California officially goes to pot
Casey O’Neill has been a farmer for 10 years, taking his vegetables and herbs to local farmers’ markets in Mendocino County, northern California.
Today, he will be catering to a new clientele: recreational cannabis users, as the leisure consumption of the drug becomes legal in the state.
California will become the sixth state - and by far the most populous - to legalise and tax sales of recreational cannabis, completing a shift along the US west coast, with Massachusetts and Maine on track to change their laws on pot in 2018.
With California’s nearly 40 million residents joining the fold, more than one in five Americans will now live in states where people can legally smoke a joint or enjoy a cannabis-infused sweet.
But O’Neill, 35, has some misgivings about the burgeoning cannabis industry and the influx of big money.
‘‘I have no interest in scaling up,’’ he said from his one-acre farm, where he grows everything from basil to cauliflower and lettuce. ‘‘I have no interest in being a big business... There is a danger of conglomerates dominating the industry.’’
On the other side of the country in Sheffield, Massachusetts, Ted Dobson, 57, who has been a farmer since 1982, is also preparing to cash in on the new green revolution. ‘‘I have a small farm of 15 acres and I have always looked to grow high-value crops - I am hoping this will make a difference to my business,’’ he said.
Cannabis will jostle for space alongside his other organic crops, but the two farmers are small players in what is becoming big business.
Entrepreneurs and Wall Street investors are diving into an industry where revenues from the US legal marijuana industry are expected to grow from US$6.7 billion (NZ$9.4b) in 2016 to over US$21 billion by 2021, according to Arcview Group research.
In addition to Washington DC and the eight states and that have voted to allow recreational cannabis, another 21 states allow medical marijuana to some degree and others have decriminalised the drug, meaning it is treated in much the same way as a minor motoring offence. But the legal position is not straightforward.
Despite the tolerance of the recreational and medical use of cannabis in a large number of states, the drug remains illegal under federal law, which means that banks and other financial institutions are giving the industry a wide berth.
This makes it difficult for businesses to raise loans or even use conventional banking services, such as credit cards, and means that pot is essentially a cash-only business.
Medicine Man in Denver, Colorado, for example, provides an onsite ATM for customers. Another business, Green Man, sells gift cards - which can be bought with a credit card - which are in turn redeemed against the product.
Alaska Fireweed in Anchorage, Alaska, is another cash only business. ‘‘There are some complications,’’ said Shelby Holmes, the lead ‘‘budtender’’. ‘‘You have to keep track of large quantities of cash, which can create problems. You have to be very careful.’’
Some companies operate using cryptocurrencies, such as Bitcoin, to handle their cash flow or rely on the few credit unions and banks willing to take on the business.
California is examining the possibility of setting up a stateowned bank solely for cannabis business.
Unlike other enterprises, cannabis companies are also denied the ability to deduct a raft of business expenses against their operating costs.
‘‘One of the misconceptions is that pot is legal. We are turning a blind eye to it,’’ said Aaron Pelley, an attorney with 7 Point Law, which focuses on corporate cannabis law.
‘‘One of the ways we got the laws passed in some states was to tax the hell out of it. But federal law is draconian, especially with the tax structure which leaves some companies getting taxed at 80 per cent. It is impossible to run a business if 80 per cent of your income is going in state and federal tax.’’
Cannabis businesses have to show some ingenuity to keep going, Mr Pelley added. ‘‘Some of it comes from learning how to avoid taxes that steep. Others take it on the nose and accept that is the cost of doing business for now and hope that they can weather the draconian taxes. So they are losing money and trying to at least stay afloat in hopes that, over time, only the well-funded and strong will survive,’’ he said.
Millions of Americans may want to enjoy recreational cannabis but live in states where it remains illegal. Even if buying cannabis is legal, finding somewhere to smoke it can be tricky.
In Las Vegas, consumption is largely limited to private homes, because Nevada state law outlaws public consumption. One option has been to establish private clubs where the drug can be enjoyed. This is where Jamaican-born Orbin Johnson, 47, comes in - marketing pot-based holidays.
He created Canrve, a fullservice cannabis tourism company. Its services include matching holidaymakers with people ready to let out their homes in states where pot is legal.
Canrve also organises potthemed dinner parties, tours, and marijuana-infused massages.
‘‘We are catering for the sophisticated cannabis user as well as the medicinal one,’’ he said. ‘‘We are addressing a hidden demand. Not everybody wants to advertise what they are doing. It’s all about the experience... We can even find a cannabis chef who will come in and cook you a meal.’’
The biggest threat to users and entrepreneurs is Jeff Sessions, the US Attorney General, who still regards cannabis as a dangerous menace.
During the latter days of the Obama administration, an 85-word clause was added to a budget bill. Known as the Rohrabacher-Farr amendment, it banned the Justice Department from using public money to prosecute sellers and consumers of medical marijuana in states where the drug was legal.
However, the amendment is in legal limbo. An updated version has run into opposition from Mr Sessions, who says it is putting the public in danger. His position on the drug is uncompromising: ‘‘Good people do not smoke marijuana.’’
Pelley questions whether even Sessions will be able to slow down the march of legal cannabis by tightening enforcement of federal laws.
‘‘We are not talking about people growing weed in their basement,’’ he said. ‘‘Now we have people who have invested millions of dollars in the business including chief executives of Fortune 500 businesses. They are not going to walk away from their investments.’’
"I have no interest in being a big business ... There is a danger of conglomerates dominating the industry." Casey O'Neill, Mendocino County