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Report: 99% of California Cannabis Growers Are Still Unlicensed

February 19, 2018
(RylandZweifel/iStock)
The backers of Prop. 64, the 2016 Adult Use of Marijuana Act, sold California voters on the promise that small and medium businesses would be the engine powering the state’s $7 billion legal cannabis market.

CalGrowers estimates that only around 700 of the state's 68,000 farmers have obtained state licenses so far.

So far, that’s not happening. According to a report released today by the California Growers Association, a small-farmers advocacy group, fewer than 1% of California’s estimated 68,150 cannabis growers have secured state licenses to continue their businesses legally.

The CalGrowers report estimates that 80% to 90% of growers who did business with the state’s legal storefront dispensaries prior to January 1—when new licensing requirements went into effect—“are being pushed to the black market.”

The report confirms what many have already observed. Rather than regulate local cannabis companies, prohibition-minded lawmakers in marijuana-producing regions have banned them altogether. Other popular brands, including some owned by women, have gone into “hiatus” for want for a prohibitively expensive permit, or zoning requirements, or some combination thereof.

“[F]rom Oakland to Humboldt, from Los Angeles to Gold Country, from cultivation to delivery service, many of the hardworking pioneers of our cannabis marketplace are being left behind, primarily because they are unable to afford one time costs of regulation,” said Hezekiah Allen, executive director of the California Growers Association.

Barriers to Entry Are Too High

Allen’s group is calling for state lawmakers to review the state’s regulations and relax certain requirements. The growers group would like to see the state lower the entry barrier to allow for more existing cannabis producers to join the legitimate market.

Forcing longtime farmers out of the business could have far-reaching economic effects on rural California counties.

If they do not, “legalization will look a lot like prohibition,” Allen said, but worse: Economic “depression is the best case outcome,” according to the report. “Economic collapse is the worst case.”

As of Feb. 18, fewer than 2,700 licenses for commercial cannabis activity had been issued throughout the state, according to a review of records. A total of 1,220 licenses had been issued to marijuana storefront retailers, delivery services, and distributors, according to the Bureau of Cannabis Control.

Separately, through Feb. 18, the state’s Department of Food and Agriculture had issued 1,483 licenses to cannabis cultivators, out of an estimated 50,000 or more marijuana-growing operations throughout the state. Most licensees hold multiple licenses.

One entity, Central Coast Farmers Management, in Santa Barbara County north of Los Angeles, has acquired 81 licenses, according to records, most of them small outdoor licenses. According to CalGrowers, fewer than 540 distinct entities hold a cultivation permit.

15 Companies Hold 10% of All Licenses

CalGrowers believes that “between 1 and 3 percent” of growers interested in a license have been able to obtain one.

That development seems to confirm earlier warnings from CalGrowers, echoed by state lawmakers from the Emerald Triangle and from San Francisco, that a loophole in the state’s cultivation rules—meant to prohibit cannabis cultivation operations larger than one acre until 2023, consistent with rules passed by state lawmakers prior to AUMA’s approval at the ballot—is being abused to allow for marijuana megafarms.

There are ample signs of consolidation in California’s cannabis industry, as well as some bottlenecks in the supply chain. Through mid-January, 15 companies had secured 10 percent of the licenses, according to a review from New Cannabis Ventures, a cannabis business blog.

Further, according to CalGrowers, most of the “microbusiness” licenses, intended for small operators, have been used as cover for “well-capitalized” operations to become vertically integrated, with “small and rural” boutique cultivators left out. Current California law prohibits cannabis “farmer’s markets” or other opportunities for a consumer to purchase directly from a producer similar to farm-to-table community-sustained agriculture programs, or CSAs.

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70% of Distributor Licenses Gone to Larger Operators

Licenses for distributors, a mandatory step in the supply chain from seed to purchaser, have gone mostly to “retailers or large manufacturers,” the CalGrowers report says. Of the 200 distribution permits, only 59 had been acquired by a business that “appear[s]” to be for distribution only.

Cannabis operators say a bureaucratic maze is hurting participation. At least seven state agencies and more local entities are involved in the permitting process, forcing would-be permit holders to wade through hundreds of pages of regulations, according to CalGrowers.

Small businesses also say the tax burden is too high—a complaint shared with consumers, who have seen retail prices rise by 40 percent or more, depending on the county. According to CalGrowers, California has the highest effective tax rate on cannabis in the United States. In some areas, when local taxes are added, cannabis is taxed at a rate of 60 percent.

