California’s top cannabis regulators said Thursday evening that while progress is being made to bring a fledgling regulated cannabis market online, there are still many hurdles to cross before the vision of Proposition 64 is fully realized.
Kicking off the “First 60 Days of Proposition 64” hearing in Ukiah on Thursday alongside state Assemblyman Jim Wood (D-Healdsburg), state Sen. Mike McGuire (D-Healdsburg) said that the state’s medical and recreational cannabis market has the potential for job growth, community development and reining in an environmentally destructive and violent black market.
But he also said that nothing about the transition to the new era of legalization has been easy for the state, local communities or the industry.
“But if the state gets this wrong the promise of Proposition 64 won’t be kept,” McGuire said. “And as I have always said, this is a tall mountain to climb and we are currently building the airplane and flying it at the same time.”
Cannabis regulators from Mendocino, Humboldt and Sonoma counties outlined their challenges at the local level of permitting a new industry while the state’s own rules are still evolving.
Sonoma County Agricultural Commissioner Tony Linegar was blunt with his concerns about the future of the industry.
Linegar said overburdening local regulations may actually be perpetuating the black market and are driving out small farmers in favor of larger, corporate grows. He said this is occurring by subjecting farmers to high regulatory costs that can range up to hundreds of thousands of dollars, stringent environmental standards that other agricultural industries do not have to meet and creating business uncertainty as rules continue to change.
“If the overall goal of the program was to create a regulatory scheme that favored a corporate, big-dollar, new money industry then I think we have succeeded,” Linegar said. “If the goal was to create a workable regulatory pathway for existing cultivators to become legal I think we have failed.”
Other than protecting public safety and controlling odor, Linegar said cannabis should be treated no differently than any other crop.
Humboldt County Planning and Building Director John Ford outlined plans to expand the scope of the local industry by mid-April and the temporary permit program that has allowed cultivators to enter the statewide market.
Ford said the challenge his department is facing is not being able to process the thousands of business applications quickly enough.
Permit applicants are also receiving conflicting advice from outside consultants, which Ford said has led to growers expanding before they are allowed to and incurring fines of up to $80,000.
Despite the steep learning curve by both regulators and those in the industry, Ford said, “I do have high hopes moving forward.”
California’s medical and recreational cannabis market opened on Jan. 1, with over 1,300 business licenses having been issued. But the state is running the new system on emergency regulations that will expire later this year.
The state’s Bureau of Cannabis Control Chief Lori Ajax said that they are listening to feedback from cannabis stakeholders and others about flaws in the current rules and will make changes where necessary as they draft their final regulations this year.
“There is a lot of work ahead for 2018. We know that,” Ajax said.
When asked by McGuire how the bureau will assess costs to the industry to become legal, Ajax said that they are currently operating on a loan from the state General Fund and will need to see this year through to determine whether or not the fees of legalization will be enough to cover the bureau’s operational costs. Ajax said they will reduce fees if they are determined to be too high.
Meanwhile, other state departments are grappling with everything from banking issues for tax collection to determining how to track cannabis as it works its way through the system.
California Department of Tax and Fee Administration Director Nicolas Maduros said they are still trying to find a workaround to federal banking restrictions that have long held cannabis businesses to a cash-only system. With the state now assessing cultivation, excise and sales tax on cannabis businesses, Maduros said many businesses are having to obtain exemptions that will allow them to pay in cash, which he said is a security risk.
As to the progress toward finding a solution to the banking issues, Maduros was frank.
“As of yet we have not found an answer,” Maduros said.
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McGuire questioned Ajax on the potential outcomes of U.S. Attorney General Jeff Sessions’ decision in January to repeal federal guidelines from the Obama administration that essentially told federal prosecutors to turn a blind eye to states that allow cannabis activities if they had strong enough rules in place.
“We’re not going to change what we’re doing,” Ajax said in response. “That is the focus of all of us up here is to follow California law and the will of the people and put that regulatory system in place.”
On the cultivation side, California Dept. of Food and Agriculture cultivation licensing Director Richard Parrott said that they are planning to take public input on its organic-equivalent program and appellation program in the summer; working to implement a track-and-trace system; and have created a hotline — 833-WEED-TIP — to allow people to report potentially illegal cultivation.
Wood had requested Parrott address the 1-acre grow cap controversy that began in late 2017.
An environmental review of the department’s emergency cultivation rules contained a cap that limited a person or entity to one acre of cultivation for the first five years of the new market. The cap did not appear in the final emergency rules, with the department stating that the state’s cannabis laws do not require one.
The state’s largest cannabis cultivator organization, the California Growers Association, has filed a lawsuit against the department, claiming it violated its laws by failing to protect small farmers.
Parrott said he has heard the concerns, but said “due to the pending litigation and the advice of our CDFA legal counsel, I won’t be able to speak to that.”
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