Many strains of failure for state’s pot industry
SACRAMENTO — Architects of the effort to legalize pot in California made big promises to voters.
But six years later, California’s legal weed industry is in disarray with flawed policies, legal loopholes and stiff regulations hampering longtime growers and sellers. Despite expectations that it would become a model for the rest of the country, the state has instead provided a cautionary tale of lofty intentions and unkept promises.
Compromises made to win political support for Proposition 64, the 2016 initiative to legalize cannabis, along with decisions made after it was approved by voters that year, unleashed a litany of problems that have undermined the state-sanctioned market.
At the root of the failure: an array of ambitious, sometimes conflicting goals.
California officials vowed to help small farmers thrive but also depended on the support of big cannabis operators backed by venture capital funding, who helped proponents of Proposition 64 raise $25 million and won a key concession after its approval. The result was a licensed recreational cannabis system that benefited large companies over smaller growers who are now being squeezed out of the market.
The state set out to simultaneously cripple illegal operators and reduce marijuana-related criminal penalties to address racial injustices imposed by the longrunning “war on drugs.” Far from reducing illegal weed, those efforts instead allowed the black market to flourish after legalization with the help of organized crime operations that run massive unlicensed farms and storefront dispensaries
in plain view, bringing crime and terrorizing nearby residents. And those raided by police are often up and running again within weeks or days.
While making legal pot available across the state, officials created regulatory loopholes that allowed large swaths of California to ban marijuana sales. Though voters approved legalization, cities and counties have been skittish: Most rejected allowing cannabis businesses in their jurisdictions, resulting in only a fraction of the predicted number of licensed dispensaries operating.
A glut of cannabis produced by licensed and unlicensed farmers has driven down what small farmers can get for their crops, resulting in many facing financial ruin. Licensed businesses complain of stifling taxes and high overhead costs.
Many of the serious problems the state now faces were predicted seven years ago by a blue ribbon commission chaired by Gavin Newsom, then California’s lieutenant governor.
The commission urged restraint on taxing the legal market and limits on licensing to prevent big corporate interests from dominating the industry. The panel, which included law enforcement and civil liberties activists, also recommended robust enforcement, particularly against large illegal growing operations.
This is the story of how the promise of Proposition 64 went so wrong, and how the state’s grand vision proved so elusive.
It was a sweltering afternoon in 2015 when Newsom and other members of his blue ribbon commission faced hundreds of anxious cannabis growers and sellers inside the Redwood Playhouse, a small theater in Garberville.
The meeting was held a year before Californians would vote to legalize recreational cannabis, and pot farmers at the Humboldt County gathering gave the panel a preview of the potential problems to come.
Small-scale growers, including second-generation farmer Jonathan Baker, told Newsom they were worried about surviving under the state legalization plan.
“We just do not want to see our livelihoods stolen from us,” Baker said.
Newsom told the farmers that he was sympathetic to their plight and warned that deep-pocketed special interests were already at work in Sacramento.
“I’m in Sacramento long enough to know that the persuasion industry moves it,” Newsom told the crowd. “Folks with a bunch of money move in, and they’re writing those rules and regulations and, with respect, writing a lot of you guys out. We cannot let that happen.”
His blue ribbon commission’s report released months later suggested drafters of a legalization initiative consider limiting the number of licenses issued to any one owner “to prevent the growth of a large, corporate marijuana industry dominated by a small number of players.”
State officials and backers of the initiative promised to limit farms to an acre apiece for five years to give small growers a chance to establish themselves in the legal market. As a result, Proposition 64 prohibits issuing a license for more than one acre until Jan. 1, 2023.
Once the ballot measure was approved by voters, it was up to state agencies to draft and implement the various rules that would regulate the new licensed market. It was during that process in 2017 that state agriculture bureaucrats added a last-minute loophole that allowed firms to accumulate multiple licenses if each was for less than an acre. As a result, large corporate farming operations have accumulated numerous licenses of under an acre each, putting small farms that are unable to compete at that volume out of business.
Today, the 10 companies with the largest growing operations have a combined 1,862 licenses, or 22% of the 8,338 state licenses for cultivation, according to a Times analysis of state data.
