‘Nothing is going smoothly’ in California’s regulated marijuana market

It’s been almost three months since the official start of California’s recreational – and regulated medical – marijuana markets.

So, how are things going?

Depends on whom you ask.

But the general consensus among business owners, advocates, regulators and elected officials is there’s still a mountain of uncertainty and troubles ahead before California’s cannabis market truly stabilizes.

“Nothing is going smoothly,” Jackie McGowan, the director of local licensing and business development for Sacramento-based K Street Consulting, said Tuesday at a California Cannabis Industry Association (CCIA) conference in Sacramento.

She then ticked off a laundry list of problems:

“There’s a lack of licensing. A lack of quality product. A lack of labs to test quality product. A lack of distributors that are following the rules. And then a lack of a retail point of sale to get product to the customer.”

State Assemblyman Tom Lackey concurs.

“People think (cannabis legalization) is done and things will go their natural course and everything will be just fine,” said Lackey, who spoke at the CCIA conference. “Well, it’s not.

“It’s off to a very jagged start, and we better fix it right away.”

For his part, Lackey is trying to be part of the solution.

The Southern California Republican is co-sponsoring a bill to temporarily lower MJ taxes in the state to help drive customers toward law-abiding retailers and away from their tax-avoiding, unlicensed competitors.

Lackey’s measure is one of roughly 40 marijuana-related bills that have been introduced in the Legislature, said Amy Jenkins, a CCIA lobbyist.

The bills range from small regulatory tweaks to bigger changes like establishing a state-chartered bank for cannabis companies.

Some other solutions might be forthcoming when the agencies that oversee the industry – the Bureau of Cannabis Control and departments of Food and Agriculture, and Public Health – release their final cannabis regulations later this year.

At the forefront of the myriad issues facing California’s cannabis entrepreneurs are:

  • A lack of local governments allowing cannabis businesses to operate in their jurisdictions.
  • Widespread fears of a supply shortage when mandated testing standards take effect in the summer.
  • The ongoing battle between licensed companies and black-market operators.

Though it’s not the only problem, illicit cannabis may be a microcosm of the California industry’s headaches.

“If the job was to go after the black market and to achieve a thriving white market, then we’ve failed, three months in,” McGowan said.

‘Sitting on their hands’

There are inherent systemic problems for a state government that’s attempting to convince thousands of gray- and black-market businesses to opt into California’s regulated system, especially while also giving cities and counties an enormous amount of deference.

One of the industry’s immediate concerns is that only about 33% of municipalities and counties have adopted some authorization for medical or recreational MJ companies, according to McGowan.

That means two-thirds of the state is off-limits to companies trying to find spots to do business.

“If there’s (no governmental support) locally, then there’s no option for a state license, and that’s why most people are being shut out at this point in time,” said the CCIA’s executive director, Lindsay Robinson.

“The process gave local authorities an option to kind of sit on their hands, and that’s the biggest barrier that we’re seeing.”

According to a CCIA tally, only 4,642 cannabis businesses have obtained temporary licenses to operate in the legal market, far short of the tens of thousands of unlicensed operators that comprise the largest MJ market in the world.

Cannabis shortfall

The dearth of licensed businesses is also stoking fears of a marijuana supply shortage come July, when retailers will be allowed to sell only products that have met strict testing standards.

CCIA estimates that only about 20 testing labs have obtained temporary business licenses from the state and are prepping for what will likely be a huge rush of cannabis to be tested before it can be sent to market.

“These labs aren’t able to build up the way they need to, to be prepared for July. That’s a huge concern,” said Josh Drayton, CCIA’s communications director.

A supply shortage – which several industry observers described as “imminent” – could drive up prices for flower and wreak even more havoc in an already-turbulent market.

Such a shortage would make it difficult for edibles makers to fill orders, for example.

Logistical matters

Then there are the problems that arise from day-to-day operations and a lack of understanding of already-established protocols, according to McGowan.

“Distribution is a disaster,” she said, highlighting one example.

McGowan estimated only 50-100 larger-scale distributors are currently shipping product to California retailers.

