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mentor36 June 13, 2019

(California Marijuana Notebook is a regular column that delves into the complicated issues surrounding the state’s immense cannabis market from the vantage point of Marijuana Business Daily Senior Reporter John Schroyer. Based in Sacramento, he’s been writing about the cannabis industry since joining MJBizDaily in 2014.)

Volatile. Transitional. Coasting. Fragmented. Dumpster fire. Passionate.

Those were the answers from half a dozen speakers last weekend at Meadowlands, a retreat in Mendocino County for cannabis industry insiders sponsored by San Francisco-based marijuana technology firm Meadow.

The question: What’s the state of California’s marijuana industry?

The answers reflect differing realities for companies depending on what niche they’re in and also how chaotic the California MJ industry remains – even though final regulations have been in place since January.

According to an informal survey of about 60 retreat participants, Meadow CEO David Hua said:

  • 53% of MJ companies are less profitable than they were in 2018.
  • 95% said California hasn’t created an environment where small businesses can succeed.
  • 70% rated the track-and-trace rollout as “poor.”
  • Two-thirds of the respondents are not actively hiring.

“These are the same questions we asked last year (at the 2018 Meadowlands), but there’s a stark difference,” Hua said while moderating a panel with Lori Ajax, the head of the California Bureau of Cannabis Control.

Ajax responded: “It’s sort of terrifying … That’s not a very good report card.”

Reasons for turbulence

While many parts of the supply chain have begun to relax into a semblance of normalcy, flux and confusion surround many issues, including:

  • The rollout of the state’s track-and-trace program.
  • Questions around social equity programs and their funding.
  • Persistent licensing issues. Roughly 1,800 temporary permits are set to expire at the end of July, and that’s only those overseen by one of the three regulatory agencies, the Bureau of Cannabis Control.
  • The long-term viability of the legal market in the face of a still-thriving underground cannabis trade – perhaps the biggest overarching question.

The illicit market dilemma

“I just want to crush the illegal market,” Ajax said to applause at Meadowlands.

“I don’t usually say that out loud …We didn’t go through this the last few years to have (the legal) market be undermined.”

Still, few answers were presented regarding exactly how the licensed operators can win out over those in the legal shadows.

During another Meadowlands panel, Gov. Gavin Newsom’s new cannabis business czar, Nicole Elliott, said the governor had set out an ambitious timeline of five to seven years in which he wants to extinguish all illicit marijuana businesses in California.

She’s hoping it won’t take that long.

“What we’re trying to do right now is to enable future jurisdictions to successfully transition their existing operators into the licensed system,” said Elliott, senior adviser for cannabis in the Office of Business and Economic Development. “From a state mindset, that’s something we’re focused on – to try to speed that up a little bit.”

Cat Packer, head of the Los Angeles Department of Cannabis Regulation, suggested it’s going to take more licensing opportunities and, therefore, more cities and counties to opt into the commercial cannabis industry.

That has slowly been happening, though arguably not at the pace with which legacy companies have been exiting the industry.

“It’s going to feel like a long time coming, and then it’s going to happen all at once,” Packer predicted. “There are only so many jurisdictions around the state that allow access right now … but it’s going to be this process where we wait for a jurisdiction to open – it fills. We wait for a jurisdiction to open up – it fills.

“All of these things are going to take time.”

She also noted that though Los Angeles doesn’t have strict caps on the number of business permits it will issue, it does have an “undue concentration” clause that will establish a de facto limit, especially on retailers.

Packer believes L.A. will hit that limit before July 2020, meaning the city likely won’t be able to grant a permit to everyone who wants one.

Weedmaps also was mentioned by licensees who still harbor ill will toward the powerful website, which has continued to carry advertisements from illegal retailers and delivery services in California.

Ajax even agreed that Weedmaps is “a problem,” and Jerred Kiloh, president of L.A. trade group the United Cannabis Business Association, brought up Assembly Bill 1417, which would allow the state to crack down on companies such as Weedmaps.

Market contraction ongoing

The continued underground market ties directly into the viability of all licensed businesses, so it’s not an easy reality to swallow for many small companies struggling with the new challenges brought on by regulations.

Market contraction is continuing, several insiders said, as legacy companies either exit because they’ve run out of money or for other reasons.

Kristi Knoblich-Palmer, the chief operations officer for Kiva Confections, said that “small manufacturers are disappearing one by one, day by day” because of much higher barriers to entry.

And Casey O’Neill of Mendocino County’s Happy Day Farms said, “it’s been touch-and-go” for his small grow.

“To still be here is a very empowering feeling,” O’Neill said, “but there’s also a deep sadness for all of the people who are not here. Five years ago, there was this hopeful feeling … and most of those people are not here now.”

Resilient hope – with realism

Still, as O’Neill indicated, an attitude of stubborn hopefulness pervaded the Meadowlands retreat.

Monica Gray, COO of Nice Guys Delivery and Distribution, noted that the state’s licensing agencies have been slowly handing out provisional and annual licenses and that enforcement against unlicensed companies has also ramped up.

“It’s level, in a certain sense,” Gray said. “My (company) is on the upswing, and delivery is doing well.”

Knoblich-Palmer also said the supply chain is “professionalizing,” and it’s easier to rely on business partners to deliver raw materials.

Ajax said her top priority at the moment is to process annual applications for every temporary license of the roughly 1,800 set to expire before the end of next month, so that there’s no gap in licensure for companies trying to remain compliant.

(Click here to read the previous installment of this ongoing column.)

John Schroyer can be reached at [email protected].

© 2018 Highline Media Group