The loophole was added, after more than a month of public input, by administrators at the California Department of Food and Agriculture, drawing protests from state Sen. Mike McGuire (D-Healdsburg) and Assemblyman Jim Wood (D-Santa Rosa).
“This last-minute revision rolls out the red carpet for large corporations to crush the livelihood of small family farmers who should be given a fair chance to succeed in a regulated market,” the lawmakers wrote in a letter to the department.
A Newsom administration official noted the controversial rule on licenses was added before he was elected governor. The administration told The Times that agriculture officials believed they had no authority to limit the number of licenses under an acre that an individual could obtain.
Advocates for small growers reject that explanation. They say they felt left out of rule-making discussions, and believe lobbying by corporate cannabis interests was behind it.
“The law was written by and for big money,” said Casey O’Neill, a small-scale grower in Mendocino County who was active in an association of small farmers at the time the rules were written.
O’Neill and other small farmers point to a flood of campaign contributions from cannabis cultivators, retailers and others that includes a combined $400,000 to Newsom’s first campaign for governor, the most given by the industry to any of the candidates in the 2018 election.
One firm that now has a multiacre farm, FLRish Inc., contributed $10,000 to the Proposition 64 campaign and spent $574,000 lobbying state agencies during the years regulations were drafted, approved and implemented. The firm has 23 cultivation licenses for a large farming operation in Monterey County.
People’s Farming LLC received state approval for 215 cultivation licenses, allowing it to grow more than 160 acres of cannabis on the outskirts of Lemoore in Kings County. A Times reporter who visited the site was turned away by a security guard and a company representative, who declined to answer questions about the operation. The firm’s top executive gave $7,500 to Newsom’s 2018 campaign for governor.
State cannabis department officials are not concerned that there are several large firms in addition to small operations, believing a diverse market is needed to meet consumer needs, said Linda Mumma Solorio, an agency spokeswoman.
She said the agency is trying to assist small farmers by providing financial help to cities that assist minority-owned businesses and by cracking down on growers who falsely claim to have grown their crops in areas known for high-quality weed.
Nicole Elliott, director of the California Department of Cannabis Control, acknowledged times remain tough for small farmers.
“I fear that we will lose some of them, whether they close up shop altogether or revert back into the illegal market,” she said in a recent interview with The Times. “That is an area the state can do more to help remove barriers for them to participate in the legal market.”
In Humboldt County alone, surveys conducted before Proposition 64 estimated that there were as many as 15,000 grow sites. As of June, there were 884 licensed cultivation operations, according to Natalynne DeLapp, executive director of the Humboldt County Growers Alliance.
Baker, the small farmer who warned Newsom of his fears about legalization’s effect on his livelihood, has struggled for years to get state and local permits to grow in California.
He said he has been stymied in part by the significant expense of meeting state and local requirements, which for him include bringing power and water facilities to a remote Humboldt County property.
Cannabis flooding the market from large grows has driven down prices and made it difficult for small farms to turn a profit, he said.
As a result, Baker stopped farming in California two years ago and began growing hemp in Oregon and Wisconsin.
California was once viewed as a cannabis trailblazer.
It was the first state in the nation to authorize the sale and use of medical cannabis by approving Proposition 215 in 1996. From that point, groups that included the Drug Policy Alliance began planning to expand legalization to recreational use.
Their first attempt, Proposition 19 in 2010, drew fierce opposition from leading city councils, police chiefs and prosecutors, including then-San Francisco Dist. Atty. Kamala Harris. Voters shot down the initiative by a margin of 53% to 46%.
But the rise of the criminal justice reform movement in the years that followed galvanized support for legalization. Proponents pointed to the disproportionately high marijuana-related arrest rates of people of color, particularly Black residents.
Newsom, who says he has never used the drug, was among early supporters who argued that legalization was a vital social justice issue. He agreed to head the Blue Ribbon Commission on Marijuana Policy to study the thorny issues California would face in legalizing cannabis.
At the hearings, representatives for cities and law enforcement told the commission that any legalization measure would have to guarantee municipalities could ban pot businesses.
Those drafting Proposition 64 took note: The ballot measure was written in a way that gave cities and counties the power to veto allowing cannabis businesses within their jurisdictions. Key opponents of Proposition 19, including the League of California Cities, did not