She believes many of them are accidentally setting themselves up for failure by not charging buyers the state-required 15% excise tax.

“… They think that the retailer is responsible for it,” McGowan explained. “So these distributors are going to get hit with a massive tax bill once there’s an actual track-and-trace program that’s been implemented.”

Eventually, she surmised, that situation will lead to a dearth of distributors and retailers will then be scrambling to stock legal inventory.

“As soon as (distributors) do get hit (with a bill for back taxes) and are forced to close or come up with massive amounts of money that they owe to the state, we’re going to be left with a handful of distributors,” McGowan said.

“And distribution is the key to this entire thing.”

Another key, according to CCIA’s Robinson, is the state’s marijuana traceability program.

Franwell’s Metrc system isn’t fully functional yet, nor has the state released a mandated traceability training program for businesses and their employees, according to Robinson.

All these issues are simply scratching the surface, as unanswered operational questions remain for delivery businesses, growers, manufacturers and other MJ companies.

“It’s a really complex system trying to fit into a framework that’s already been up and running on its own for 30 years and already is a multibillion-dollar industry,” Robinson said.

“We’ve still got a ways to go, no doubt. But we’re trying to be optimistic. I will say that.”

John Schroyer can be reached at [email protected]

21 comments on “‘Nothing is going smoothly’ in California’s regulated marijuana market
  1. MICHAEL on

    The problem with what’s going on is they are dragoning things on. The outdoor grow which starts in June depending on the growers. NorCal starts in June a lot of counties aren’t even allowing for anything until they get the paperwork all in order. Which could stop a lot a good grows from launching.

    They want everything in buildings or green houses which drives the cost up. It’s really sad all the regulations and greedy politicians taking an amazing plant and make it so difficult to grow.

    Reply
  2. Helen Pots on

    Why are you still asking CCIA about their opinion when they have shown they aren’t that informed and only care about the white wo/man?

    Reply
    • Jason on

      Why are you bringing up race? Why is that even relevant to anything discussed here? Are you trying to read “racism” into something where it wasn’t even a factor?

      Reply
  3. djs1138 on

    “There’s a lack of licensing. A lack of quality product. A lack of labs to test quality product. A lack of distributors that are following the rules. And then a lack of a retail point of sale to get product to the customer.”

    That’s funny… because “I cannot find any marijuana anywhere….” said no one… EVER!

    Reply
    • Mike on

      I am a grower and I know a lot of grower.. one of the main problems people are having is to be able to afford the license is in the permits. Some cities such as the one I live in wants $12,000 just for the application non-refundable. They also want $79,995 for the permit to grow. My annual income from growing is about 120000 a year gross. Deduct the cost of growing it only leaves me about 75,000 to live on. If you want to get rid of the black market make it more affordable for the guys that have been taken care of the market for the last 30 years you won’t have a problem.

      Reply
  4. Richard Daniels on

    From my perspective the system is working better everyday. Our City has locally permitted 53 businesses (cultivation, manufacturing, distribution/transportation, testing, and dispensaries) in 41 buildings on 25 pieces of property. More are being processed. The City has also verified local permits for least a dozen state license applications in a matter of minutes each. The state asks us to check a box as to whether a local permit has been issued and if for medical or adult use. The rules are clear, and the process is simple; just follow it and it performs well. Much of the problem seems to be coming from some portions of the industry that are having a hard time coming into the open, regulated world. Come out; it is ok. Don’t criticize those communities that have chosen not to permit any facilities. It is their right to determine if their constituents support cannabis and to what extent. 57% affirmative vote in 2016 was not universally so across all communities. Some do not want to participate and that is a local decision.

    Reply
    • George Bianchini on

      ”57% affirmative vote in 2016 was not universally so across all communities. Some do not want to participate and that is a local decision.”

      Marin County had a 70% approval of prop 64. Yet almost every local town said no to any cannabis activity. I spoke at almost every towns council meetings on the issue about the fact that they only get one chance at delivering the known choice of its residents. The other option is a public initiative. With the small voter turnout expected for the primaries, an initiative would be a slam dunk with reasonable terms. Three of those towns are now talking about or issuing licenses. The one town that had one dispensary, looks like a sure bet for an initiative. Stay tuned. Prop 64 with all it’s CHAOS is still the LAW.

