CalCannabis Licensing Debacle?
We were prompted to write this article by Joe Kukura’s article “Pot Growers Nipped in the Bud by Bureaucratic Bungle.” We agree with the article. CalCannabis created a gigantic debacle with its licensing of cultivators. However, a more accurate statement is, “CalCannabis is a gigantic blunder.”
“Biggest” depends on your perspective and audience. For those growers who are facing a loss of livelihood for trying to be good citizens of California and comply with the law, the errors made by CalCannabis in its regulation of cannabis cultivation have created a life-changing disaster. For some such growers, CalCannabis’ blundering regulation of cannabis cultivation will produce the most significant crisis of a lifetime, but “biggest” is not the right adjective. Historically, putting small growers out of business for no good reason has started revolutions. However, in the instance of California cannabis growers, the actions of CalCannabis will likely to only further sour contempt for government regulation.
The screw-up of the roll-out of the regulation of cannabis cultivation by CalCannabis was inexcusable. However, we must be realistic. CalCannabis does not appear to have made the worst blunders of cannabis regulation. What about the hundreds of millions of dollars of missing cannabis tax revenue? What about the thriving underground cannabis market? What about the booming “semi-underground” market? What about the cities and counties that sold licenses for the fees the sales would generate while imposing taxes that render the operation of cannabis businesses in the same cities and counties not competitive? What about the counties that sold cultivation licenses and then decided to prohibit cannabis cultivation?
CalCannabis Licensing Debacle?
The present state of the regulation of cannabis cultivation by CalCannabis is no more than a pronounced symptom of the debacle of California’s roll-out of cannabis regulation. Do not misapprehend our comments. The disaster that expiring temporary cultivation licenses reflect is gigantic! Heads should roll! However, this particular screw-up by CalCannabis is just a symptom of a much more severe problem. Those who are interested in California’s cannabis industry for any reason – whether to tax it, or to earn a living in it, or to build a successful business in it, or to secure medicine from it – need to focus on determining why California’s roll-out of regulation is a debacle. To determine what can be done to right the ship, one must first determine why the ship went belly-up.
There are a myriad of reasons the roll-out of cannabis regulation in California has proved a debacle. We have addressed some of the reasons in other articles. See Cultivators – Taxes – Licensing Delays, California Cannabis Licensing Blunders, and California Crushing Cannabis Industry. We have primarily focused on issues relating to financial record-keeping and tax reporting for the business entities involved in moving cannabis from a cultivator to a consumer. Financial record-keeping and tax reporting are our areas of expertise. We stick to our area of expertise.
It is unlikely we could successfully grow cannabis even though it is a weed. We fully understand we have limited knowledge of cultivation, processing, extraction, and testing. Thousands know more about these aspects of the cannabis industry than we do. We can, however, make any cannabis business more profitable for its owners through more effective business practices and financial record-keeping. Our ability to make cannabis businesses more profitable is, subject to one major exception. We cannot make more profitable those cannabis businesses that, in whole or in part, succeed through unreported transactions.
We need to return to the reason we decided to write this article. The regulation of cannabis presents several difficult and complex problems. If these problems are going to be successfully addressed, the causes of the problems must be understood. If one is going to determine the cause of a problem, one has to understand the problem entirely. Let’s look a little more carefully at the numbers in Joe Kukara’s article.
CalCannabis Licensing Debacle?
If Joe Kukura’s article is read carefully, the article minimizes the travesty of the licensing of growers by CalCannabis. If 1,000 growers have 235 acres of canopy, the average licensed grower has 10,000 square feet of canopy. If California needs four times the canopy it has at present through licensed growers to satisfy market demands, California does not need half of the growers with expiring temporary licenses. Why should anyone care that CalCannabis is not issuing licenses to growers that the market does not need?
Let’s look at the numbers from a different perspective. At the end of 2017, Humboldt County estimated it had 10,000 cannabis growers. Many have now left for better climates, but a substantial number remain. Only a few Humboldt County farmed 10,000 square feet of canopy. If Humboldt County still has 6,000 growers, and each has 5,000 square feet of canopy, an Executive Order granting cultivation licenses to all Humboldt County cultivators would solve California’s retail market shortage with a single signature.
