California sees plenty of green in legal pot
A new gold rush is sweeping California as the state prepares to launch legal marijuana sales Monday, bringing the powerful and largely underground economy finally into public view.
Marijuana long has been one of California’s most important cash crops, albeit one many visitors would never see amid the vineyards and avocado farms. Tens of thousands of entrepreneurs are rushing to carve out a slice of a market that has grass-growing cannabis evangelists colliding with out-of-state suits eager to make a legal buck.
There’s a lot to be made: The state’s marijuana black market is worth $13.5 billion, according to cannabis financial analysis firm GreenWave Advisors, and the legal market could be worth $5.1 billion in 2018.
“You’re taking an industry that was completely underground and making it the most regulated product of all
time,” said Jessica Lilga, who runs a medical cannabis distribution service in Oakland and hopes to expand into recreational pot. “It’s just insane.”
Legalization through voter approval of Prop. 64, which created a system for legally growing and selling cannabis, raises concerns about whether kids will start using more marijuana thanks to increased visibility and whether the state is creating a Big Tobacco-type industry that puts profits ahead of health.
Though five other states offer legal marijuana sales, the Golden State’s sheer size is likely to reshape the pot industry worldwide, potentially driving down prices for consumers while generating hundreds of millions of dollars in taxes. It holds the promise of wiping out criminal records for some people with cannabis convictions and helping longtime illegal-drug dealers go legal by getting them licensed.
Eight states and the District of Columbia have legalized marijuana, but only Colorado, Oregon, Nevada, Alaska and Washington have func- tioning marketplaces. Massachusetts and Maine expect to begin sales in 2018. Marijuana remains illegal at the federal level, but the Trump administration has made no high-profile moves against any state where pot is openly sold.
California’s marijuana growers are highly sophisticated when it comes to operating illegal farms in the mountains of the Emerald Triangle north of San Francisco. Playing by these new rules is a different proposition. Many longtime cannabis farmers struggle with whether to go legal, in part because getting licensed can cost tens of thousands of dollars. Additionally, many longtime marijuana moonshiners are culturally opposed to playing by the rules. For generations, they have secretly grown vast quantities of pot destined for black-market users across America.
Matt Karnes of GreenWave Advisors estimated that at least half of the cannabis grown in California is illegally shipped across state lines and sold at two or even three times the price it would fetch if sold locally as medical marijuana. Those growers have an extensive network of distributors built through mutual trust over decades.
“What we are going to see is not only a legal shift but a cultural shift,” said Michael Steinmetz, CEO of cannabis distribution company Flow Kana.
Because California’s marijuana law requires all cannabis to arrive in stores prepackaged, growers and distributers are frantically developing branding and packaging to set their wares apart.
Like other states that have legalized recreational marijuana, California is creating a network of privately owned but tightly regulated pot shops that will offer shoppers a wide variety of products, from the smokable “flower” to cannabis-infused foods called edibles and increasingly popular marijuana extracts used for vaping.
Still, the state faces major challenges, said Kevin Sabet, director of the anti-legalization group Smart Approaches to Marijuana.
Data about how legalization has affected cannabis use rates, particularly among kids, remain consistently unreliable.
Marijuana is entirely illegal at the federal level, most banks refuse to handle cannabis cash and employers struggle with how to handle routine drug testing for workers in states where pot is legal.
Knowing those challenges, California should have taken more time to work out the kinks of legalization, Sabet said.
Silicon Valley billionaires heavily backed Prop. 64, particularly Napster co-founder and former Facebook president Sean Parker, who donated more than $1 million to the November 2016 ballot measure.
Some industry experts said they believe venture capitalists hope to commoditize cannabis production and create a legitimate cash crop.
“We’re going to have more Budweiser than craft brewers,” Lilga said. “It’s not fun at all. This is the epitome of the corporate model.”
That corporate model is likely to generate $300 million to $500 million in marijuana taxes in the first year, according to cannabis analytics firm New Frontier Data.
That estimate doesn’t include sales taxes and depends heavily on how quickly the industry ramps up.
Michael Steinmetz CEO of cannabis distribution company Flow Kana
“What we are going to see is not only a legal shift but a cultural shift.”