      Reply
  5. musicninja2 on

    From someone who works in the industry: the new laws dont work. If anything, I saw people walk away from a dispensary that they loved for YEARS never to return because of the tax increase, therefore driving down dispensary numbers, therefore causing the dispensary to close or lay people off. It’s horrible and it happens a lot more than anyone knows.

    While it is important for us to take a page from Colorado’s book, they also had a better time with their govt. The biggest problem is greed. Why force distributors to pay back taxes when you could start to tax them for a year alone and get a lot more? I just dont understand the US governments obsession with penalties.

    Either way, I agree with this entire article. The state of legal cannabis in CA is HORRENDOUS and I fear for what new rule, legislature or tax law that will come along and finally put the nail in the coffin that is dispensaries so Marlboro can come in and sell us “walmart weed.” Im with Jackie here, we need to do a little more to HELP these small businesses, not hurt them.

    Reply
  6. Pat on

    The ca. “law” ( if that’s what you call it ) is completely broken. The only people, that think it still works, and that it just needs some adjustments, are the same guys that contrived this bs law; according to this article. What should that be telling the rest of us? About them?

    I didn’t see any comments from any of the regulatory agencies, either. Only, consultant’s and lobbyists. Consultants and lobbyists.. What should that be further telling the rest of us? About them?

    It should at the very least tell you that the legislators that pushed for this bill before it became law, have something to gain from it. Either for themselves, or their respective districts; but, not for the state as a whole. I’ll bet that the districts that the 4-5 guys are from, that put this crap together, likely are from those city/counties that don’t have much resistance to licensing across the board. The rest of the state, is kinda screwed. There are at least several glaring reasons why the vast majority of counties don’t want to get near this law, even if they wanted to. One is, is that it’s full of “booby-traps”, ready wreak havoc on those communities that dare to license. Esp. the rural/ag areas of the state where this crop grows very well under the sun. Read the law to find out. If any of these rural counties get’s caught up in any of these “snares” do you think the state is going to bail them out? Hell no. It’s a built in punishment for even attempting to increase the supply ( decreases price/increases the supply of more voices of potential dissent/increases loss of control by the insiders ) outside of what the insiders wanted in the first place.

    If most of what the self relegated experts are saying is true, how is it possible that any licensing is happening at all at this juncture? Cause it shouldn’t be happening. Further, if it’s determined that these consultant’s/lobbyist’s are correct, a class action lawsuit should be brought on to the state on behalf of the people.

    For the state to have the gall to already be collecting taxes and enforcing something that was largely pulled out of someone’s a**; with no real evidenced based need for the vast majority of its regs ; how can anyone on the receiving end of an enforcement action take the state seriously? Esp someone whom played by the rules up to this point ( 21 yrs ), but doesn’t have a license?

    The bad actors that put this law together, should lose their jobs over it; largely because of what the consequences of not following this law portend ( do as I say, not as I do…). Or, here: I’m drawing a line in the sand and I’m telling you not to cross it ( But, I can! ) . Just because. No real justification…. Just because. This kind of mentality is at the very root cause that kicked off he anti-establishment movement in the 1960’s. They’re still out there. And, so are their grand kids… The state is just instilling renewed vigor ( and rightly so ) to this increasingly growing group of people. Did all these legislators forget about all that? We’re they too young to remember? Of course not. It’s just greed on behalf of the state and its special interests. And, greed is why this law is going to be dead in the water, soon.

    My advice: Place a moratorium on this ridiculous law, now. Go back to something that worked a lot better ( 215/420 just needed some fine tuning; that’s it ); and, come up with something that’s going to work for the people, and not the special interest’s/legislator’s special interest. Don’t let the same guys get involved with the creation of a new law, as they seriously and knowingly blew it with the existing one. Or, the citizen’s will be paying for this dearly in the back-end.

