No one clear path around California marijuana industry’s major business woes, insiders lament

California’s cannabis industry continues to struggle with problems that remain much the same since early 2018 when the state transitioned to a legal market – and no clear solutions have yet emerged. 

At a two-day marijuana industry conference in Long Beach, California, this past weekend, state regulators and industry insiders mingled to lament those familiar business hurdles:

  • A lack of overall marijuana licensing opportunities.
  • Significant barriers blocking unlicensed cannabis business operators from transitioning to the legal market.
  • Widespread bans on commercial marijuana activity by a majority of the state’s municipalities.
  • High tax rates pushing consumers to the illicit cannabis market.

Many ideas were floated during the State of Cannabis conference, but little consensus emerged to provide a clear-cut way that California’s cannabis industry can best address these longstanding challenges – in addition to the vape crisis that emerged this year.

Several attendees raised the possibility of yet another statewide ballot measure to lower California’s cannabis taxes or require more legal marijuana retailers.

That potential legislation would serve as a sort of sequel to Proposition 64, which legalized growing, selling and possessing marijuana for recreational use in California in 2016.

New ballot measure?

Bills in the state Legislature attempted – and failed – to tackle the major woes facing the California marijuana industry, and it’s apparent no simple way around any of them exists.

That has some in the industry floating the possibility of another statewide ballot measure.

“I definitely think we need a ballot initiative,” said Cody Bass, a South Lake Tahoe City Councilman and cannabis shop owner who also sits on the board of the National Cannabis Industry Association.

“A unified industry could get a measure on the ballot.”

He suggested if only a few hundred legal companies each contributed $10,000, it would be easy to fund a multimillion-dollar statewide campaign comparable to 2016’s Proposition 64.

That would provide one way to lower state cannabis taxes, he suggested, to make the legal market more attractive to consumers and make the illicit market less profitable for lawbreaking competitors.

Lowering state cannabis taxes is already an issue that’s been brought before the state Legislature the past two years and even has the backing of state Treasurer Fiona Ma, who told industry stakeholders at the conference that she’s “very supportive” of decreasing MJ taxes.

“It just takes time for people to understand or say, ‘This is a problem,'” Ma said.

“When you try to take away a tax … some people don’t like that, because that means less money” for the state coffers.

Bass acknowledged afterward that it’s difficult to see how a new ballot measure, which would be an immense political lift, could happen before the 2020 election.

Other potential business, regulatory strategies remain complex

“The way to (move forward) is to provide a path to licensing,” Mike Ray, CEO of Oakland-based cannabis company Bloom Farms, said during a panel.

Ray and others – including Bureau of Cannabis Control chief Lori Ajax – said one of the biggest hurdles involves how much of the state remains off-limits through local bans on commercial marijuana activity: An estimated two-thirds of California’s 540 local governments still prohibit MJ businesses.

Ray said he had just returned from a business conference in Boston, where he heard that East Coast investors are “literally sitting there waiting for (the California) industry to implode so they can pick it up for pennies on the dollar.”

“If Sacramento doesn’t act, that’s what’s going to happen,” Ray predicted.

Just how to get state lawmakers motivated, however, remains a question for marijuana businesses.

More policy questions than answers

A theme that emerged at the conference revolved around free-market approaches, including: 

  • Lower barriers for cannabis entrepreneurs who want to enter the market.
  • Increased legal competition.
  • Regulations that allow the market to sort out business winners and losers, as opposed to the current de facto license caps that are in place in nearly every city and county that currently allow cannabis companies.

Mendocino County Supervisor Ted Williams, for instance, said he’s trying to organize a coalition of local government officials to persuade state lawmakers that the best way to bring more illicit operators into the legal market is to “permit first (and) worry about code violations later.”

“At a state level, we need to talk about incentivizing cultivators to move into the legal market,” he added.

That would be tantamount to amnesty for cannabis companies that have long been operational but have not yet become fully licensed, some in the industry have said. And it may be necessary to ultimately make the entire California system functional, suggested consultant Jackie McGowan.

Williams said the lack of licensing has contributed to the ongoing illicit market in California, which is arguably one of the largest threats to the long-term viability of the legal marijuana industry.

He and others reiterated that there are still thousands of such operators – including cultivators, retailers, delivery services and more – that are doing business in the shadows instead of the legal market.

Cat Packer, executive director of the Los Angeles Department of Cannabis Regulation (DCR), also threw her support behind such an approach.

“One of the biggest challenges … is the fact that we have arbitrary caps set on the number of licenses that can be issued,” she said.

“We could responsibly allow hundreds, thousands more businesses, and the market itself will choose who’s going to be viable and who is not.”

John Schroyer can be reached at [email protected]

5 comments on “No one clear path around California marijuana industry’s major business woes, insiders lament
  1. mike on

    sounds like they have not moved forward from an initial meeting i attended with the state where the woman in charge said we don’t know anything about this business and need you to educate us. she said her experience is with the liquor industry licensing. well duh, there is your workable model but just scale down to allow all wanting licenses to be included. that meeting turned into a whine fest with people asking questions that the state was unprepared to answer and they still don’t have answers, so here we sit with underground sales booming because to come in out of the cold means exposure to law enforcement when you go bk trying to comply or bk waiting for full licensing but you have to keep producing to feed the family. the state and locals got too greedy for future taxes that aint coming so to pay upfront for promised licensing that is a bk notice for all small sincere enterprises. yes let the state over regulate to destroy this industry and like the article says, the vultures are circling to take what should be a peaceful California industry.

    Reply
    • Brett Yader on

      I call it the “Washington” problem. That state gave licenses to hundreds of producers when they only had 10s of retailers. Oregon and Colorado were smart, and had hundreds of medical shops ready to convert soon after legalization.

      To follow the alcohol model, as you suggest, the premise of UNLIMITED retail points is NECESSARY. Alcohol is sold in hotel bars, comedy clubs, gas stations, ethnic festivals, ETC ETC ETC. If they don’t TRULY legalize cannabis by allowing it to be SOLD anywhere and everywhere, there will NEVER be a real industry.

      Reply
    • Sup on

      You attended a meeting where the woman in charge of the regulatory agency (?) actually admitted that the people in charge really have no business being in this business?!?
      That is the whole freaking reason why it isn’t working!
      Who hired these people, who don’t know the 1st thing about cannabis, yet alone the “business ” of it?
      The state of California is run by a bunch of Homer Simpsons! Doh!

      Reply
  2. Michael Kredel on

    Clearly regulators are listening…they just announced a 3% INCREASE to the excise tax, starting 1/1/20. (raising assumed mark-up from 60% to 80%)

    Reply
  3. Al on

    Got corporate companies opening 5 dispensaries in LA in one year yet regular folks who saved up their $$ can’t even get one license. This whole system is pathetic

    Reply

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