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Guest Opinion: Massive Price Increases Are the Real Threat in California

December 18, 2017
Steve DeAngelo: Never challenge this man in court.

Guest Opinion

Steve DeAngelo is the executive director of Harborside, the CEO of FLRish Retail Management, and the president of The Arc View Group. Leafly welcomes op-ed contributions from industry and political leaders on a range of topics related to cannabis.

Lately we’ve been hearing a lot of noise about the supposed perils of “big cannabis” taking over California’s adult-use market, and a perceived need to protect small growers from competition with larger cultivators. Much of this debate centers around a heavily exaggerated narrative of safeguarding mom-and-pop cannabis growers from big corporate cannabis interests.

Cannabis consumers deserve the same choices as grocery shoppers.

It’s a familiar storyline, and one that typically depicts small farmers as inherently benevolent and the big guys as innately maleficent.

That’s far from accurate. We all know circumstances rarely break down along such black-and-white lines. And the largest part of the cannabis community—consumers—are being entirely left out of this discussion.


California’s Limit on Big Growers Just Vanished. Here’s Why

The Price Problem

Cannabis consumers deserve the same choices enjoyed by shoppers at the grocery store. While everybody would like to be able to afford heirloom tomatoes, meticulously tended in small patches and selling for $5.99 a pound, most families can’t afford them. Many shoppers can only afford the lower-priced tomatoes grown by larger, more efficient farms.

Thankfully, for these consumers, regulations allow the existence of such tomato farms.

Supply constraints and high taxes will stress consumers, and hit the less affluent the hardest.

Here’s the thing: Propping up California’s small-scale cannabis farmers with regulations that forbid efficient-scale cultivation hurts consumers by limiting choice and competition. It inflates retail prices and ultimately threatens the viability of the entire regulated cannabis system.

Using regulation to create a protected market niche for small farmers doesn’t take the needs of cannabis consumers into consideration at all. Today’s biggest problem for California cannabis consumers is the high price of cannabis compared with other legal states like Colorado and Oregon. The Associated Press estimates that new taxes coming into effect on Jan. 1 could add an additional 70 percent to these already-high prices—and most of those taxes will also apply to medical sales.

My view on this has been informed by 11 years of serving medical cannabis patients— families with children, veterans on disability, and seniors on social security who already are challenged affording the current price of cannabis. Insurance doesn’t cover this important medical need, and further increases will put the cannabis they need out of reach.


Sticker Shock Coming With California’s New Cannabis Market

Creating a Supply Constraint

Beyond the looming tax increases, California’s new cannabis regulations are more likely to lead to a supply constraint than a glut—another reason cannabis prices will rise. That’s what has happened in every other newly regulated adult-use market.

Manufactured products, which make up a large and growing portion of California’s cannabis market, will be hit especially hard. Regulation of the supply chain will require manufacturers to source feedstock exclusively from licensed growers—and the number of licensed growers will be a small fraction of the number that is currently supplying manufacturers.

These supply constraints—combined with the new taxes—will stress consumers. Less affluent consumers will especially feel the pinch. A large number will turn to the lower prices of the unregulated market. Then tax revenue will drop, consumers will be exposed to risk, licensees will become distressed, criminal organizations will be empowered, and the threat of federal intervention will rise.

The need for healthy competition among California cannabis cultivators, driven by an open market that rewards quality products and fair prices—not the size or shape of the company making those products—should be clearer than ever.

Steve DeAngelo's Bio Image

Steve DeAngelo

Steve Deangelo has been a lifelong cannabis activist and advocate, and is one of the thought leaders of the global legalization movement. Harborside was named the 'Best Dispensary in the State' by the San Francisco Chronicle's Green State earlier this month, and DeAngelo was named by Fortune Magazine as one of the top leaders in the industry in the United States in 2016.

View Steve DeAngelo's articles

  • Calicorock

    Washington State protected small (heirloom) growers without the dire predictions made in this opinion piece coming to fruition.

