Report: Laws Are Pushing CA Pot Farmers to Black Market, Not Oversupply

When California voted to legalize cannabis in 2016, advocates promised that the new regulations would capture illicit cannabis production and turn it into a regulated market, creating new taxes that would provide benefits for everyone.

Even cash-strapped rural areas without an economic engine would have money for schools and roads — hence the proliferation of ≥desert communities in Southern California banking on massive, million-square-foot cultivation complexes.

What legalization did not promise — not in the campaign materials for Prop. 64, the Adult Use of Marijuana Act, approved by 57 percent of voters on Election Night 2016, nor in the regulatory debates afterwards — was an economic crisis for marijuana farmers. But, just shy of two months into California’s commercial cannabis era, that’s what’s unfolding in the state’s rural marijuana-producing regions.

There are tens of thousands of cannabis farms in California, maybe as many as 80,000, according to a state estimate in 2016. And as of Feb. 18, fewer than 1,500 — or one percent — had secured cultivation licenses from the state, according to a review conducted by the California Growers Association, the main lobby for California cannabis growers in the state capitol.

That’s far fewer than the 20 percent or so that some guessed at, and far too few to justify the argument that these growers are merely operating out of a “desire to stay illegal.”

It’s accepted that California’s oversupply of cannabis is driven by demand from out-of-state markets in prohibition states.

But producers who used to supply the state’s domestic market are also finding it difficult to become permitted, according to CalGrowers.

Of the marijuana growers who supplied medical-marijuana dispensaries before Jan. 1, the first day of recreational retail sales and the first day that all marijuana businesses needed a state license, between “80 to 90 percent” can’t get permitted, according to the report.

The reasons why are a predictable shopping list. Many of the state’s 58 counties have elected to either ban commercial marijuana production or regulate it so strictly — declaring certain areas off-limits to cannabis, or raising the price of a permit fee so high — that California cannabis growers either can’t afford a license or can’t comply with requirements.

In a twist, such barriers for entry only contribute to the black-market and the “diversion” problem. Shut off from regulated stores, “so much high-quality produce is now flooding into the black market,” one unnamed Sonoma County-based cultivator told CalGrowers. With that increase in illicit supply has come an increase in crime.

“These people who built the industry are not allowed to participate,” the grower said. “I hope we can course-correct this year.”

According to CalGrowers, the hordes of California cannabis growers who now cannot legally sell their wares is an economic crisis in the making. “We estimate that these farms employ 3.6 people on average, for a whopping 258,000 jobs. Thousands of people, and dozens of communities around the state that have been able to sustain themselves… are being destablized.”

Unless this state of affairs is addressed, “economic depression is the best case outcome,” as per the report. “Economic collapse is the worst case.”

Today, Feb. 23, is the last day that state lawmakers can introduce bills in the current legislative session. Several lawmakers have already voiced concern over a trend towards consolidation of marijuana production, identifying a loophole in state law that allows for marijuana farms of nearly unlimited size as in need of correction.

But the revelations from CalGrowers also demonstrate that the discrepancy between licensed and unlicensed growers is about more than people who’d prefer to stay illegal rather than comply with regulations. Those regulations, in some cases, are simply too onerous to comply with — and the result can already be seen in places like Monterey County, where production is shifting from independent growers in the hills to massive factory-like operations in the flatlands.

TELL US, what do you think is going to happen to cannabis farmers in California?