How the West Coast Landscape for Cannabis Changed in 2019
*As contributed by Matthew Morgan for Cannabis Magazine
California had quietly maintained a thriving medical marijuana industry for over two decades before recreational legalization in 2016, joining Oregon, Washington in Alaska in making the entire west coast free of pot prohibition.
Unified at last, 2018 marked the first full year of recreational sales across the whole coast. With the deterrent of interstate criminality gone, it became easier to compare the actual industry landscapes, which in turn made policymakers’ analysis of how to evolve their respective booming cannabis industries easier. It also opened the doors to explore how states could work together to optimize the cash crop.
California legalized recreational cannabis back in 2016, though it wasn’t available for purchase in stores until January 2018 due to licensing and regulatory restrictions. 2018 saw the world’s largest marijuana market (California) experience its share of ups and downs dominated by confusing policies and excessive delays to business licensing.
The new year has brought changes to the initial rules, the implementation of two new marijuana laws–Assembly Bills 3067 and 1793–as well as several adjustments to current regulations.
California’s Office of Administrative Law (OAL) officially approved state regulations for cannabis businesses across the supply chain from cultivation to retail on January 17, 2019.
The Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture had adopted the previous emergency regulations in December 2017 and readopted them in June 2018. The three licensing authorities submitted these regulations to OAL on December 3, 2018.
Source: The Motley Fool
Assembly Bill 1793 makes an adjustment to the Adult Use of Marijuana Act regulating the California cannabis industry. This bill accelerates the process for identification, review, and notification of individuals with past cannabis-related convictions.
The Department of Justice (DOJ) must now review records and identify prior convictions that are eligible for dismissal or re-designation by a deadline of July 1, 2020. All 58 California courts now have to auto-clear eligible marijuana convictions. This puts a stop to the complicated request process some courts were requiring.
The prosecution and incarceration of marijuana offenders was a catalyst for passing reform in the first place due to the overwhelming statistics of punishment for nonviolent users. The issue swung many non-users to vote for legalization.
Those same people were extremely frustrated by the delayed bureaucratic approach many of the local governments within California were taking after the vote. Bill 1793 should go a long way towards helping those with past convictions repair their lives.
Assembly Bill 3067 adds Privacy Rights for California Minors in the Digital World to the advertising restrictions that prevent depictions or images of anyone under 21 in marijuana advertising. The previous age cutoff was 18. The new bill clarifies several gray areas within the original plan which was more an unclear policy than a real problem for the industry.
The Bureau of Cannabis Control finalized their decision to allow deliveries anywhere in the state, a significant development because it overrides the ordinances of cities and counties that have chosen to ban the recreational cannabis industry. The Bureau’s judgment gives all Californians the ability to make legal purchases.
District law enforcement can no longer police deliveries in their districts regardless of local policies. Not just a victory for cannabis users, growers and producers now have a broader demographic of customers.
Source – Lucky Box Club
The final major piece of new legislation involves white labeling. California will permit the practice, which means a licensed producer can manufacture a product for an unlicensed company to sell. With details left to iron out, this was an important decision.
White labeling is a standard practice across most industries. From food and beverages to electronics and clothing, companies will outsource a product or service and then brand or “label” it as their own.
States have been reluctant to OK it for marijuana. While lawmakers claim it is to protect consumers, it’s been more a matter of greed. The costs of permits, certifications, inspections, and taxes on individual companies have been prohibitively high, with many having to shell out six-figure sums just to get up and running.
California initially tried to squeeze every last penny from start-ups in 2018. To complicate matters, they were also suspiciously slow with the actual permit issuing process, leaving more than one entrepreneur unopen and in limbo even after paying the fees.
White labeling will allow many businesses to operate much more efficiently, often at better margins, by outsourcing the materials needed for bringing products to market. Trader Joe’s is an example of a company that exists almost purely on white-label strategy. Their stores are filled with Trader Joe’s branded items, none of which are actually made by Trader Joes.
The decision will help companies diversify into cannabis without a need for a complete overhaul. For example, a lifestyle brand such as Lululemon could hire a large scale grower to produce a strain of marijuana for them. Lululemon could then have packaging created with their logo on the label to be sold at the retail level.
This is big news especially as we move closer to federal legalization. Marijuana products themselves will still have undergone all required certification and testing, just not necessarily by the company on the label
2018 – A Problem
As 2018 earnings and tax numbers came in, California realized it had a problem. Policymakers lobbied by big business had made a rookie mistake. They created a tax structure designed to cash in right away instead of putting together a sustainable plan.
Aside from state and local taxation applying to any retail sale, California also tacked on a 15% excise tax to recreational weed purchases. They slapped a cultivation tax on growers of $9.25 per ounce of cannabis flower, and $2.75 per ounce of cannabis leaves. These rates left some communities with a 50% tax on cannabis compared to the 8.4% tax California previously had on medical mary jane before recreational legalization.
