California Marijuana Notebook: Dispatches from an Emerald Triangle retreat indicate the industry’s turbulence

(California Marijuana Notebook is a regular column that delves into the complicated issues surrounding the state’s immense cannabis market from the vantage point of Marijuana Business Daily Senior Reporter John Schroyer. Based in Sacramento, he’s been writing about the cannabis industry since joining MJBizDaily in 2014.)

Volatile. Transitional. Coasting. Fragmented. Dumpster fire. Passionate.

Those were the answers from half a dozen speakers last weekend at Meadowlands, a retreat in Mendocino County for cannabis industry insiders sponsored by San Francisco-based marijuana technology firm Meadow.

The question: What’s the state of California’s marijuana industry?

The answers reflect differing realities for companies depending on what niche they’re in and also how chaotic the California MJ industry remains – even though final regulations have been in place since January.

According to an informal survey of about 60 retreat participants, Meadow CEO David Hua said:

  • 53% of MJ companies are less profitable than they were in 2018.
  • 95% said California hasn’t created an environment where small businesses can succeed.
  • 70% rated the track-and-trace rollout as “poor.”
  • Two-thirds of the respondents are not actively hiring.

“These are the same questions we asked last year (at the 2018 Meadowlands), but there’s a stark difference,” Hua said while moderating a panel with Lori Ajax, the head of the California Bureau of Cannabis Control.

Ajax responded: “It’s sort of terrifying … That’s not a very good report card.”

Reasons for turbulence

While many parts of the supply chain have begun to relax into a semblance of normalcy, flux and confusion surround many issues, including:

  • The rollout of the state’s track-and-trace program.
  • Questions around social equity programs and their funding.
  • Persistent licensing issues. Roughly 1,800 temporary permits are set to expire at the end of July, and that’s only those overseen by one of the three regulatory agencies, the Bureau of Cannabis Control.
  • The long-term viability of the legal market in the face of still-thriving underground cannabis businesses – perhaps the biggest overarching question.

The illicit market dilemma

“I just want to crush the illegal market,” Ajax said to applause at Meadowlands.

“I don’t usually say that out loud. … We didn’t go through this the last few years to have (the legal) market be undermined.”

Still, few answers were presented regarding exactly how the licensed operators can win out over those in the legal shadows.

During another Meadowlands panel, Gov. Gavin Newsom’s new cannabis business czar, Nicole Elliott, said the governor had set out an ambitious timeline of five to seven years in which he wants to extinguish all illicit marijuana businesses in California.

She’s hoping it won’t take that long.

“What we’re trying to do right now is to enable future jurisdictions to successfully transition their existing operators into the licensed system,” said Elliott, senior adviser for cannabis in the Office of Business and Economic Development. “From a state mindset, that’s something we’re focused on – to try to speed that up a little bit.”

Cat Packer, head of the Los Angeles Department of Cannabis Regulation, suggested it’s going to take more licensing opportunities and, therefore, more cities and counties to opt into the commercial cannabis industry.

That has slowly been happening, though arguably not at the pace with which legacy companies have been exiting the industry.

“It’s going to feel like a long time coming, and then it’s going to happen all at once,” Packer predicted. “There are only so many jurisdictions around the state that allow access right now … but it’s going to be this process where we wait for a jurisdiction to open – it fills. We wait for a jurisdiction to open up – it fills.

“All of these things are going to take time.”

She also noted that though Los Angeles doesn’t have strict caps on the number of business permits it will issue, it does have an “undue concentration” clause that will establish a de facto limit, especially on retailers.

Packer believes L.A. will hit that limit before July 2020, meaning the city likely won’t be able to grant a permit to everyone who wants one.

Weedmaps also was mentioned by licensees who still harbor ill will toward the powerful website, which has continued to carry advertisements from illegal retailers and delivery services in California.

Ajax even agreed that Weedmaps is “a problem,” and Jerred Kiloh, president of L.A. trade group the United Cannabis Business Association, brought up Assembly Bill 1417, which would allow the state to crack down on companies such as Weedmaps.

Market contraction ongoing

The continued underground market ties directly into the viability of all licensed businesses, so it’s not an easy reality to swallow for many small companies struggling with the new challenges brought on by regulations.

Market contraction is continuing, several insiders said, as legacy companies either exit because they’ve run out of money or for other reasons.

Kristi Knoblich-Palmer, the chief operations officer for Kiva Confections, said that “small manufacturers are disappearing one by one, day by day” because of much higher barriers to entry.

And Casey O’Neill of Mendocino County’s Happy Day Farms said, “it’s been touch-and-go” for his small grow.

“To still be here is a very empowering feeling,” O’Neill said, “but there’s also a deep sadness for all of the people who are not here. Five years ago, there was this hopeful feeling … and most of those people are not here now.”

Resilient hope – with realism

Still, as O’Neill indicated, an attitude of stubborn hopefulness pervaded the Meadowlands retreat.

Monica Gray, COO of Nice Guys Delivery and Distribution, noted that the state’s licensing agencies have been slowly handing out provisional and annual licenses and that enforcement against unlicensed companies has also ramped up.

“It’s level, in a certain sense,” Gray said. “My (company) is on the upswing, and delivery is doing well.”

Knoblich-Palmer also said the supply chain is “professionalizing,” and it’s easier to rely on business partners to deliver raw materials.

Ajax said her top priority at the moment is to process annual applications for every temporary license of the roughly 1,800 set to expire before the end of next month, so that there’s no gap in licensure for companies trying to remain compliant.

(Click here to read the previous installment of this ongoing column.)

John Schroyer can be reached at [email protected]

6 comments on “California Marijuana Notebook: Dispatches from an Emerald Triangle retreat indicate the industry’s turbulence
  1. Pat on

    “I just want to crush the illegal market,” Ajax said to applause at Meadowlands.

