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High pot prices bring buzz kill in California six months after marijuana legalization

High pot prices bring buzz kill in California six months after marijuana legalization
California voters in 2016 overwhelmingly approved Proposition 64, which made it legal for individuals to possess and grow small amounts of marijuana. (Hayne Palmour IV / San Diego Union-Tribune)

Talk about a buzz kill.

California is marking the six-month anniversary of legalized recreational marijuana sales with consumers and the cannabis industry complaining about everything from steep prices to high taxes to a scarcity of licensed pot shops.

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Although they’ve known about the deadline for months, many marijuana companies have been slow to submit their products to laboratories to see whether they meet state-imposed quality standards that go into effect Sunday.

Industry officials say that’s creating a bottleneck that could lead to spot shortages of cannabis, particularly in San Diego, where consumer demand is expected to soar during the summer tourist season. Comic-Con alone will draw at least 135,000 visitors in mid-July.

The shortage would represent an inconvenience for consumers. But “it could be an extinction event for companies whose products don’t turn out to be compliant,” said Pamela Epstein, chief executive of Green Wise Consulting, a Los Angeles firm that serves the cannabis industry. “They might not have enough money to recover.”

The situation led the United Cannabis Business Assn. to send a letter to Gov. Jerry Brown on Friday asking him to delay the start date of the new testing and product packaging rules.

The group, speaking on behalf of nearly 150 companies, said there aren’t enough labs to handle the testing. The association also said companies would have to destroy nearly $400 million in existing products that don’t meet the new standards, according to the Associated Press.

Consumers also would feel the crunch.

“Prices will shoot through the roof if there’s a shortage. People have already been riding a roller coaster, seeing prices escalate, then bottom out, followed by flash sales, or taxes they didn’t expect,” Epstein said. “I’m optimistic that things will get better. But there’s a lot of problems to work through first.”

The problems have raised a lot of questions, several of which are addressed here with input from government regulators and the marijuana industry:

California is one of the largest marijuana cultivators in the world. How could it be facing a possible shortage of commercial cannabis?

California legalized the sale of medical cannabis in 1996. But the industry was very loosely regulated. And the quality of the pot that made it to the marketplace varied greatly.

Everything changed in late 2016 when California voters overwhelmingly approved Proposition 64, which made it legal for individuals to possess and grow small amounts of marijuana without a doctor’s recommendation. The law also cleared the way for the sale of recreational cannabis in licensed stores. And it required testing standards for commercial weed. The state is trying to protect consumers from such things as pesticides and solvents.

The state and the cannabis industry spent a lot of time debating the standards. It looked like things were getting worked out; the state initially said that uniform purity and potency testing would begin Jan. 1, 2018.

Then things got bogged down, and the date was pushed to July 1.

“We really thought testing was going to begin in January,” said Greg Magdoff, CEO of PharmLabs, a San Diego company that is licensed to do such work. “We hired drivers up and down the state because we were told that we had to have our own employees pick up the samples.

“We’re ramping up again. It’s long nights and weekends. There’s a lot of stress.”

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Is it true that there are not enough labs to handle the testing?

The answer isn’t clear.

There are 31 labs statewide, including three in San Diego. The Union-Tribune visited PharmLabs on Friday and found workers hustling to handle a crush of business.

Some companies already have come into compliance, including OutCo, a cultivator, distributor and retailer near El Cajon.

“Smart companies are ready to go,” said Virginia Falces, OutCo’s communications director. “But we’ll have to see what next week brings.”

In many areas of California, there are no licensed recreational marijuana stores. Why? The public said yes to weed when it approved Proposition 64.

Proposition 64 also says counties, towns and cities have the option of banning the sale of recreational marijuana, which is also known as adult-use pot. The provision was added to the initiative to make it more palatable to voters.

The stigma attached to marijuana has been fading. But statewide, about 70% of communities have said no to recreational sales.

San Diego has been a notable exception. There are more than a dozen licensed stores, and more are expected. But it is the only place in the county where those stores exist.

“Many cities don’t want to be first to jump in; they want to see how things go,” said Dallin Young, executive director of the Assn. of Cannabis Professionals, a San Diego-based trade group.

Are things likely to change?

It’s possible, if not likely.

In March 2017, the San Diego County Board of Supervisors voted 3 to 2 to ban new marijuana facilities from opening in unincorporated areas, and they moved to phase out existing ones. But that could change in November if voters choose pro-marijuana candidates. Two board seats are on the ballot.

At the same time, Chula Vista voters might approve a plan that would allow local companies to grow, manufacture and sell marijuana.

Public acceptance of marijuana has been growing rapidly. On June 26, Oklahoma approved the sale of medical marijuana, making cannabis legal, to varying degrees, in more than 30 states. Michigan — home to about 10 million people — will vote on recreational pot in November. The measure has been polling favorably.

But there are a lot of frayed nerves in the cannabis industry, partly because U.S. Atty. Gen. Jeff Sessions said in January that he would not abide by the Obama administration’s decision not to prosecute companies that sell pot in states where it is legal to do so.

Sessions was overruled by President Trump in April, but the whole matter gave investors a reason to be extra cautious about pumping money into cannabis.

Marijuana also is still listed as a Schedule I drug at the federal level, which places it in the same category as heroin. That has largely shut the cannabis industry out of the banking system. Banks don’t want to antagonize the government by accepting marijuana money.

There’s been a lot of talk about creating a special bank in California to meet the cannabis industry’s need. For the moment, though, it’s just that — talk.

Robbins writes for the San Diego Union-Tribune.

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