Consider the political and regulatory benefits for California from the preceding. All California cannabis would come from Humboldt County except for those licenses already issued in other counties. Other counties would not face political battles over whether or not to allow cultivation. Humboldt County has a Track and Trace Program. All Californians would have access to Humboldt County cannabis. Humboldt County would be restored to its historical prominence as the source of the best.
The preceding, of course, is facetious. The preceding is also outrageous. There are substantial enclaves of small cannabis cultivators all over California. Small cannabis growers throughout California are entitled to slices of the cannabis pie. We decided to be outrageous to focus our readers on how California is destroying its cannabis industry under the guise of regulation.
We need to look at another aspect of the numbers in Joe Kukura’s article before we move on to solutions. The article does not go behind the gross amounts of canopy. All square feet of canopy are not equal. While traditional outdoor cultivation may yield only a single crop each year, light-deprivation greenhouse grows can yield multiple crops. Indoor grows can generate a new crop every six weeks. Two thousand square feet of the indoor canopy can produce as much cannabis as 20,000 square feet of outdoor canopy.
CalCannabis Licensing Debacle?
If the data that Joe Kukara used for his article is examined, it will be immediately apparent a very substantial portion of those who have already successfully navigated the CalCannabis licensing process are well-financed, well-advised growers, including many newcomers to the industry. The “green wave” has been replaced by a wave of corporate carpetbaggers. CalCannabis has thoughtlessly created a cannabis cultivation licensing system that caters to the corporate carpetbaggers who are taking over California’s cannabis industry. We are confident the 400 growers a day that Joe Kukura described as losing the right to participate in California’s commercial cannabis industry are primarily small growers.
The preceding describes symptoms. We are looking for the causes of the problem in order to find a cure, or at least some relief, from the pains of California’s cannabis regulation debacle. We believe there are four principal reasons the licensing of growers by CalCannabis is a debacle:
(1) The Legislature did not provide California’s regulatory agencies with an adequate mandate.
(2) The Bureau of Cannabis Control (“BCC”) failed to provide adequate guidance, coordination, and oversight.
(3) CalCannabis failed to secure a sufficient knowledge and understanding of the industry before it started making decisions regarding regulation.
(4) CalCannabis engaged in bureaucratic empire-building.
The last two items are summary statements of the principal reasons CalCannabis has turned cultivation licensing into a debacle. These reasons are solely on the doorstep of CalCannabis. CalCannabis is responsible for correcting its screw-up. The screw-ups of CalCannabis relating to the licensing of cultivators, however, were produced by the failure of the Legislature to provide California’s regulatory agencies with an adequate mandate as well as by the failure of BCC to provide adequate guidance, coordination and oversight to the various portions of the agencies that became involved in the regulation of cannabis in California.
CalCannabis can rectify its errors, although it is incredibly tricky for a bureaucratic agency to correct its mistakes. This flows from the very nature of a bureaucratic agency. Regulations and the related processes and procedures are extensively vetted even though the vetting process frequently consists of many individuals buying into the same error. As a consequence, bureaucratic momentum is challenging to alter let alone reverse. A change in the direction in which bureaucracy is moving generally can be accomplished solely through direction from above.
We doubt CalCannabis can rectify its errors. BCC could have prevented these errors from occurring if it had provided adequate guidance, coordination, and oversight to CalCannabis, but it did not do so. BCC is handicapped at this point by the same bureaucratic momentum that handicaps CalCannabis. The Legislature, of course, only enacts the laws. On many occasions, the Legislature explains why it is enacting laws and what it wants to accomplish. The Legislature can undoubtedly explain how its mandate is not being carried out, or clarify and amplify its mandate, but administrative agencies generally heed a legislature only if funding is threatened.
The last and best hope for California’s cannabis industry may well be Governor Gavin Newsom. As we have pointed out on other occasions, many of the problems that have developed in California’s roll-out of cannabis regulation were foretold in the Report of the Blue Ribbon Commission. Governor Newsom was a leader of the Commission. Decisive action by the Office of the Governor could swiftly rectify several problems that have arisen in California’s roll-out of cannabis regulation