Cover Story 65: Legalization in California

04
Feb

THE OTHER SIDE OF LEGALIZATION IN CALIFORNIA

Cannabis is legal in California now, but the jump to legalization has left many in the cannabis industry thinking the state wasn’t ready for the new laws and it could cripple some small businesses

On Jan. 1, people in California woke up to a new reality. Cannabis was finally legal. Like in Colorado, Washington, Oregon and other states, recreational marijuana was allowed under the law.

For a state that had been shouting “Legalize it!” for decades, this had to feel like a win. The local newspapers were churning out feel-good guides about where to buy legal cannabis for an audience that might not have smoked — legality be damned — in years.

People lined up, ready to plop down their hard-earned money for marijuana that was now legal. And more expensive.

Celebrities like Mike Tyson were jumping onto the trend, making headlines across the country for a plan to open a 40-acre marijuana ranch in Southern California.

It was everything that everyone had always dreamed about, right? Well, actually …

Maybe it wasn’t.

 

THE OTHER NEW REALITY
While there are certainly benefits to legalizing — most notable for consumers — the new reality that they woke up to in 2018 wasn’t as exciting for small cannabis growers, many of whom had been cultivating plants in California for years if not decades.

“We are not elated or jumping up and down or jubilant,” said Aaron Flynn, who is the business development and compliance officer for Gold Seal, a boutique cultivator based in San Francisco. Flynn is also the co-chair of the San Francisco chapter of the California Growers Association and sits on the state board, so he’s been deeply entrenched in the road to legalization.

“I’ve been asked a lot lately how this first little while is going,” Flynn said. “I really think this happened too soon and too quickly. I’ve been a proponent of ending prohibition, but the quick passage of Prop 64 and the one-year implementation is now proving to be a dramatically insufficient amount of time. Less than 30 percent of cities and counties are prepared to locally license and authorize sales. There is a sense of chaos. The state and the cities were not ready for this. Unequivocally, hands down.”

Boiled down: The government processes that are supposed to be in place to make sure legal cannabis can actually move legally in the marketplace aren’t there and that’s making life extremely hard for small growers.

Tyson Graham is the former founder of Dragonfish, another S.F.-based cultivator. He’s since merged his business with Gold Seal. He represents the voice of the small farmer on this topic and he’s also witnessing the agony of legalization.

“An acute issue for farmers,” Graham said, “is that our cycle is six months long. We can’t turn on a dime. It’s been a real kick in our necks.”

So what happened in California that didn’t happen in states like Colorado, Washington and Oregon? Well, there were issues there too, but there was also one key difference, according to Flynn.

“One of the primary difference is that we had a hugely robust medical market for two decades before they started to legalize cannabis,” he said. “The difficult part is bringing a pre-existing industry into a regulated space. It’s harder than creating a new industry in a new regulated space.”

The prognosis from here? It’s actually pretty grim for some people.

“If we were to read the writing on the wall,” Flynn said, “50 percent of the people who have been doing this won’t be doing this in a year.”

 

THE BIGGER PROBLEM
As the state of California prepared to figure out how to regulate space for the legal growth of marijuana, one natural question was how to establish who could grow where and how much they could grow. Like other businesses have to deal with zoning laws and permits, marijuana growers had to exist within established parameters.

Since California’s size created a new sense of opportunity for people previously outside the cannabis industry, the small growers wanted to make sure they weren’t quickly stomped out by big rich companies coming into the market and gobbling them up — like when a Walmart opens and hurts all the nearby small businesses.

California had five different types of growing licenses, each a different size. The largest was a one acre license. There will eventually be an unlimited grow license, but that won’t go into effect until 2023.

“It gave us a fighting chance,” Graham said.

But something happened at the 11th hour: While the unlimited grow licenses stayed off the table for five years, a provision was nixed that said one grower could have a maximum of four acres to grow on. Instead, according to Flynn, growers could stack as many small licenses as they wanted. The four-acre cap would be no more. This was the workaround for an unlimited license.

“That was a big blow,” Graham said.

This was seen as a lobbying effort on the state level, Flynn said.

“We are fighting it very hard,” he said.

 

THE EFFECT ON CONSUMERS

Without fail, anybody who knows what Flynn does for a living has come up to him in the past month and said, “there are big lines around the dispensaries, good news for you guys.”

That’s when he has to tell them the truth: “It’s not good news right now.”

“I believe there’s a disconnect,” Flynn said. “I don’t think that the casual consumer has any idea what’s going on.”

“All they’ve noticed,” Graham said, “is that the prices have gone up.”

That may not change either. If many small growers are having trouble getting their product onto the new regulated market, there are two things that can happen: A shortage and/or inferior product.

“I think consumers will feel that affect,” Graham said. “The quality is going to drop.”

 

WHAT’S NEXT?

The next step in all this? Well, it’s going to be a fight.

“The small farmers, the small producers,” Flynn said, “really have to come together to give this any type of fight. We realize that there’s no real way for us to compete in large-scale production. That’s why you see brands coming together like ours.”

Flynn points to Canada as an example.

“When they opened up for adult use four or five years ago, there were hundreds if not thousands of small producers,” he said. “Now there are less than 20.”

There’s a hope that the smaller producers — once the state sorts out its regulation issues — can create the type of following that craft-beer drinkers give small breweries. But that might take too long for some growers.

And while it’s possible for a grower to open itself up to state regulation and try to go back into the unregulated market, there’s also a good chance that’s only going to end poorly. Especially when you consider the growers would have already handed out their name, location and other information to the local authorities.

“I don’t know what will happen to some of these people,” Flynn said.

Some will make it out of this rough patch. It won’t be doom and gloom forever. But everything that comes with regulation and legalization is sure to cripple some California growers.

“When we get out to the other side of this, it’ll be great,” Flynn said. “We’ll have more access to consumers than we ever had and we’ll be able to build a brand around the cannabis culture and specifically the cannabis culture in San Francisco.”

Until then, though, legalization is not exactly the party in California that some people believe it is.

 

 


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