SLOW GROWTH

Legal cannabis stumbles out of the gate



MULTIPLE USES— Critics say expensive and cumbersome regulations have slowed the rollout of legal marijuana. Meanwhile, a byproduct of the cannabis plant, cannabidiol (CBD), is taking root as a medical alternative. Lauren Lerch, left, runs a CBD store in Thousand Oaks. (See related story on Page 2.)

MULTIPLE USES— Critics say expensive and cumbersome regulations have slowed the rollout of legal marijuana. Meanwhile, a byproduct of the cannabis plant, cannabidiol (CBD), is taking root as a medical alternative. Lauren Lerch, left, runs a CBD store in Thousand Oaks. (See related story on Page 2.)

When the clock struck midnight on Dec. 31, California began its second year of legalized cannabis with several new laws governing the nascent industry taking effect.

But what was expected to be a hugely profitable industry has begun with fits and starts. Initial reports following the passage of Proposition 64 in 2016 projected that the state would license thousands of businesses and bring in an estimated $1 billion during the 2018 rollout year for the sale of recreational marijuana, but the estimates have fallen short.

The California Bureau of Cannabis Control has issued fewer than 600 licenses to retail stores and dispensaries, and tax revenue for the first three quarters of 2018 reached only $234.2 million, as reported by the California Department of Tax and Fee Administration.

After Prop. 64 took effect last year, then-Gov. Jerry Brown’s annual budget predicted $630 million in tax revenue, which was later revised to $470 million.

The terms of legalization allow each city to decide what will be allowed within its borders. Calabasas, Agoura Hills and Westlake Village have prohibited cannabis in their cities, whether it be a brick-and-mortar store or a delivery operation. Although Thousand Oaks has legalized commercial retail operations, to date the city has approved only one license and that’s for medical marijuana only.

Photo by RICHARD GILLARD Acorn Newspapers

Photo by RICHARD GILLARD Acorn Newspapers

The state put in place a complicated legal framework that provides multiple points of entry into the industry, but also creates numerous hurdles. Hopeful entrepreneurs can cultivate plants, manufacture cannabis products, test those products, distribute them or sell them through a retail business.

Each facet of the industry requires a different type of license, each with its own application fees and set of requirements— emergency fire plans, location approval, diagram of proposed premises, to name a few. Additionally, applicants have to satisfy the requirements of three separate state agencies—the Bureau of Cannabis Control, the Department of Food and Agriculture and the Department of Public Health.

Critics of the state’s legalization system, including the National Organization for the Reform of Marijuana Laws (NORML), say California has overregulated legalization and damaged the state’s ability to reap the benefits of the massive cannabis industry.

Several new laws took effect this year.

AB 3067 limits how cannabis and cannabis-related products can be marketed. Its intent was to keep the substance from being advertised to anyone under 21. AB 2215 allows veterinarians to discuss the use of cannabis with their clients, but not to prescribe it.

One of the most impactful laws is a more stringent requirement on the testing of cannabis products. When it was passed, Prop. 64 required a product’s cannabinoid (the active ingredient in cannabis) levels to be tested. It also required testing for solvents and pesticides.

A second round of regulation took effect on July 1 and added a more thorough pesticide testing requirement as well as foreign materials tests.

Phase 3 testing, which took effect on Jan. 1, requires products to also be tested for heavy metal and mycotoxins, a fungal compound.

Joe Kyle, operator of cannabis consulting firm Joe Grow Consulting, said the state’s testing requirements have throttled the industry.

What’s more, data shows there are fewer than 60 testing facilities, while several thousand licenses have been issued to other types of cannabis businesses.

The price of testing is another concern—as tests get more stringent, the costs go up. Kyle said products can only be tested in batches of 50 pounds, so cultivators who have high product yields rack up high costs.

Moreover, legalization hasn’t done much to curb California’s black-market cannabis industry, where prices are often lower because growers and sellers don’t have the same costly fees.

Illegal operations can even pass as legal with minimal paperwork. California’s first pass at legalization—Prop. 215, which legalized medical cannabis usage in 1996—is still in effect, so some retailers have forgone Prop. 64’s requirements for the more relaxed medical ones.

Weedmaps, an online service that connects users with nearby cannabis retailers and delivery services, can further complicate the issue. The service doesn’t require any form of proof that the commercial operation has the state’s approval to operate. Customers who use the advertised businesses have no way of knowing if the money they hand over is going toward a legal or illegal operation.