The world capital of legal cannabis became even more of a marijuana Mecca on Election Day. On November 8th, California voters approved 12 ballot measures that could result in dozens of new retail licenses in various municipalities across the state.
The new ballot measures could mean 25 new retail licenses in L.A. County alone and more than 20 for dispensaries in San Diego county. The initiatives also open the door for retail licenses in Huntington Beach and Laguna Woods, which have been bereft of marijuana businesses.
Cannabis cultivation tax no more
One of the most significant updates to the California cannabis program happened in July when Governor Gavin Newsome passed a series of marijuana reforms, including eliminating the cannabis cultivation tax.
Assembly Bill 195 (AB-195) eliminates the cannabis cultivation tax on harvested cannabis and a cap on the cannabis excise tax at 16% for the next three years. The bill also calls for increased enforcement against unlicensed cannabis operators.
Under AB-195, the state will establish a $20 million Cannabis Retail Access Grant Program. In addition, the bill also caps the cannabis excise tax at 16% for three fiscal years. It also calls for expanded enforcement measures against unlicensed marijuana operators.
AB-195 also includes $40 million in tax credits for cannabis operators - half of which will go to cannabis equity operators. The bill also establishes a $20 million Cannabis Retail Access Grant Program to encourage marijuana retail licensing in municipalities that have so far opted out of commercial marijuana.
Under Assembly Bill 2188, signed by Governor Newsome in September, employees will be protected from discrimination in hiring or termination “based upon the person's use of cannabis off the job and away from the workplace.” The bill does not apply to certain trades and applicants looking for a job requiring a federal background check.
In a press release in early November, California’s Department of Cannabis Control stated that it “has adopted a consolidated regulatory package that streamlines and simplifies the cannabis regulations, eases burdens for licensees, and enhances consumer protections.”
The regulations, which include “enhanced consumer and youth protections” and ease the licensing process, can be found here.
Low cannabis prices continue to take a toll
Like in other legal marijuana states, California cannabis operators feel the squeeze of price compression - even as inflation drives up business costs.
“This is going to be the biggest extinction event of cannabis that we’ve seen, and it's unavoidable,” Northern California grower Mark Shaffer told MJBizDaily earlier this year.
According to Leafly’s 2022 Cannabis Harvest Report, while cannabis farmers grew 554 metric tons more marijuana in 2022 than in 2021, the value of the crop fell by $1 billion.
“Years ago, we predicted that California’s translation from prohibition to legal sales would be an extinction event, and the comet has hit,” Leafly wrote in the report.
The report stated that due to increased competition and lax enforcement against the illicit market, “thousands of farmers in both the legal and illegal markets quit. The average untrimmed, dried pound might have been worth $786 wholesale in August 2022, but individual outdoor pounds have drawn prices as low as $100.”
The authors add that “consumers are seeing unheard of bargains in 2022, with $20 retail eights now the norm.”
The report forecasts that “only the best, biggest, most efficient, and well-capitalized farmers will survive.”
“The market has started to deflate, and because of that deflation, we’re seeing folks who were used to the market in 2020 all of sudden having to figure out how to operate in a very, very different and depressed market,” Sahar Ayinehsazian, a partner in the cannabis law firm Vicente Sederberg told Rootwurks.
Ayinehsazian said that marijuana operators in California are feeling the crunch of state and local taxes and “a combination of market depression and a lack of access to traditional sources of funding.”
Vicente Sederberg Counsel Andrea Golan agreed and added that these factors are “feeding the illicit market and making it just as strong as ever.”
Golan added that when it comes to cannabis compliance, a positive development to come out of the pandemic was the easing of “some of the strict rules that maybe didn't make a lot of sense or sort of were overkill such as allowing delivery or allowing curbside pickup and things like that.”
Golan said that taxes have been a giant issue for cannabis operators and the expenses involved in gaining licensing and becoming a complaint business.
Neither said that smaller cannabis companies are inherently more likely to be non-compliant, but compliance costs can be a heavier burden for such companies.
“Every month, I feel like we get an update on some kind of new change to the state rules, and having attorneys and internal staff that are able to track that is not cheap,” Ayinehsazian said.
Will 2023 be better for California cannabis?
When asked if they think legal cannabis in California and elsewhere will turn a corner towards greener pastures in 2023, Ayinehsazian said, “I don't think next year is going to be the year where we see it turned around.”
And as for the smaller or less established marijuana operators?
“I think next year is going to be the year where we see the folks that have the potential for longevity stick around and the folks that were, for some reason or other, not necessarily established for longevity, perhaps coming to their sunset,” Ayinehsazian said.
