Marijuana Business Magazine - March 2018

TRENDS AND HOT TOP¬CS W hat turbulence? The January rollout of California’s regulated cannabis industry was surprisingly smooth, with few hiccups reported aside from ground-level logistical issues – like employee burnout and regulatory red tape – that are common with the launch of any new market. But that smooth ride is almost cer- tain to turn bumpy pretty quickly. During my two weeks in California at the start of 2018, I heard many concerns from a variety of industry insiders, much of it stemming from unanswered queries submitted to state and local regulators. Those worries ran the gamut: concerns over who in the supply chain was going to obtain permits to operate in the new market; unanswered questions Bumpy Ride Things are poised to get a lot more tumultuous for California’s newly regulated marijuana industry By John Schroyer about different operating protocols; confusion over local rules, such as unclear social-equity programs; and the heavy financial cost of rejiggering various operations to comply with the state’s new regulations. My conclusion: I’d be shocked if there weren’t serious – or even financially fatal – problems that arise among California cannabis compa- nies over the coming months. Just a few of the issues that will probably come up, according to my crystal ball: • There’s a high probability of product shortages come July, when retailers will be allowed to sell only goods that have passed new state testing standards. As of mid-February, there were only 23 licensed test- ing labs in the state. Moreover, there’s very little consistency between them as far as method- ologies and results. It’s also pos- sible a lot of growers who believe their product will pass muster will be sorely disappointed. Several industry insiders call the micro- bial contamination standards unreasonably strict. • Hundreds, if not thousands, of small companies will go belly-up or be acquired by larger busi- nesses. Why? The financial barrier to entry has skyrocketed along with the costs of complying with state regulations. Not many small businesses can afford to shell out six figures or more to fully comply with state and local rules. And because they likely won’t be able to land business loans, they’ll either have to sell, close down or move back into the black market. • California’s new distribution system has forged a brand- new type of cannabis market that is forcing growers, edibles makers and retailers to either get additional permits – which means extra red tape – or work A customer makes the first recreational marijuana sale at Berkeley Patients Group on Jan. 1. Photo by John Schroyer 34 • Marijuana Business Magazine • March 2018