(This is a regular column that delves into the complicated issues surrounding California’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.)
California’s fully legal recreational marijuana market is now more than a year old, but is it maturing?
There’s an ongoing infusion of capital, endless activity as companies and entrepreneurs compete for business permits, continued confusion statewide over regulations and competition from the illicit market.
What follows is a review of the latest happenings being discussed by California’s industry insiders.
Track-and-trace launches, but problems persist
At the start of 2019, uncertainty remained over the status of California’s marijuana inventory tracking system.
But according to the state Department of Food and Agriculture (CDFA), the system – formally known as the California Cannabis Track-and-Trace (CCTT) – went live Jan. 2. Florida technology company Franwell provides the web-based service, called Metrc.
However, as of Jan. 10, only 14 companies were using the system, the CDFA reported.
That’s because only companies with full annual business permits are required to upload inventory data.
Also as of Jan. 10, only 31 California companies had received their annual licenses, including 16 manufacturers, eight retailers, four cultivators, two event organizers and one distributor. No testing labs, microbusinesses or delivery services have yet received annual permits.
Thousands more companies are waiting to:
- Actually be approved by the state.
- Obtain the necessary inventory system training.
- Begin filing data in CCTT.
And there’s still plenty of confusion surrounding the rollout.
That’s partly because the rest of the market is still operating with temporary state licenses, which don’t require the use of inventory tracking tags mandated for use with CCTT.
That, in turn, has resulted in a cart-before-the-horse situation for some of the eight retailers that possess annual permits, said Max Esdale, a compliance professional at Meadow, a point-of-sale software system for cannabis shops.
So, growers and product manufacturers are still sending goods through the supply chain to market, but at this point, it’s the eight retailers that are performing the hard work of getting those goods into CCTT.
Esdale noted one of the company’s clients – in an effort to avoid violating state rules – had paid for and begun putting tags on products that had already been grown, packaged and paid for through the supply chain but hadn’t yet been entered into CCTT.
In addition to providing Metrc, Franwell also sells the tags licensed cannabis companies use to track inventory.
“It looks like Metrc is pushing to get as many tags out there as possible by not starting at the beginning of the supply chain (cultivation), even if it will compromise the system,” Esdale wrote in an email to Marijuana Business Daily. “The state just seems overwhelmed.”
Enough questions are swirling around the CCTT launch that MJBizDaily will explore the issue an upcoming feature, so stay tuned.
More changes on the business horizon as legislative session begins
The 2019 California legislative session is underway, and so far, only eight cannabis-related bills have been introduced that could be of interest to marijuana firms in the state.
Scores more are probably on their way, said lobbyist Amy Jenkins, who works with the California Cannabis Industry Association.
Jenkins expects roughly 50 marijuana bills.
“I see hemp policy, a lot of conversations around taxation and enforcement and probably access issues. Those are the major ones,” Jenkins said when asked what she believes are going to be the hot marijuana market topics for lawmakers this year in Sacramento.
Jenkins said another bill to reduce state cannabis tax rates is in the works, though it hasn’t been introduced yet, and will probably be similar if not identical to a measure last year that would have temporarily reduced the excise tax rate from 15% to 11%.
Tax rates, enforcement against the underground market and delivery policies may prove to be the most controversial issues this year.
They’re all connected to the sustainability of the regulated cannabis market in California, because fully legal companies are by and large not profitable yet.
There also are likely going to be some legislative baby steps taken on hemp policy, given the federal government’s move in 2018 to legalize the plant.
But Jenkins doesn’t foresee any seismic shifts that will really jump-start the California hemp business just yet.
Another key issue she’s heard a lot about is distributors being effectively double-taxed by local jurisdictions into which they make cannabis deliveries for retail clients.
According to Jenkins, some cities are imposing their local cannabis taxes on distributors that are headquartered elsewhere, even though those companies have already paid local taxes on those products where their headquarters are located.
“I get more calls on the distribution tax than anything,” Jenkins said.
(Click here to read the previous installment of this ongoing column.)
John Schroyer can be reached at [email protected]