    I have news for you, Ajax. This WHOLE thing got off on the wrong footing. And you know it. None of you at your agency, or any of the other relevant agencies ever comes out with concrete information that the public can rely/go on. Your agency is very nebulous with regard to how it operates. This means that a state agency is operating in the shadows while professing at the same time that those that want to, can can out from the shadows.

    The author’s behind the “law” and their associated “regulator’s” don’t know what they are doing ( to most of those that care ). But, they are propping up those with money and connections. No real standardization or evidence based regulation. Just high priced hurdles. When you have the aforementioned, what can any fool discern, will be the reaction from the nature/character of an industry such as this one has been for over 50 yrs? Is it the thought that the best standing military in the world thinks it can conquer/change the course of a civilization that’s thousands of years old, because it says/wills it can? Without taking into consideration its adversary’s ( Because that’s EXACTLY how many of those in the black market feel. They’ve been made into adversaries by your own acts. But, none of you ask/or care, because you already know the answer… ) thoughts/positions on things important to them? Hmmm…where have we seen this kind of thing played out on a much larger scale; that we still haven’t learned from? Pretty arrogant/presumptuous by the elites in Sac. and their oligarch buddies.

    Ajax ( and Co. ); you’ve already spooked ( and wasted a lot of their time and money, w/wanton disregard ) the one’s whom were trying to do right ( with all of the ups and downs ) prior to 64. And then, it got rolled out the way it did. You’ll never get those people back because you betrayed their trust, forever. How can you not know/have known that? You had to have. You let the special interest’s dominate at the expense of all the rest. Your actions speak very clearly. And it’s no surprise to most; that anything that comes out of your mouth or your agency’s and other’s like it, will ( increasingly ) mostly fall on deaf ears.

    Now, was that so hard to figure out? Had I gone to a Trump rally; who else is going to go but Trump supporters? I would have gotten all that applause, too.

    Reply
    • Kenny on

      Well said, Pat! California’s government couldn’t wipe their a** if the instructions were on the toilet paper. Just like they do everything- over budget, over promised, over taxed. I feel bad for those who are trying to be legal but, hey, $150 or $100 for black market? Easy answer. Colorado has given every state a successful roadmap to follow, but no, we can do it better. Ha! Idiots.

      Reply
      • Pat on

        Kenny, the state of ca. task masters and their opportunistic minions were not driven so much by idiocy as it was ( is ) greed. Greed is the main driver here. But, it is leading to idiotic outcomes. And, those idiotic outcomes cost a lot of money. It’s money that the tax payer is going to have to pay as this thing moves forward. Not, them. They’re the one’s cashing in on this deal. Not, the ca. taxpayer. Not the potential customer. And, not mom-pop shops that were prevented from ( re-entering in many cases ) entering the legal market.

        The only people that are getting rewarded for this are the original cartels, the state legislator’s supporting/and facilitating it, and the regulators at the various agencies responsible for the implementation/mgt. of the “law.” What’s happening here is no different than what’s happening in D.C. and its revolving door culture that enables and empowers the special interests. The point being, that an ounce of bud may cost the customer $400.00; but, the reality is, it’s costing the unwitting taxpayer a lot more than that. It’s the equivalent of a defense contractor charging the gov. $700.00 for a hammer or a toilet seat.

        If you follow closely ( the money ), you will find that many of those cartels will be donating heavily to the re-election campaigns of the “co**k su*k**g, common citizen, sell-outs” to keep their kind in power. The same goes for those in the regulatory chain ( their is NO standardization as to who gets shut down, or how much someone’s fined, etc.. ) whom take it easy/look the other way on the bigger players that they think will give them a higher paying job when their career is finished w/the state.

        So, it’s a lot less of a function of innate idiocy than it is pure and abject greed; utilizing government resources for ultimate personal gain for a very few people. And, they ( our govt. ) are willing to take away people’s freedom, their property, and potentially their lives for daring to compete against their inherently corrupt and unlawful practices. They have no problem throwing anyone under the bus who try’s to get around this scheme. The state of ca. has made itself into kind of mob boss, who will do anything to protect their turf. The problem with this, is that the government is not supposed to do this. Yet, here we are.

        Reply
  2. Rod Gass on

    When asked for her opinion about the success of the BCC …

    Ajax responded: “It’s sort of terrifying … That’s not a very good report card.”

    Yeah that’s correct, you’re failing and still making mean talk. Your “legal” beavers followed your lead and then didn’t approve of your dishonesty and corruption. Would you care to see the report card from the OG cultivators who you’re out to crush?

    Sooner or later you’ll wake-up to the truth about cannabis. For each of your newly approved “legal” cultivators there’s more than 60 OG cultivators who don’t want to be in the “legal”. And then as normal, “legal” folks are making business inside the OG, taxfree.

    You’re facing a future of ever-worsening conditions. You’ll need to quell the people who’ve been harmed. Have you planned for the Marijuana Tax Revolt? It’ll arrive when your few remaining “legal” beavers turn on you and demand satisfaction.

    Reply
    • Pat on

      There’s only two benchmarks that determine prices. The “regulated” one and the unregulated one. Each has its own supply/demand priced points. One price point is artificially driven by corrupt legislator’s/regulator’s and “legitimized” oligarch’s, under the color of law. The other is driven by the federal schedule 1 throwback by folks that don’t play by the state’s game. Both schemes put many people at unnecessary risk, because the government doesn’t care to do its job as it relates public safety, public health, and safe and ACCESSIBLE ( prices are even higher in the regulated market due to artificially imposed competitive constraints by the gov. ) access.

      Reply

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