The state had made legal weed unaffordable for many consumers, especially to the detriment of medical patients who had depended on dispensaries for years. The result was an inverse 50% decline in sales and revenue with many potential dollars returning to the black market.
Consumers didn’t care either, partly because many of the black market cultivators had formerly been medical caregivers blocked from going legal due to the aforementioned prohibitively high recreational entry costs and unreasonably slow state processing. It wasn’t an issue of safety or marijuana quality, in fact, many small-batch growers unable to enter the recreational market offered marijuana that was higher quality than the herb lining store shelves.
The excessive taxes and permit fees levied on growers and producers put many legacy cultivators out of business and pushed the public to question legislators’ motivations, since the majority of groups who could afford to buy in were backed by venture capitalists and big business.
Voters had been assured the recreational cannabis market would be an equal playing field. The original legislation made it clear that a certain number of business licenses were to be awarded to economically disadvantaged individuals who had been unjustly prosecuted for a marijuana crime in the past. Big money got around this by paying off eligible recipients so they could reap the profits from their license
Source: The Cannabis Reporter
Due to the declining sales numbers and the exposure of these poor policies on social media, lawmakers formally began discussions in January on how best to reduce these taxes and fees. The former governor, Jerry Brown had over budgeted tax revenue by $100 million. Politicians needed to find that money.
In the new year, the state expedited their existing permit process to get licensees approved, many of whom had been waiting in limbo for more than a year. This was in part motivated by a lawsuit from the California Growers Association against the California Department of Food and Agriculture (CDFA), the state agency responsible for issuing cultivation licenses and who had allowed a few companies to compile hundreds of permits by a practice known as stacking.
Current Governor Gavin Newsome believes that marijuana prohibition is a social and racial justice issue and is urging his government to make changes including serious consideration of reducing the taxes levied on each part of the cannabis supply chain.
Oregon & Washington
Elsewhere on the west coast, the pacific northwest has seen a surplus of cannabis, particularly in Oregon. Their taxes and licensing procedures have been far more reasonable than California’s since their inception, perhaps making it almost too easy to enter into the business. The net result was a lot more mediocre weed than state consumers wanted to smoke or purchase.
This is more a balancing out process than a problem. Lesser growers will end up going out of business. There is some local panic because some of these failed cultivators sunk what little savings they had into their hopes of getting rich. Now they want their local governments to step in with a solution. While there is no solution for a lousy business gamble, the surplus may serve as the catalyst for serious discussion of marijuana exports.
This is going to be a process to watch as interstate exportation causes all sorts of issues, especially when traveling through states still prohibiting marijuana. But, with hemp already legal to transport across state lines, the policies will need to be created sooner than later.
The west coast, led by California, supplied much of the rest of the country throughout prohibition, the year-round sunshine and experienced generations of farmers make the perfect hotbed for cannabis exportation.
One thing is clear after the first month of 2019, cannabis legalization works. The market is growing. The industry will adapt, one of the beauties of capitalism. People who don’t enjoy cannabis still don’t use it, but more and more, the public is finding great benefit in the herb the United States called the gateway drug.
About the Author
Matthew Morgan emerged from humble beginnings to become one of the world’s foremost
cannabis entrepreneurs. He rapidly expanded his vision to include multiple growing facilities and
dispensaries across Montana, Arizona, and Nevada between 2013 and 2018. Morgan is
currently prepping a global venture while lending his expertise to the industry’s brightest stars.
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Fuller, Thomas. “Now for the Hard Part: Getting Californians to Buy Legal Weed.” The New York Times. January 02, 2019. https://www.nytimes.com/2019/01/02/us/buying-legal-weed-in-california.html
McVey, Eli. “Few Cannabis Growers Hold Hundreds of Licenses in California Market.” Marijuana Business Daily. July 16, 2018. https://mjbizdaily.com/chart-handful-growers-hold-hundreds-cultivation-licenses-californialegal-marijuana-market/
Release, Press. “New California Cannabis Regulations Approved by the Office of Administrative Law.” Cannabis Business Times. January 17, 2019. https://www.cannabisbusinesstimes.com/article/california-regulations-approved-state/
Schroyer, John. “California Releases Drafts of Final Marijuana Business Regulations.” Marijuana Business Daily. December 10, 2018. https://mjbizdaily.com/california-releases-drafts-of-final-marijuana-business-regulations/
Williams, Sean. “California’s Ridiculous Marijuana Tax Calls for Drastic Action.” The Motley Fool. February 03, 2019. https://www.fool.com/investing/2019/02/03/californias-ridiculous-marijuana-tax-calls-for-dr a.aspx