  • HumboldtBiologist

    Everyone should know this is coming from the guy who paid lobbyist to remove the small farmer protections that (IMO) carried legalization “over the hump” to pass. Prop 64 would have never passed without them. Supply constraint? That’s major BS; I work in permitting legal farms in Humboldt County, trust me its a huge load of crap. Its classic commercial AG history, many crops have gone through this. I smell bologna…

    • megmelodia

      This article is propaganda trying to sway public opinion. They cannot make this piece of shit smell like roses no way.

  • Derick Bulkley

    The size restrictions promised prior to the passage of prop 64 were never meant to prohibit Big Agriculture, but merely to slow the flood – until 2023 – of Corporate money for a few years, in order to allow artisanal growers to gain a firm foothold in the industry. Mr. DeAngelo conveniently omits the fact that his consortium lobbied the state to the tune of over $300,000 to have this promise to small growers broken. By wrapping himself in the old saw about “consumer choice” to defend the likes of Monsanto, Archer Daniels Midland, Cargill, et al, he demonstrates that his loyalty lies not with this nascent industry of pioneers, but with his bank account. This is just a rotten deal built on broken promises.

  • F Michael Addams

    …complex issue…needs a proper sort out..

  • Dante-the-cat

    Oh Steve. No shit you think big cannabis is the answer. You are the very face of it.

  • tworedogs

    I noticed there was no mention of the huge markup in the dispensaries. they have never taken a hit in price. the retail price barely has fluctuated over the years. while only the producers price have reduced significantly. Yes the taxes are too much but let’s see the dispensaries cut their margins before Expecting The Producers to once again take the hit.

    • Michael J. Quintana*

      Amen!!! I am the owner President/CEO of a small medical cannabis growers business in Oregon. I have seen first hand how tough it is as a producer to make a profit. With all the regulations, big corporate companies, and the other production costs it’s almost impossible to turn a profit in the current market space. Not to mention that I am an indoor Grower which significantly adds to my costs of doing business.
      At this point of the game my only saving grace is that I am able and do produce a product that is significantly better than most of my competitors.
      This fact however does not and will not be a viable option as to what will keep my company going, turning a profit and growing. The bottom line is that there is a huge need for discussion and the development of a realistic approach to regulatory actions in order for the small business owners in the industry to be able to opporate alongside big corporate farms.
      In the short term a guy like me has no choice but to tighten up everything possible, and realize that until the dust settles there won’t be much of a profit in the short game.
      My entire strategy at this point is to keep my head down, pay attention to every single line item opportunity I can find and wait out the storm.
      Meanwhile I see one small farm after another closing because they can’t pay the bills. Worse yet… I see a lot of those same small farmers going to the black market so their family can eat all the white knowing that they have a substantial risk component hanging over there head. In that scenario nobody wins. Lives are destroyed because Daddy went to jail because he couldn’t pay the mortgage payment and the political pundits beguine to pound there bully pulpit simply because it’s a good opportunity to get votes and then before anybody realizes it… BOOM!!! The whole thing blows up and the ultra-conservatives get to tell their dinner guests, “I told you that all that jibber jabber about legal marijuana was nothing to be concerned about.”
      Just my small contribution. Thanks for reading it.
      Michael J. Quintana*
      The ROKX WORX Group*, LLC.
      The “GOLD STANDARD” in O. M. M. P. Patient/Client Resource and Referral Program Services Providers.

  • Ryan Rice

    Predictably, you all start railing against very reasonably proposed market solutions. It’s so hilarious. You think that the disease is the cure. Y’all, it’s so easy. Unreasonable regulation, i.e. most of what state governments do, stifles competition and hoses the end consumer. Enjoy your crappy, high-priced market. You most certainly asked for it.

  • The noise is more than just noise. We’ll debate whether the changes are good or bad in a second. It’s how, when, and at whose behest those last-minute changes were made that has mom-and-pops and plenty of other people scratching their heads. Nothing screams Big Canna more than a power move made by lobbyists for an established power player. Anybody who supersizes should own up to it.

