Cheap Cannabis Products Available Before New California Rules Kick in
A bonanza of cheap marijuana is flooding the market this week as growers, manufacturers and retailers unload excess cannabis in preparation for the enforcement of strict testing and packaging regulations that are sure to further shake up California’s budding industry.
The regulations took effect Jan. 1, but the state suspended enforcement during the first six months to give the industry time to prepare. The end of the transition period Sunday means all recreational and medical cannabis sold in California must be tested in state approved laboratories, sealed in child-resistant packages and labeled by the producer.
All the remaining untested products must be destroyed by Sunday. Retailers, loath to waste their stashes, are unloading stock for bargain basement prices. Discounts of as much as 50 percent have been seen this week in the Bay Area.
“I think the next couple of days here are likely to be historic lows for retail cannabis,” said Hezekiah Allen, executive director of the California Growers Association, an advocacy group for some 1,250 medical marijuana farmers and business owners around the state. “I don’t think you’ll see prices this low ever again.”
The rules allow sales of cannabis that have been lab-tested for quality and have proven to be free of pesticides, chemicals and toxins. All smokable or edible products must be packaged in child-resistent containers and, before they go out to retailers, affixed with labels that outline potency and dosage amounts.
Edible cannabis goods must not have more than 10 milligrams of THC per serving or 100 milligrams per package, according to the regulations, which were regarded largely as a guideline since January, when legal sales of marijuana to adults began. The smokable stuff can have as much as 1,000 milligrams of THC per package for recreational and 2,000 milligrams for medical users, the guidelines say. All medical marijuana products must be labeled.
Cannabis policy and enforcement experts estimate that as much as $500 million worth of cannabis will have to be destroyed in California on Sunday, and it is expected to be rough going for a while as the market adapts to the rules and growers search out new distributors to replace suppliers who didn’t take the time to get a license during the grace period.
“It’s certainly going to be a disruptive and painful transition, for retailers especially,” said Allen, who expects the bargain buying to end abruptly once the regulations take hold. “There is going to be a slowdown because I don’t think the statewide supply chain exists yet.”
Prices are expected to rise, at least initially. Retailers say high prices — combined with the 15 percent excise tax on purchases of cannabis and cannabis products, including medicinal marijuana — are going to give the industry some headaches.
“I suspect we’ll have a shortage for a while until distributors get their testing figured out,” said Erich Pearson, the founder of the San Francisco Patient and Resource Center, now known as Sparc. “We’ll see limited supplies of brands and products, and probably lesser quantities, too. This at a time when we’re reaching the time of year when the highest demand for cannabis products is in the summer months.”
Growers must pay a $9.25 tax for every ounce of bud grown, along with a $2.75-an-ounce tax on dried cannabis leaves. The statewide sales and use tax rate is 7.25 percent, but many cities and counties have added voter-approved district taxes, the amounts of which vary.
None of this bodes well for an industry that is already suffering from a revenue shortage. California collected $60.9 million in excise, cultivation and sales taxes in the first quarter of the year, roughly $30 million less than projections made by the state in January.
Cannabis industry officials blame the lackluster figures on the reluctance of retailers and growers to go through the legal and financial red tape of entering the legal market, a situation that has kept black market growers in business.
Allen said about half of the 1,250 marijuana businesses that he represents have obtained the temporary licenses issued by the state. State officials are expecting to complete the permanent regulations and release them for public review in mid-to-late July. That process must be completed before annual licenses are issued.
Experts say illegal growers provide about 80 percent of the pot sold in other states. Bootleg marijuana is circulating widely around Mendocino, Humboldt and Trinity counties, known as the Emerald Triangle. An estimated 8,000 outdoor growers produce marijuana in Humboldt County, but not even half of them have filed applications under the county’s medical marijuana permit process.
“The black market is so large, and the taxes and regulations are so hard, that until the state decides to take action against the black market, it will remain a very robust and profitable business for those who participate in it,” Pearson said. “The over-regulation and taxation creates a very attractive alternative for consumers.”
Alex Traverso, communications chief for the Bureau of Medical Cannabis Regulation, urged patience while the various state agencies, including investigators, code enforcement officers and law enforcement, build strength and set priorities. He said the state has sent out more than 2,300 cease-and-desist orders to unlicensed retail and delivery services and will soon begin enforcing those orders.
“Every state that has legalized adult use of marijuana has had bumps in the road,” Traverso said. “We are very motivated to have things work, and make sure our licensees have products on their shelves and that the products are safe. If there are issues, we will find our best way forward.”
Allen said he believes many more retailers and growers will be obtaining permits once the state regulations are completed and permanent annual licenses are available. That, in turn, will improve the supply chain, he said.
Although the process of throwing out the old and bringing in the new is difficult, he said, it is necessary if California’s experiment in cannabis commerce is going to work.
“A lot of growers are excited for these requirements to be going online because, at the very least, we should be able to see the regulated market reward folks who are following the rules,” Allen said. “They’ve been competing with folks who have chosen to cut corners when it comes to pesticides. It’s exciting that for the first time in history, the entire market will be focusing on clean cannabis.”