Last-minute California cannabis industry ‘Hail Mary’ to delay July 1 transition

A group of California cannabis companies and trade associations have sent a formal letter to Gov. Jerry Brown and the state Bureau of Cannabis Control (BCC) in a last-ditch attempt to push back the upcoming July 1 deadline for new required lab testing and packaging rules.

The letter warns of dire consequences for licensed marijuana businesses if the regulatory changeover isn’t delayed.

“Right now, we’re looking at an estimated loss of about $350-$500 million … in an industry that has already been regulated to the brink of destruction,” said Jerred Kiloh, owner of The Higher Path in Los Angeles and president of the United Cannabis Business Association (UCBA), one of the signatories of the letter to Brown.

According to the letter, “forcing the industry into compliance without the necessary resources will further cripple the already struggling regulated market and will inadvertently favor the illegal and unregulated market.”

The letter predicts that if the July 1 transition is not delayed, some operators may wind up going out of business, whether due to extended wait times for test results stemming from a lack of operational labs or because they’ll have to eat the cost of destroying noncompliant product that many companies have already stocked.

“There are a lot of people saying, ‘I won’t be able to make it,’” Kiloh observed.

The letter, signed by 125 companies and nine industry associations, asks that the state extend the six-month transition period ending July 1 “until the State has approved permanent regulations and has implemented the Track and Trace system.”

The upshot

It appears unlikely the state will acquiesce.

BCC spokesman Alex Traverso told the Los Angeles Times that the July 1 date is firm and won’t be changed.

“We issued our emergency regulations back in November, and at that time, we were pretty clear about the fact that there would be a six-month transition period for retailers to use up their existing supply,” Traverso told the newspaper.

“We felt that was a sufficient amount of time to deplete stock on hand and adapt to California’s new rules.”

The governor’s office referred inquiries to the BCC, and Traverso declined to comment to Marijuana Business Daily.

Khurshid Khoja, a Sacramento-based cannabis industry attorney, told MJBizDaily the letter was a “Hail Mary and not likely to succeed.”

For instance, Khoja said, in order to delay the transition, the BCC would likely have to implement procedural steps that would literally take too much time to accomplish before the July 1 deadline.

“Procedurally, it’s not going to happen,” Khoja said.

Kiloh, however, said a delay could be a viable option if the Bureau of Cannabis Control wanted to take that route.

The letter to Brown and the BCC cites California’s Business and Professions Code, which states, in part, that marijuana industry rules shall not be “so onerous that the operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent businessperson.”

Asked if the letter was a Hail Mary, Kiloh said, “It kind of is, but it also isn’t … This is something they can do internally.”

It’s also not as though the entire California marijuana industry is unified about delaying the July changeover, Khoja noted.

“There are other licensees that are like, ‘Too bad, so sad. We’ve been working to make this transition date, and just because we made it and others didn’t doesn’t mean that we should be penalized,'” he said. “I’m sure that I’ve got clients on both sides of that divide.”

Losses anticipated

Kiloh said he’s had to shrink his inventory at The Higher Path from about 600 single stock-keeping units (SKU) to 125 because so many companies are out of compliance with the rules that will kick in July 1.

He also noted that the changeover will almost certainly divert product into the illegal market, because there’s currently no way for retailers to get previously untested product back to labs to have them meet the state-mandated standard.

The BCC has been telling companies for weeks that any noncompliant product will have to be destroyed before July 1.

The reality, however, is that businesses would rather break the law than lose hundreds of thousands of dollars in cannabis goods, Kiloh said.

Such a situation, he argued, will only give a boost to the illicit market while undermining companies trying to play by the rules.

“What business is going to destroy $100,000-$200,000 of inventory they’re supposed to? Now you’re putting someone between a rock and a hard place, where they either violate their license type or they might go out of business,” Kiloh said.

John Schroyer can be reached at [email protected]

14 comments on “Last-minute California cannabis industry ‘Hail Mary’ to delay July 1 transition
  1. Alan Patel on

    This is the most ridiculous process in LA history. Just like Alex Traverso told you guys they were all told in November last year to be compliant, OH wait LA, every County, cities in all of California, Districts planning boards city officials and politians aren’t fricking ready. You guys are a lot smarter have a lot of money influence and power but yet especially Los Angeles which will be bigger than every state. What will happen is huge Corporate Companies in Cathedral City, Salinas, Sacramento, and a few others That have more money than any one, are set to fricking destroy this first 3-6 months because the Legal Cultivators come July 1st have to go to them only and they will dictate the price and screw the little guy cause they have no other options. So guess what, the black market will thrive instead of gradually be a small potato in the next year. LA process of just applications is a joke July 1st is a joke it should be January 1st 2019. By then at least most mom and pops have a little chance in this game. Social Equity is slap in the face to a successful business person who wants to get in this game. Tell LA to give the general public applications second then Social Equity, are u kidding. A criminal gets first priority for a business that they were busted for???? And the legit business man or woman who pays bills, taxes and takes care of their family has to sit on the sideline and hope there are licenses left by the time their turn comes

    Reply
  2. Grower on

    As a Colorado grower, what was so hard to adapt to in 7 months time? If it’s only due to not enough testing facilities then I understand that is tough. But if anyone is crying foul for non compliant product with a 7 month warning, you only have your selves to blame. 7 months is enough time to push through 3 full veg / flower cycles. Do some test tables. Change your procedures. Figure out a way to get compliant. The rules keep changing and you always have to be ready to ditch the products that got you started. Eventually you will be proud of your clean, compliant product! Good luck growers.

