The Big Shift

, The Big Shift

California could become the industry’s capital again if it legalizes rec this fall

by R.W. Navis

California was once the unquestioned leader in all things cannabis, but the balance of power shifted when Colorado launched the nation’s first recreational marijuana industry in 2014.

Couple that with California’s consistent failure to pass statewide regulations on MMJ until recently – as well as the rise of Washington State’s rec market – and the Golden State has fallen well behind in cannabis innovation, industry growth

and business opportunities. Many cannabis-minded entrepreneurs and professionals left California for greener pastures in Colorado, Washington and even Oregon in recent years, while some companies relocated their headquarters to more stable marijuana states.

California, though, could reclaim its place at the top of the list of cannabis powerhouses if it legalizes recreational marijuana this fall, in large part because of its sheer size (nearly 40 million residents), its massive tourism industry and its status as a hub for technology and finance.

In fact, California’s market alone could be bigger than the entire industry is today in terms of retail sales. At the same time, the state is now establishing regulations on its medical cannabis industry, which will stabilize the market and open up new opportunities for both local and out-of-state entrepreneurs and investors. That could sap some of the business energy in Colorado and Washington, and possibly translate into fewer ancillary cannabis startups in those states.

Leif Christopherson, general manager of a Washington State processor/producer, believes recreational legalization in California will create a “brain drain” in other markets as professionals leave to take advantage of a massive new market. Many key players in his area were from California to start, so he expects to see a huge migration back home.

Legalization in California, Christopherson said, would rank as “the biggest development ever in the cannabis business.”

Interest in CA High

Colorado and Washington State will continue to be heavyweights for the foreseeable future. But there’s no question California will offer some of the biggest cannabusiness opportunities in history if it legalizes recreational marijuana, making it more enticing than other states.

Some Colorado and Washington marijuana companies are already moving quickly to establish a foothold in California, while others are hoping to carve out a niche helping businesses there adapt to a regulated market.

Christopherson is already seeing a slowdown in new projects as investors eye California rather than expand in Washington.

The Colorado-based cannabis business accelerator Canopy Boulder plans on opening a location in the San Francisco Bay Area later this summer to capitalize on legal growth. CEO Patrick Rea thinks Canopy can help California businesses navigate the new environment and adapt to a regulated market.

Instead of fostering regional competition, he sees the vote in California as part of a larger movement.

“We don’t see this hurdle as crossing the finish line. The industry is just finally getting to the starting line,” Rea said.

Lance Ott, principal of the cannabis-focused financial services firm Guardian Data Systems, is planning to relocate his firm from Vancouver, Washington, to Southern California later this summer. Ott says California legalization is “the catalyst for positive evolution.”

Many of his Colorado customers are planning to expand into California, and he thinks that Southern California will eventually take over Colorado’s position as the hub of the cannabis world.

Easing Fears

The shift in power could take many years to play out, and it won’t spell doom for other markets.

Colorado, Washington State and Oregon, which all have active recreational marijuana industries, could conceivably see sales to tourists slow somewhat, as people currently visiting those states specifically for marijuana might opt for California instead. However, overall sales will likely continue to grow for years.

“Unless and until the federal government provides for interstate commerce, California will not replace the industry in any market,” according to Justin Beck of Cultivation Technologies, which is slated to break ground in the California desert on a 111,000-square-foot indoor cultivation site that will lease out space to four growers all producing under the popular Coachella brand name. “We’ll just have a market that is 20 to 30 times larger.”

Beck thinks legalization in California will open the investment floodgates for the industry as a whole, which will help cannabis-related businesses across the country. However, he also believes there will be a mass migration of support services personnel from Colorado to California.

Still, many companies and professionals currently in Colorado and other states will likely stay put, said James Bo Keyes, who founded CannabisStandards.com. He thinks that many pioneers will keep their home office in the Denver area and open satellite offices elsewhere to capitalize on growth.

Craig Frank – CEO of Kaya Shack, a publicly traded company with two dispensaries and cultivation operations in Oregon – doesn’t think legalization in California will impact his state’s cannabis industry much, at least at first.

He’s even eyeing Southern California for an expansion. Franks sees a lot of innovation coming out of California in the areas of strain genetics and delivery systems. More accurate measuring and monitoring of THC will develop with recreational legalization on a large scale, benefitting the consumer.

John Fritzel, co-founder of the cannabis cultivation management and consultancy firm MJardin, says there’s no doubt California will be the behemoth of the industry. But he wonders how the state will navigate the regulatory process. From what he sees so far, it does not look like smooth sailing in California, and an inevitable power shift may be slow.

And he still believes Colorado will have a powerful place in the industry – both going forward and in history.

“No matter what California does,” Fritzel said, “it will never take away the fact that Colorado was first.”

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