California’s Regulation Refugees – Abandoned and Set Adrift

As the World Turns, California’s Cannabis Industry Burns

Silvia San Nicolas, Esq. – New Game Compliance

Regulated out of the market and with no redress in sight, the majority of California’s growers, retailers, manufacturers and other cannabis business operators have found themselves all in the same boat with no viable place to go. Their back stories are profound, their history rich and their plight nothing less than heartbreaking.

California was supposed to create regulations to accommodate an existing cannabis industry. Instead, California’s Medical and Adult Use Cannabis Regulation and Safety Act, (MAUCRSA) has brought an established existing industry to a screeching halt, leaving its pioneers and small to mid-sized business owners stranded and abandoned. Nine months into this new legal landscape, California has only issued approximately 5000 temporary licenses for all operation types according to the California Cannabis Portal1. Looking at cultivation alone, only 2896 cannabis growers have managed to procure a temporary license out of an estimated 68,150 growers according to Cannabiz Media.2 The This seven billion-dollar legal market active license counts in the license categories 111 Microbusinesses, 127 Delivery, 419 Retailers, 470 Distributors and 34 Testing labs according to the Bureau of Cannabis Control. Cannabiz Media reports that Manufacturing licenses is at approximately 913.

In another display of how far apart these regulation refuges are from the powers that regulate that industry, one needs to go no further than the Bureau of Cannabis Control Advisory Committee meetings. Last week the Committee held another meeting to in part take public comment and hold discussion for purposes of what recommendations should be included in the Committee’s Annual Report, track and trace and issues with the micro-business model,3 a model that was intended to accommodate the small business owner by allowing several license types to operate under one license. However, restrictions and deficiencies inherent within that regulation severely restricts who qualifies for the microbusiness license. Operators and industry advocates made it clear, once again that the white elephant in the room is the fact that the industry is so deeply over regulated in every aspect that it has cut the small to mid-size operator off at the knees. One committee member commented, “We are over regulating every aspect of this industry… We are killing the industry…. I think it’s a failure, I am not a doomsday person I am very optimistic.”

The dual licensing structure, local bans, zoning restrictions, extraordinary application and annual license fees, complex compliance requirements, high start-up costs, commercial real estate at triple market rates, high effective tax rates, permissions allowed locally that are not allowed at the state level and vice versa, changing rules, and the list goes on. The barriers to entry and path to licensure is the epitome of a modern-day cannabis Dantes hell. These regulation refugees are in a life boat through hell with no viable path to legally operate – their choice is to go underground or cease their livelihood. Big fixes better come quickly or the only ones left standing will be big business and the underground market – and that would be a true tragedy.

1 https://cannabis.ca.gov

2 Total Ca growers according to Cal Growers Association, An Emerging Crisis, February 2018.

3 See Department of Consumer Affairs, Bureau of Cannabis Control, Media, Meeting Archives.