    Reply
    • Kendall on

      The difference between growing in CO and growing in CA is that in CA, much of the product is grown outdoors with the full term product finishing in late Sept. or Oct. The law says that everything purchased before Jan. 1 must be destroyed, but they put the new law into effect several months before this year’s crop comes in. So if we sell outdoor flower, we will not be able to sell anything because last year’s flower is no longer allowed to be sold and this year’s flower hasn’t come in yet. We would have to sell something other than outdoor and many of our medicinal patients want only full term outdoor. Add to that, the very high cost of testing and that is only if you can find a company who can test your product when there are so few that are licensed. In addition, the Bureau of Cannabis Control changes their rules constantly, doesn’t ever call you back and can’t seem to answer the simplest of questions. The BCC just re-adopted their emergency regulations less than a month ago and could have changed all kinds of regulations. If the BCC changed the regulations then all the current packaging would be incorrect and the thousands of dollars spent on packaging and distribution would be lost. I don’t know about in CO but in CA it seems that the Govt. both local and state are doing everything they can to eradicate the smaller businesses who are trying to do things legally. Pretty soon it will be only the “Budweiser” of cannabis grown in mass quantities by very large corporations, and the ‘Craft” cannabis growers who have amazing genetics and have been farming for many years are going to be either dead or back in the shadows. This is not what the people had in mind when they voted for legalization!

      Reply
      • Pat on

        Right on Kendall. Right on. This is shaping up to be a 1960’s fight against the “establishment.” However, the establishment has morphed into the one of the most unlikely of entities: The cannabis industry. All that’s left is, is the resolve of the people that took it on 50 yrs earlier…

        Reply
  3. Jay Budington on

    This is ridiculous, the companies should be able to have the already stocked products tested… That is what the State wants, the products to be tested… So why not let the products be tested… Again, ridiculous..!!

    Reply
    • Pat on

      Well, Jay… A possibility is this: Let those that paid all those fees upfront in order to get a license, get a bit of a kick-back ( a break ) by allowing them to skip the most important req in the consumers eyes: testing. By not making testing mandatory for, what, six months or so…Think about the boatload of money saved ( testing is expensive ) by those businesses that were granted licenses. By not testing helps them recoup the costs for the granting of a license. And then some, in some cases. The interesting ( but moreover, very corrupt ) part of this is, is that moving forward, no one else is going to get that kind of break again. Which will make it all the harder for newcomers to acquire a license and to stay in business if a license is granted.

      It is ridiculous. It was ridiculous in the manner the law was put together and passed, and now with its implementation.

      Reply
  4. Larry on

    Medmen didnt seem to have a problem. They sold all inventory at 70% off and Flower at 90% off. Everyone has been on notice for 6 months. Sick and tired of hearing people cry.

    Reply
    • Old Timer on

      Hope you stocked up at the sale. Now you will have high prices + shortages for mids. The crying you don’t hear is from the experienced growers who are regulated out of the new legal market. There are thousands without millions, some who paid dearly for bringing marijuana to the people before legalization. They have the knowledge and experience and built this industry. Without us, you would be smoking Colombian and Mexican dirt weed. That’s what weed was for most Americans before California growers learned their craft Thanks to the BCC et. al. for breaking their promises to protect the small growers for the first years.
      Im not crying, just sick over what is being done.
      Medmen – overpriced and not profitable on other people’s money and seeking more funding. We’ll see how it goes.

      Reply
      • Pat on

        I hear you, Old Timer. And your feelings are echoed by tens of thousands in this state. A line from the original Jurassic Park: “Nature always finds a way…”

        Reply
  5. Scott on

    The state didn’t have regulations as to how we could be tested correctly until a week before the deadline. Companies weren’t given enough time to create and ship cr compliant packaging in time for the deadline even. On paper it seems easy but the logistics of not enough labs and the labs being backed up plus lack of available compliant pacakaging means there will be few items on the shelf that are quality let alone compliant.

    Reply
  6. George Bianchini on

    I hear the black market can assist with the destruction of this non compliant product. They can get all of it destroyed one joint at a time. Since the black market has grown in size and strength since the state got involved, we should all strive to help the state grow the black market. I must say that a name change is in order, how about we call the black market, the “alternative market” or the “cheaper choice market”. This is not what prop 64 called for but I’m all for helping the state with there efforts in promoting the “New Market Place” for cannabis sales.

    Reply
    • Pat on

      George, Trump might prefer if it was referred to as the “fake market” ( w/his index finger waving a backwards “L” )…F-A-K-E MARKET, people! FAKE. Ok?” But in all seriousness, some entrepreneurial spirit might find that he/she might do better by designing and marketing a T-shirt stating: “Black markets matter.” I think they’d get some sympathy at this point. And, make some bank at the same time. And, they won’t have to go through all those regulatory/permitting/licensing “fake” hurdles in hopes of getting their shirt to market.

      Reply

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