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AUTHOR:  “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s
PUBLISHER:  CANNABIS LAW REPORT

 

We were prompted to write this article by the Los Angeles Times publication of “California to Give Struggling Cannabis Businesses More Time on Provisional Permits” on June 14, 2019.   The Times article describes yet another band-aid the Legislature is slapping on California’s maladroit roll-out of cannabis regulation. This particular band-aid is an emergency extension of time through a budget Trailer Bill. The Bill, which is opposed by environmental groups, extends provisional licensing.

While we applaud the efforts of Governor Newsom and the Legislature, some problems with California’s roll-out of regulation cannot be solved through extensions of time. Extensions of time address symptoms. Actual solutions address the causes of the problems. The Governor and Legislature must address the causes of the chaos in California’s regulation of cannabis.

First, we want to direct our readers to an article by John Schroyer that provides insights into the state of California’s cannabis industry that are closer to ground zero. John Schroyer’s article, which was published in the Marijuana Business Daily one day before the Times article, is based on comments made at an invitational retreat for some of the notables in California’s cannabis industry. The retreat was held just a few days ago in the heart of the Emerald Triangle. John’s article should be required reading for the legislators who are trying to deal with the chaos in California’s cannabis industry. The Governor should not have to read this article. Nicole Elliott, the Governor’s Cannabis Czarina, attended the conference.

The Times article focuses on the backlog in the licensing of cultivators. John’s article discusses several issues in addition to the licensing of growers. Both articles describe the chaos in California’s cannabis industry. Some of California’s cannabis administrators attended the conference and acknowledged the chaos. Unfortunately, the participants in the conference, like so many others, focused on the consequences of the chaos rather than the causes. Like Typhoid Marys, the carriers of the disease do not realize they are a cause of the disease.

 

John’s article quotes the Chief of the Bureau of Cannabis Control (“BCC”), Lori Ajax, 

“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.”

 

Lori Ajax is at the top of the heap of the agencies involved in the regulation of California’s cannabis industry. As the lead agency for the regulation of California’s cannabis industry, BCC is tasked with the “power, duty, purpose, responsibility, and jurisdiction to regulate” commercial cannabis. The administrative agencies tasked with the regulation of cannabis in California, including BCC, have run amuck. As the lead agency for regulation in California, BCC has allowed these agencies to run amuck. California’s cannabis regulatory agencies are one of the principal causes of the booming underground cannabis industry. 

There are many causes of the chaos in California’s cannabis industry. A hastily drawn list of causes includes: 20 years of medical cannabis; years of regulatory inattention; failed federal drug policies; social evolution; and an ill-conceived and poorly drafted Proposition 64. We have discussed several of these causes in other articles. [See California Chaos Causes, Colossal Cannabis Fiasco, and California Cannabis Regulation Blunders] We are writing this article to focus on one major cause of the chaos that has not received enough attention. We have decided to label this cause of the chaos in California’s cannabis industry as Inherent Bureaucratic Ineptitude (“IBI”).

IBI is a condition, or a disease if you prefer. The principles of IBI are based in the laws of physics that govern movement throughout the universe. The force that drives IBI is the force that causes rocks to roll downhill and makes it difficult for large ships to reverse course. Once an administrative agency is given a budget and set in motion, it will inevitably grow. A regulatory agency expands like gas filling a vacuum. The Trailer Bill described above is a temporary treatment to alleviate symptoms of IBI. The Bill does not address any underlying causes. If the origins of this disease are not addressed, those impacted by the costs and injuries will continue to suffer from the ravages of this disease.

Can this cause of the chaos in California’s regulation of its cannabis industry be addressed? Yes, but addressing this cause is more complicated than easing its symptoms. Oversight of California’s cannabis industry is required by Proposition 64, an amendment to the California Constitution. Regulation in California is here to stay. Proposition 64 preserved medical cannabis in California. As a consequence of Proposition 64’s preservation of Proposition 215, a particularly complicated regulatory system for cannabis will always exist in California.

Regulation increases the cost of the delivery of a commodity to a consumer. Taxes increase the cost of delivery to a consumer. An increase in the delta between legal and underground prices will encourage breaking the law. A decrease in the delta makes breaking the law less attractive. This circumstance is the definition of a dilemma.   We will address this dilemma in another article. 

Let’s focus briefly on one symptom (or cause) of the chaos – unlicensed cultivation of cannabis. First, we must describe a couple of apparently disparate but related facts. Law enforcement pointed to unlicensed grows as the reason for the Anza Valley eradications. [[ One justification for the budget Trailer Bill is the number of unlicensed grows in California. [[ We recall a conversation a couple of months ago with a representative of CalCannabis who was pleased to tell us the backlog of pending cultivation applications was not as extensive as reported because many applicants had failed to complete their applications. Read the message on the wall told by these events!

The approach that CalCannabis took in its licensing of cultivation is the most significant cause of the number of unlicensed grows. We have discussed this on other occasions. CalCannabis failed to approach its role in the licensing of cultivation from the perspective the Legislature intended. CalCannabis did not make licensing as quick and easy as possible with a minimum of cost.

CalCannabis failed to defer to local jurisdictions to the maximum extent possible for matters relating to land use and public health and safety. CalCannabis did not license cultivators by supporting, assisting, and most importantly providing financial support, to local jurisdictions. CalCannabis failed to make local jurisdictions the primary point of focus for licensing cultivation. CalCannabis engaged in administrative empire-building. CalCannabis completely rearranged commercial cannabis cultivation in California. CalCannabis took these actions because it could, and was not prevented from, doing so. It has a severe case of IBI.

One of the most challenging aspects of IBI is that those who have the disease frequently do not recognize they are ill. Another problematic issue with IBI is the fact administrative bureaucracies are as much the problem as they are a solution.

One cure for IBI lies in the leadership of an administrative agency. This cure is always present. This cure, however, is foreign to the operating norms of a bureaucratic agency. Bureaucracies of necessity focus on processes rather than goals. Wise and knowledgeable leadership that is focused on purposes rather than means are the sole internal cure for IBI. Leadership must ask over and over again. What is our goal? Why are we doing this? Is this necessary? Is there a better way? This cure for IBI necessitates that the leadership of a bureaucratic agency ask these and similar questions over and over again.

 

We want to provide a small example of the failure of leadership in California’s regulation of its cannabis industry. The example is minor in comparison to the fiasco CalCannabis created with its licensing of cultivation. 

As part of SB 94, the Legislature created a unique form of California corporation to allow small cannabis cultivators to band together in the equivalent of agricultural cooperatives. The enabling legislation for Cannabis Cooperative Associations (“CCAs”) passed two years ago. A significant number of CCAs have been organized and are operating in California. None, however, have been licensed to engage in commercial cannabis activity as CCAs. The agencies that regulate California’s cannabis industry agree CCAs must be licensed to engage in commercial cannabis activity. These same agencies, however, have been unable to determine which agency is responsible for licensing CCAs. Of course, the Trailer Bill can give California’s regulatory agencies an extension of time to make such a decision.

 In closing, we will mention one other unique aspect of IBI. IBI is unique in that those who have the illness, and who have a cure for this illness, are not the population that suffers from the ravages of the disease. The agencies tasked with the regulation of California’s cannabis industry have both the illness and the cure.

It is, however, the population of California – the cultivators, the consumers, and the taxpayers – who pay all of the costs and suffer all of the damage and pain caused by IBI.