California has always been a trailblazer in the cannabis world. In fact, the state is America’s largest cannabis economy. Now, the state is blazing a new trail of regulated cannabis, and market disruption is already happening. Nearly all of the state’s growers are unregulated, so the state decided to begin regulating the industry as of January 1. It appears they weren’t in the least bit ready. Now, retailers who usually don’t have to be concerned about stocking shelves, are sweating. They typically have enough cannabis on hand for both medicinal use as well as adult recreational use, but now, they’re expecting a massive shortage as soon as summertime.
The state is imposing taxes on legal purchases, so many consumers have sticker shock, but prices are nevertheless table. Supply, however, is not—some brands are in very low supply. The black market is still going strong, in large part due to the new steep taxes.
California has a cultivator issue. If more are not licensed soon by the state authorities, California merchandisers could suffer a severe shortage. The issue is that leafy cannabis trim, a critical component of everything from concentrates to vape pens, may not be available in sufficient quantities to manufacture all of these products.
Critics say the local jurisdictions must get their act together and start licensing. Growers are also hesitant, in large part due to the huge cultivation taxes levied by the state. Some state lawmakers, including pro-cannabis Republicans, want to eliminate the cultivation taxes for three years, and reduce the excise tax, to incentivize growers to jump into the market.
Taxes are not the only problem. There seems to be a monumental amount of government red tape. People who have worked in the industry for years are off California’s official list because they’re no longer state-certified. The Sacramento medical-only dispensary Canna Care says one of its most loyal growers of very high-grade cannabis hasn’t been able to get the state-required cultivation license.
Even though dispensaries and manufacturers anticipated such a glut and did their best to stock up on products, the dispensaries are seeing their shelves empty. Patients who want a certain brand sometimes can’t get it because it is simply not available, so customers are definitely feeling the pinch. While some top-selling brands already have their licenses, many do not.
Local cities and counties are defying the state by banning certain certifications, but the state is saying they haven’t heard about any shortages. The California Bureau of Cannabis Control says consumers simply haven’t contacted them. Many on the front lines of the market disagree; they say that the delivery business, in particular, has crashed because unregulated drivers cannot find cities willing to provide the licenses. For example, prior to January 1, Calaveras County had licensed many cannabis farms, but then decided in 2018 to ban commercial cultivation; their move alone could result in a 10 percent cut of cannabis leaf and flower since Calaveras is an agricultural wonderland.
California is taxing itself—and the cannabis industry—to death. Industry insiders and politicians say this will most assuredly create a severe shortage by summertime. It is situations like this that turn people to the black market. State opponents say you either help people get legally certified, or they go to the black market—to them, it is a black and white issue with no gray area. The tax is breathtaking; the state levies a $44 per pound tax on leaf and $148-per-pound tax for flower. What farmer can afford it?
Unfortunately, small growers are the first to fall by the wayside. They feel choked out of the market. Many have lost important business relationships that took years to cultivate (no pun intended). Now, unable to get licenses, these businesses have dropped out.
Time will tell. Summer is literally just around the corner.