Will California Be Ready for Legalization?

The short answer is no, California is not ready for legalization. With less than 2 months to implement emergency regulations cannabis entrepreneurs are scrambling to figure out what cities are allowing licensing, where they can realistically find a location and get a license, or figuring out who they can partner with.

There are 482 cities in the state of California, and less than 20% of the cities have regulation in place for medical or adult-use cannabis. Some of the cities that are going to be ready come January are Los Angeles Pre-Ico Prop D Collectives, Santa Cruz, San Jose, San Diego, San Francisco, Berkeley and just a few others. Most cities are either putting a ban on it, or allowing only medical to continue to take place until they can establish a framework for adult-use cannabis regulations. It seems the current municipal trend is playing the “wait and see” game.

Operators have a 6 month grace period to comply and get on board with the seed to sale tracking system, but taxes must be collected by distributors and retailers beginning January 1st, 2018. If a city allows recreational cannabis, retailers will be able to supply both medical and adult-use products from medical manufacturers. Temporary state licenses must be acquired to continue business, which are only good for 4 months, with the option to renew once. Operators must also acquire a new “Cannabis Tax Permit” in addition to a regular California seller’s permit.

At the end of the grace period, there leaves question as to which manufacturers will have gotten licensed for adult-use in their town and will be able to continue supplying for adult-use retailers.

High-dose edibles must be phased out and switched over to 10 marked 10mg doses at 100mg total cap per infused product. Retail tax for both medical and adult-use is 15% (although we believe the state made a mistake and should have created a lower medical tax rate for easier access for actual patients, like Colorado did).

Retailers will be allowed to supply any back stock of inventory that they owned prior to January 1st, 2018, but will no longer be able to purchase any edibles over 100mg from manufacturers.

With high costs creating a barrier to entry, many brands won’t be able to make it through or find licensing. The cities that have issued licenses have limits on the amount of licenses they issue. Most licenses depend on a properly zoned location as per the municipalities’ requirements, which makes real estate inflate in green zones, creating a larger barrier to entry.

Long story short, it’s a crazy rat race that the industry is going through, and there aren’t enough licenses available for the amount of businesses that want in. How will the consumer suffer? It’s predicted that there will be a lack of supply available during the transition grace period and that will inflate the price of cannabis and cannabis infused products. Then within a couple of years the market will be so flooded that the average wholesale price per pound could drop as low as $500 from the current $1400 average.

The current average retail price of a 100mg edible is $10. With the new taxes in place and costs of operating, and child-resistant tamper-evident packaging creating inflation of prices, we are going to see that average price jump up at least triple. The consumer will end up walking out the door having spent $40 on a single edible. Anyone desiring super potent 200mg+ edibles will need to learn to make their own products at home.

Let’s not forget that the days of the $30-40 eighths are over. The minimum price of an average greenhouse or outdoor eighth is going to shoot up to $50-60. It goes without saying the State’s new regulations are going to create an even larger black market than what exists right now. Real patients suffering from pain and cancer need large concentrated amounts of THC as they build up a tolerance with their pain management. In a lot of cases we see patients that require 500mg-1000mg just to get through the day. I believe that we are going to see people take advantage of the black market and avoid the burden and cost of having to go through becoming compliant or getting legal. Regulation is good, but over regulation creates a black market.

B. Le Grand

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