California Continues to Struggle with Cannabis Reform
Originally published in The Bay City Beacon in June 2018.
Both of Senator Kamala Harris’ Twitter accounts – her official senate account and the one perpetually running for president – have openly endorsed federal cannabis reform. Even Senator Feinstein has jumped on the bandwagon, if only to win herself a sixth term.
But their constituents back home have passed the jubilant high, and come down to a difficult transition period.
Even with federal moves toward leniency from both parties, California’s cannabis companies are still largely cut off from banking services. Bipartisan reform at the state level, and even in Congress, may still take several months, at best, to pass and implement. In the meantime, the local cannabis industry is still struggling. From San Francisco’s dispensary mandate to provide an educational flyer with every purchase (which cannot be written off, mind you) to the onerous taxes levied by every level of government, our businesses are drowning in fees and regulations.
All the way through the legalization process, community and industry leaders sounded their alarms on policies that were pandering to large corporate interests and illicit activities. The sluggish pace of business permitting and criminal justice reforms have directly and indirectly empowered the black market. Scotts Miracle-Gro CEO Jim Hagedorn said it best, or at least the most succinctly: “California completely botched legalization."
For proof, look no further than the state coffers.
Results for the first part of 2018 have come in – California took in only $34 million in excise tax revenue from Q1 cannabis sales. The total falls short of the budget projections from Governor Jerry Brown’s office that the state would take in $175 million from the excise tax for the 2017-18 budget year, which ends June 30.
Clearly, short of a herculean (legal) lift from 4/20, that $175 million was a high fantasy.
However, that didn’t stop Governor Brown from increasing the expected revenues from cannabis sales to $185 million, including $133 million allocated to operate the Bureau of Cannabis Control. The sliver of hope small operations were holding onto to remain competitive in the industry – decreasing the state excise from 15 to 11 percent and delaying a grower’s tax until 2021 – is all but gone.
No policy implementation is perfect. There is much that can be said about the scope of California’s market when compared to other states that have legalized, but many of the delays and hiccups were foreseeable. The barriers to entry were built too high. So high, that even withpioneering equity programs in cities like Oakland and San Francisco, small players are struggling to stay above ground...if they even get a chance at the company table.
Rather than streamlining the process to create a more dynamic and functional industry at all levels, regulators are laser-focused on the black market, which they see as the biggest obstacle to long-term success (read: reaching those quoted tax revenue projections).
As part of the updated state budget, Governor Brown allocated funding for five additional teams to crackdown on illicit cannabis activity. Granted, the Bureau’s efforts have bore fruits. This month, BCC Chief Lori Ajax announced that 22 percent of illicit cannabis companies that received state cease-and-desist letters have complied with the demands and registered for legal licenses.
In the industry’s defense, the state has not been consistent with its deadlines or its demands. In mid-May, a little over a month before finalized regulations are supposed to begin implementation, the Bureau proposed a six-month extension to the temporary regulations. Director Ajax seems to understand her department’s hand in the debacle and is working hard to correct what they can. However, the problem is going to worsen with the looming lab deadline.
Starting July 1, in order to be sold at a California dispensary, all cannabis products must be tested by a licensed laboratory for potency, pesticides, microbial contamination, residual solvents, and heavy metals.
As if the additional financial and logistical costs from testing weren’t enough to make any operation double take, there are only 28 licensed laboratories in the entire state. When markets that are a fraction of the size of California’s came to a screeching halt over the ratio of licensed labs to demanded supply...what does the Golden State have planned for this bottleneck?