In the patchwork world of U.S. cannabis laws, California’s move toward a more highly regulated market is a “rodeo” worth watching, says Kristin Nevedal.
The chief compliance officer at SunFed, the parent company of California-based Humboldt’s Finest, has been on the front line of the Golden State’s transition to a fully legal market.
While California launched its recreational and regulated medical markets on Jan. 1, 2018, the legal protections for cannabis collectives and cooperatives in the state will be kept in place until Jan. 9, 2019.
After that date, however, marijuana entities that continue to operate without proper state licensing will be subject to a host of criminal sanctions.
“California is like a rodeo, and regulators are trying to rein it in,” said Nevedal, who also chairs the California Cannabis Industry Association and International Cannabis Farmers Association. “It’s unique and unlike what’s happening in other states that are birthing a brand-new industry.
“We have all these existing businesses that regulators want to put in the same container, but not everything is going to fit,” added Nevedal, who will speak about how to launch a cannabis cultivation facility at MJBizConNEXT May 9-11 in New Orleans.
Marijuana Business Daily caught up with Nevedal for an update on California’s big transition and to hear her predictions on what’s ahead.
How are cultivators weathering the transition?
We are struggling pretty substantially.
California has 59 counties, but only about 27% of the jurisdictions have created commercial cannabis pathways to become legal entities. That leaves out a lot of entities that have been operating under collective cooperative language from Proposition 215 and SB 420.
That’s all very challenging to balance. As a licensed entity, you’re not allowed to conduct commercial cannabis activities with a nonlicensed entity – even if that entity is operating under the blessing of a local jurisdiction.
So basically, you have a highly taxed, heavily regulated market that’s about one-third the size of the collective cooperative market, which isn’t subject to the same regulations and has products that are a fraction of the cost of the newly regulated market.
What do you predict will happen after next January?
That’s the question everyone has right now. I do think we can see some basic enforcement pieces come about.
I imagine that enforcement will probably start with cease-and-desist letters from the state. That’s what we’ve seen from the Bureau (of Cannabis Control) to date.
That doesn’t necessarily say how the locals are going to deal with that. Local jurisdictions are kind of all over the map with about how they choose to deal with folks who are out of compliance.
Humboldt (County) has focused on cease-and-desist letters. In other jurisdictions, we still have law enforcement-style raids happening. There are a lot of factors we’re considering as we all try to figure out what to expect.
How has pricing been impacted during this transition?
Pricing on the wholesale marketplace is the lowest it has ever been, at around $700 to $800 a unit, but that’s not really going to be sustainable.
Taxes have really been a challenge, and now we’re adding compliance and distribution costs.
Once the product leaves a farm, it has to go through a distributor for quality assurance before it can go into the retail marketplace. We’ve seen a big leap in testing costs because cultivators are pretesting in order to ensure they meet labeling requirements.
Then, when that product gets to the distributors, in order to head to the retailer, it has to be tested again.
These tests are about $700 each, then you add $9.25 an ounce for flower tax, $2.75 an ounce for leaf tax, plus 15% to 30% gross receipts to cover the distribution costs – it means lots of farmers are going to take a loss.
This transition has just really flipped the market on its head and it’s taking awhile for folks to manage it.
Are these issues that will shake out after January 2019?
In order for there to be a successful marketplace in California, we’re going to have to make sure that there is appropriate access to the product.
If we can’t equally bring in California’s cultivators that have been well established, what are consumers’ options going to be?
How it all shakes out really depends on how effective we are in reducing barriers to the marketplace.
That’s all the way from bringing the traditional cultivator into a regulated marketplace to establishing an adequate network of retailers to ensuring patient access and adult-use access so that the illicit marketplace isn’t viewed as the only access for this product.
California concerns aside, what are your top tips for growers who are just getting started?
Be super, super patient.
The timelines can be really challenging, and much of that has to do with land use and permitting.
The key to limiting your risk is really understanding that process and checking out your neighbors to understand where any opposition or challenges may be.
You need to make sure you’re doing your zoning due diligence and you’re mapping out those rings of land-use components to see where you might bump into challenges. Opposition to your location can be exponentially expensive.
This interview has been edited for length and clarity.
Lisa Bernard-Kuhn can be reached at lisabk@mjbizdaily.com
