Week in Review: White House versus hemp, CA crackdown & Massachusetts’ MMJ shortfall worries

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The Trump administration opposes nationwide hemp production, California takes action against unlicensed marijuana businesses, and Massachusetts fears a medical cannabis shortage.

Here’s a closer look at some notable developments in the marijuana industry over the past week.

Hemp sector fires back

The hemp industry gasped this week when a Trump administration official said hemp production should remain limited and that drug enforcers, not agriculture officials, should retain oversight of the crop.

Greg Ibach, undersecretary for the U.S. Department of Agriculture, said there shouldn’t be nationwide hemp production and warned that oversupply could “kill the market for hemp.”

Ibach’s comments alarmed some hemp growers and activists, most of whom want to see hemp rules loosened in the next Farm Bill, which is being rewritten this year.

“To build the market, we need the government to get out of the way,” said Jason Amatucci, executive director of the Virginia Industrial Hemp Coalition.

Hemp growers were even more alarmed by Ibach’s comment that the U.S. Drug Enforcement Administration, not the Agriculture Department, should oversee hemp.

“I don’t think the USDA has a very large role in the regulation of hemp production,” Ibach said. “It’s more at (the Department of) Justice and DEA.”

That was anathema to hemp producers and activists.

“This should be treated as an agricultural commodity,” said Jonathan Miller, lawyer for the U.S. Hemp Roundtable, a lobbying group that pushes for hemp expansion.

California enforcement

As part of a renewed effort in California’s decades-long battle with its cannabis black market, the state’s Bureau of Cannabis Control sent out cease-and-desist letters to roughly 500 companies.

Now that a fully legal industry has been rolled out, there’s likely to be more pressure than ever on illicit companies that are trying to avoid obtaining business permits, paying taxes and generally playing by the rules.

But it’ll be slow going, said Los Angeles attorney David Welch, who has been trying to shut down unlicensed operators for over a year on behalf of permitted dispensaries in Southern California.

“The problem (authorities) run into is resources. They aren’t actually able to effectuate the closure of hundreds of illegal stores operating in the state,” Welch said about the prospect of state and local authorities shuttering all unlicensed businesses.

Los Angeles has even dedicated a 30-person task force to cracking down on illegal MJ companies.

But that won’t be enough, Welch predicted.

“There are hundreds of illegal stores,” he said. “If you look at 30 people … you’re still looking at 12 hours (per law enforcement raid), not to mention the man hours going into each one of these raids. So that’s the problem.”

Another consideration is that a lot of dispensaries are still trying to rely on the old medical cannabis collective model, which will likely just extend the life of the black market.

“If you’re 12 people in (a town) and you’re growing marijuana and sharing amongst each other, you’re a collective,” Welch explained. “If you are 12 people and one person is selling marijuana at a counter, you’re a commercial dispensary, a 10-type license.

“Is it working? No. Is it legal in my opinion? No.

“But it gives people the excuse to sink money into operating illegal dispensaries.”

One avenue Welch wants to pursue is what he calls “private enforcement actions” – filing suit against illegal dispensaries on behalf of legal ones.

It’s a technique his firm has used successfully in Santa Ana.

“We closed down seven of the illegal stores,” Welch said, “and we’re trying to effectuate judgments against 14.

“So we’ve done it before, and we’re looking to do it again in the city of L.A., which is truly the biggest problem.”

Don’t overreact, Massachusetts

Concerns about whether Massachusetts will have enough marijuana supply when the state’s recreational market launches are legitimate, but they shouldn’t be cause for overreaction, according to one industry analyst.

The Bay State is slated to begin adult-use sales in July, and some are worried there won’t be enough cannabis, medical or otherwise, to go around.

“In the first couple of months after legalization, supply constraints could well be an issue,” said Kris Krane, managing partner of Boston-based 4Front Ventures.

“But it’ll be a short-term concern.”

He pointed out that the industry has seen similar situations in other states that have gone recreational, including Colorado, Washington and Oregon.

Using Oregon as an example, Krane cautioned that Massachusetts regulators shouldn’t try to correct the market through licensing more growers.

“The reason Oregon is having the oversupply issues that they’re experiencing is because in the early days of the adult-use program they were having supply-constraint issues,” he said.

According to Krane, Oregon’s problems were twofold:

  • Consumers complained that prices were too high, so some still bought from the black market.
  • Retailers opened, then ran out of supply and closed until they got restocked.

Oregon’s regulators then issued more licenses – an overreaction, Krane says – and now there’s too much product.

“The issue wasn’t necessarily that there weren’t enough licenses,” he said. “It was that the licensees hadn’t scaled up yet. It takes time.”

Krane believes Massachusetts has enough canopy space currently under construction to eventually meet demand.

“I caution against people overreacting,” he said. “This happens in every market.”

Kristen Nichols can be reached at kristenn@mjbizdaily.com

John Schroyer can be reached at johns@mjbizdaily.com

Bart Schaneman can be reached at barts@mjbizdaily.com