it.
    Organize the cannabis community and take it out on them at the ballot box. It’s your right to do so.
    It is the only real way to win this battle. Stand up for your right to succeed. Like people who know it’s value.

    Reply
  7. MFB on

    Excellent comments. It is true … she is so far off base except her comments that there will continue to be an extinction of small weed companies due to over-regulation and excessive taxation; the laws are stacked against small growers as they give 90% of the licenses ONLY to cronies (like Board of Supervisors’ family farms — WOW! and their friends); implement moratoriums in northern california everywhere; and treat small growers much differently than the 90% since we are only 10% and they constantly require more locally from us so they can create yet another extinction. Humboldt has gone so far as to excessively tax small growers with the excise tax and just denied 240 interim permit holders for that reason as well as threaten unlawful penalties if not timely paid so the poor small growers are going in and reducing their already paltry grow areas to try to keep their permits. Absolute bloodbath — and we the people LOSE! No one is getting their charitable medicine and people throughout California are in pain and suffering and dying. Same issues as going on in every other industry in our third world country — corruption, cronism, incompetence and flat out fraud. And now, California is instituting hemp laws — to screw us more …

    Reply

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