Guest Opinion: Massive Price Increases Are the Real Threat in CaliforniaSteve DeAngeloDecember 18, 2017
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.
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.
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.