August 2018

COLUMN: TRENDS AND HOT TOP¬CS " T he myth of the green rush.” That’s what I was tempted to call this column, but it’s not completely true. Just mostly. Plenty of people and companies are positioned to do well in Califor- nia’s newly regulated cannabis mar- ket, but they’re relatively few and far between. The vast majority participating in California’s cannabis industry, by contrast, are having a rough time and aren’t rolling in greenbacks. This small snapshot illustrates the point: At a Mendocino County retreat put on in mid-June by cannabis- delivery software firm Meadow of San Francisco, the company founder said he’d surveyed some licensed col- leagues about how their businesses are doing. Out of 85 respondents, 88% are at about the same level of profitability compared to the previous year, while just 12% are more profit- able in the regulated market, he said. Perhaps more telling is that 83% of those respondents aren’t cur- rently hiring, and the other 17% are downsizing. Lori Ajax, chief of the California Bureau of Cannabis Control, was candid about the situation when she spoke to attendees at the retreat. “We have so many people here and throughout California that are California in Chaos The Golden State was supposed to be the gold standard for regulated marijuana markets, but it’s not looking that way By John Schroyer John Schroyer struggling to get into this regulated system. The ones that are being regulated are struggling to survive. That’s not success yet,” Ajax said. “Do I think we can achieve it? Yes,” she added. “Do I have a time- table? No.” Licensed Operators Struggling I’ve heard stories about families moving to California with stars in their eyes, visions of making millions growing legal marijuana, only to turn back after being unable to find legally zoned real estate or obtain the nec- essary permits. I’ve also heard about thousands of longtime growers in the storied Emerald Triangle who simply aren’t going to qualify for – or be able to afford – cultivation permits. They’ll go out of business or stay in the black market until they are forced out – either by economics and dropping wholesale prices or law enforce- ment tracking them down. But many already are exiting the sector. Even the companies making a solid go of it often must deal with: • Local corruption during the licensing process. • Business deals that fall apart and ensuing litigation. • Untrustworthy or unreliable trad- ing partners. • Constantly evolving regulations. • A lack of enforcement against unlicensed competitors that con- tinue to undercut them on price. One attorney who specializes in business disputes – and whose clien- tele previously came mostly from tra- ditional industries – told me in early June that marijuana-related work had shot up to comprise roughly half her workload over the past year. That included a multimillion-dollar deal in which an out-of-state investor trusted a local grower to oversee a cultivation operation, and the grower allegedly turned around and stole the entire crop once it was harvested. The investor had no recourse because the parties involved hadn’t signed proper contracts, which may have provided a way to recoup the loss. That may seem like Business 101 to many, but it’s just another indicator that there are just as many failures in the California marijuana space as there are successes. A Market Contracting Overshadowing all of this is the fact that an untold number of existing com- panies are being forced out of the legal market because they haven’t been able to obtain local permits. That means the existing medical marijuana market, which arguably 34 • Marijuana Business Magazine • August 2018