    Reply
  7. Shine on

    There is only one problem with legalization and that is it: legalization. If cannabis were treated like a dandelion, another beneficial, yet harmless herb, none of this would be needed. The ONLY reason for legalization is so that the State can extract yet more funds from the public. That’s it. There is no reason whatsoever to regulate a medicinal herb with side effects no worse than getting hungry or high.

    Reply
  8. Dean Homayouni on

    No one is going to be a distributor of “A” cannabis when the penalty for moving 2,200 pounds under CSA is 40 years to life. Our investment bank and my clients will not touch Adult Use. The State made a fatal error by having “M” and “A” licenses. The only place it matters is at the end sale to the consumer. Dispensaries deciding to sell “A” cannabis have assumed the risk. It makes no sense to put the entire industry at risk of being raided, confiscation and long jail terms. As Forest Gump said, “Stupid Is What Stupid Does”.

    Regarding the comment that Distributors should be given a break for not collecting and paying taxes is just allowing a bunch of tax dodgers do what they have been doing. If you want to get into the business and decide you do not want to play by the rules then you should be shut down or bankrupted. They knew taxes had to be paid. I have ZERO sympathy for anyone that applies for a license, takes advantage of the opening in the legal market and then decides to not collect and pay taxes. It is joke to even consider giving anyone that acted in such a manner any break.

    Reply
  9. James D on

    I agree with quite a bit of the commentary that CA is heading for trouble. We have spent a full year in Oregon just going from Medical to Rec. Yes, One year later we are finally at hand in getting our Rec wholesale extraction business back to operational status. The time frame of one full year and at least another few hundreds of 1000’s of $ was not just painfull but sad to watch the bureaucracy of the City of Portland. What further amazed me was that every day our very small operation was/is not in business actually reduces the taxes our small entity would pay to both Portland, Multnomah County as well as the State of Oregon. The tax revenue that I figure the City, County. And State might have received from just us is about 16-22 K $ per month. Yet each month that has passed not getting our final licensing ,costs us about the same and yields the city, county and state nothing…makes no sense to me .

    Reply
  10. Robert F on

    There seems to be a need for experienced folks from the pharmaceutical arena to join companies looking to grow in the Medical Marijuana market. Especially those with both Regulatory and Quality experience. Is there a place to search for jobs in this emerging
    market besides LinkedIn ?

    Reply
  11. Andrew on

    California should consider utilizing licensed labs and resources from neighboring legal states to assist with testing. A shortage of legal and lab certified product would not be an issue during the interim if while California ramps things up if the states would open the borders for distribution. I’m sure Oregon has plenty of surplus to send down there.

    Reply
    • George Bianchini on

      Andrew, I don’t think either state has a category for your idea. I know the Feds do! It’s called something like, mandatory sentencing for interstate transportation with intent to distribute a controlled substance. Or something like that! Besides, it might muck up the track and trace
      “Chain of Custody” .

      Reply
  12. Curt James on

    The government that governs least governs best. Remove government from the formula and the use of an ancient flower by humans is as simple as 1+1.

    Reply
  13. veronica on

    So true….We are not the Country we thought we were. There are too many of us and not enough of them.
    Which just shows that maybe there are not so many palms to grease.
    Don’t fool yourself, and think any one of the elected democrats or republicans have the interest of the people in their State in mind.
    They cannot, therefor they do not!
    The only way we will receive the real contributions of this plant
    is only with the federal schedule 1 that is (ONE)
    Needs to be banned and lifted around the whole Country
    And for one real reason to tell the government to stay out of our business of old discoveries made new again
    Then this country will once again become calm and use the plant medically
    But keep the recreational aspect be just that ( recreational )
    Win the people and do this for the well being of all Americans
    It seems that the drugs that are decided to be put where and do what was is still a free for all, by the US government.

    Reply
  14. Ken C on

    How come Colorado didn’t seem to have these issues? I’m sure issues came up but for the most part the MJ business there seems to be booming. It should be used as a model for other states. Why is CA having so much trouble? Is it the regulators and their lack of compliance with what the people voted for and approved or is it something else? Seems like there is a lot of opportunity in the legal MJ market in CA.

    Reply

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