Part Two of a Four-Part Series
Why are less than one percent of California cannabis cultivators actually licensed to grow cannabis? That is the question on everyone’s mind in the wake of a 36-page report released by the California Growers Association, which represents more than 1,100 small and independent cannabis businesses.
The report details many of the political, financial, and cultural barriers preventing small to midsize cannabis cultivators from entering the legal market. In part two of our four-part series, Green Market Report will take you through the report and lay out the state and local barriers standing in the way of cannabis cultivators.
Local cannabis regulations in California is, to say the least, a hodgepodge of conflicting rules passed by municipalities struggling to understand the legal cannabis market. As of February 2018, only 13 out of 58 California counties have passed laws allowing commercial cannabis activities
Six counties are likely to pass ordinances in the new future, while 14 more counties are currently studying the issue. Nearly half of California counties (25) have already passed bans on commercial cannabis activity.
Of those counties that have actually passed ordinances allowing cannabis activity, many have implemented caps on the number cannabis business permits available. For example, Trinity County only has 500 available cannabis business permits despite having more than 4,000 cultivators operating in the area.
Similarly, local zoning ordinances have made it increasingly difficult for cultivators. In Sonoma County, for example, a local ban on rural residential and agricultural residential areas have helped to exclude over 3000 cannabis cultivators from the market.
Likewise, in urban areas, many zoning ordinances have left cannabis businesses huddled in small business districts; which in turn have helped spike local real estate prices, thus further making it difficult for small-scale cannabis cultivators.
Current state cannabis laws have also played a part in preventing small to midsize cannabis cultivators from entering the market. Under the 1976 Direct Marketing Act, California farmers are allowed to directly interact with consumers through Farmers’ Markets and Community Supported Agriculture.
However, current state law has not adapted to allow the privileges of cannabis cultivators. The state does offer cannabis event licenses, but these are strictly limited to retail cannabis businesses and exclude cannabis cultivators and manufacturers.
The CGA believes that this will have a negative effect on many small to midsize cultivators, many of whom were able to interact directly with patients under now-defunct state law.
Cannabis transportation has also proven to be a bottleneck for cultivators. Of the 192 licensed cannabis distributors, 133 (approximately 69%) hold at least one other license non-distribution licenses. Approximately 28% of distribution licenses are controlled by manufacturers, another 25% are owned by dispensaries, 9% belong to cannabis cultivators, 4% is controlled by businesses with multiple licenses in the supply chain, and 3% are controlled by delivery companies.
Only 31% (59) of the issued cannabis distribution licenses are actually owned by companies focused solely on distribution. What does this mean for cannabis cultivators? In essence, it means that not only are cannabis cultivators forced to rely on competitors for distribution but also that they have to rely on companies that simply not scaled to transport other licensees products.
Further complicating the distribution issue is cannabis testing. Not only are there too few licensed cannabis testing laboratories in the state (22 total), there are not enough distribution companies to meet the demand; which in turn drives up the price for both.
Also hurting cultivators is the soon-to-be distinction between medical and recreational cannabis on the production level. A six month grace period allowing medical and recreational licensees to transact with one another will soon expire, which will increase the start-up cost for prospective cannabis businesses.
For cultivators, this means having to get both a recreational and medicinal cultivation license in order to maintain market flexibility. Not only that, cultivators will have to decide which portion of their harvest will be dedicated to recreational and what portion will go towards the medicinal market.
The confluence of confusing state and local regulations has led to widespread confusion among the cannabis cultivators, which in and of itself is a barrier to licensing. In order to stay compliant with the law, licensees must be aware of regulations from the CDFA, BCC, MCSB, Water Board, CD FW, CDTFA, OSHA, as well as local building and fire code, and local regulatory and tax ordinances.
Stay Tuned for Part Three
According to a poll conducted by the CGA, 57% of its member cite regulatory confusion as a “significant” barrier to becoming licensed. But regulatory woes are not the only barriers towards becoming licensed cannabis cultivators. Indeed there is a litany of financial and even cultural considerations that keep many of the state’s cultivators from joining the legal market; and in part three of our four-part series, we will examine those issues. Stay tuned.