    Are the ownership cap removals good or bad? It’s a pointless debate. At the very worst, they put free-market principles into practice prematurely. It was clearly understood in Prop. 64 that big companies would be a thing, and the efforts to protect small farmers included the creations of small to mid-sized permit types that are now coming online. Businesses large and small wanted limits on “vertical integration” removed, and boy, did they get their wish.

    Bottom line, both sides are right. Something’s gotta give in California’s regulated market, and large farms offer economies of scale. When we talk about affordable medicines, as we should, that necessarily requires lowering production costs. That’s a valid and very patient-centered consideration in the new cannabis economy, and we shouldn’t hate on the idea just because it comes from a big company.

    Also, it’s a bit early to write the obits for small craft growers and microbusinesses, especially as they get their first state licenses. I’m privileged to meet a lot of small growers, and it’s striking how many of them are seeking larger permits to chase those same economies of scale. For any would-be applicant, the clock is ticking. Worrying about big-vs-small debates that occurred in a year-old political campaign robs you of the ability to focus on the here and now. Start your engines, PLAY FAIR, and may the best products and business models win.

  • first

    Written by the person who pays growers nothing and charges extremely high prices at his dispensary.
    I remember his buyerbragging about how he was buying pounds for 500 years ago when it was 2000 .from an old woman. This article is propaganda. De Angelo doesn’t give a damn about anything but profits. Puke

  • boogie

    Mr. DeAngelo,

    You worry about consumers and I don’t disagree; however, we probably do also need some bigger players who will produce larger quantities of lower quality, commoditized cheaper product.

    But, it’s equally reasonable to worry about the growers; who in recent years, while retailers like yours were making a killing, have seen their wholesale prices vertically drop to ridiculous levels. Do you even remotely know how hard farming is during a scorching hot California summer?
    When you moan about a regulated market, you probably refer to the Distribution model; which you probably regard as an unnecessary burden. And, here is where we disagree again…

    The distribution model, if correctly deployed in a non-speculative fashion, can really help the growers fairly remunerate their hard work; while at the same time, ensure that all other players within the supply chain earn a reasonable and healthy profit margin.

    It is not worth it for a medium-small craft farmer to grow cannabis for less than a 1K/lb mark, while it’s perfectly reasonable to expect that dispensaries will start applying the golden rule of American wholesale to retail recharging, which is 100% tops.

    In between, Steve, there is enough room for taxes, Distribution and manufacturing for sure.

    Cultivation and Excise State Taxes can be easily absorbed; and also consider that Manufacturers do not have to pay any of those; instead, they are only pass throughs for the cultivation tax.

    What Distribution also has to ensure is that we will become collaborative supply chains. If, for example, we make sure that we grow specific strains (i.e. Afghanis) which will guarantee high extraction yields (i.e. 30%), and the extractors will be transparent about their conversion rates (which they have generally not been in the past, but they will now have to be because of the new track and trace regulations), then I can assure you Mr. DeAngelo, there will be more than enough healthy margins for the manufacturers as well.

  • mark_cuckerberg

    It’s all a scam and the medical users are the ones who have been exploited the most. Once all the stoners and tax hungry politicians and their ilk got what they really wanted, the medical angle they used to get their way is ignored, punished, and we’re left to suffer. I feel the most betrayed by all these people about “compassion”. Compassion? A sick person is paying up to 70% taxes on their medicine, and this is acceptable? All this regulation, taxes, fines and government interference in every minutiae of our lives makes California such a terrible place to live. All these idiots in these comments going on about more regulation and special little deals and rewards and punishments for some businesses vs others? Are you insane? This isn’t complicated here. When nothing is left by the very rich and the welfare collecting poor, I guess the leaders of CA will have their Brazilian utopia where a Kia is $80k and an ounce of weed is $800.

  • Becky Crossland

    Shame on you Leafly for letting him write this propaganda piece as an editorial.

  • Morbius

    False dichotomy.

  • Morbius

    False dichotomy.

  • megmelodia

    DeAngelo you are so full of shit it’s impressive. Fuck you very much for helping to fuck the community you claim to serve.