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County Bans Hurting Small Farmers

But at least part of the blame for such low participation is due to prohibitive county governments. Only 13 counties have issued permits for cannabis cultivation. Of California’s 58 counties, 25 have already passed outright bans.

And in the permitted counties, only 47 percent of growers are located in areas zoned for cultivation and thus eligible for permits, according to CalGrowers. Supposedly permissive areas like Trinity County have accepted only 500 applications, out of 4,000 or more known cultivators.

Other cannabis-friendly counties like Sonoma have forbidden marijuana cultivation in “rural residential” and “rural agricultural” zones, forcing another 3,000 existing cultivators to the black market, according to CalGrowers.

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County Bans Inflate Real Estate Prices

This artificial limit on cannabis growing is sparking a real estate rush, with cannabis-eligible properties fetching 25 percent to 50 percent over market rate, according to CalGrowers.

Urban retailers as well as rural cultivators have been shunted to the black market. Only 55 marijuana delivery licenses have been issued through February, over half of which are in the Bay Area. Meanwhile, hundreds of delivery services continue to operate.

Under Prop. 64, adults 21 and over are allowed to possess up to an ounce of marijuana anywhere in the state and cultivate six plants. But beyond that, cities and counties are given wide discretion to regulate commercial activity—or ban it outright. Some jurisdictions have also strictly regulated personal cultivation, in some cases requiring people wishing to grow six plants to register with police. At least one city, Fontana in San Bernardino County, has rules so onerous that it’s been sued by the American Civil Liberties Union.

Chris Roberts's Bio Image

Chris Roberts

Based in New York City, Chris Roberts has been writing about cannabis since spending a few months in Humboldt County in 2009. His work has been published in SF Weekly, Cannabis Now, The Guardian, High Times, and San Francisco Magazine, among others.

View Chris Roberts's articles

  • Gr8lakebreeze

    Register my six plants with the cops….LOL!

  • mf2112

    Nevada’s law isn’t perfect but it is a hell of a lot better than this mess. I am amazed Cali blew it so badly after having numerous examples to look at.

  • Rod is on the Gas

    Prop 64 here in North Cal has presented 2 major flaws and several minor problems,

    #1 Prices at the dispensaries have shot-up. 40% legal taxation is hard to accept. Business is being handicapped.
    #2 The small-scale cultivators are once again…PROHIBITED.

    I guess we’re ok though, 99% of us old-school cultivators don’t want to be “legal”. It’s just business as before.

    • John Smith

      yeah except for the plummeting prices! prices going up for everyone, except for us. We are going broke down here in southern California. We are just a husband and wife that have been cultivating for 6 years. It has enabled us to provide for our family (2 kids) and go to school, but now, it looks like I will need to say goodbye to med school and start working a full time job…..at this rate, we’ll lose everything by year’s end.

      • Troy King

        Don’t worry, once the state starts cracking down on black market, the prices will recover

  • TheRealMortamus

    I knew the money side would be winning on the leglegalizion movement

  • Snegurochka

    In Siskiyou county we have an abusive racist clique of “big frogs in a small pond” who oppose just about every economic development that they don’t personally benefit from, plus a Sheriff who went running to US Attorney General Sessions for Federal help in slamming down on small growers (mostly Hmong), despite the general rightwing whining about “Federal interference” on any other land use issue.

    • Gr8lakebreeze

      They exude cognitive dissonance.

  • Alan479 Martin

    It’s all about money, power and total control over every aspect. They have got to have their finger on everyone and anything involved. No loopholes for any upstart new guys. If the mafia was running the operation it would be run in exactly the same way. It’s the same in most states that have some sort of legalization. The big guys get the licenses because only they can afford the ridiculous license fees and start up fee requirements. It’s all designed to keep the common man out of the action. The same with the lottery. It’s set up for only one big winner. The last thing states want to see is a bunch of regular lottery winners (systems) winning a few thousand every now and then. Lotteries used to have only 20 numbers. Same with MJ only a select few get into the money circle. The ones that get the MJ licenses are usually connected. It’s the new legal crime vs the old illegal crime. Small time growers have no place to go except underground.

  • Jeff Hudson

    California really seems to have shot themselves in the foot with the onerous and difficult to comply with cannabis regulations.

    The good news is there is still time to turn this cannabis regulation disaster-in-the-making towards a more business friendly posture. California citizens deserve better from their leaders – much better. The appearance of these myriad regulation difficulties seems to have come from the anti cannabis side of the fence. California is known to have some of the most savvy business minds in the world so why and how have they managed to get this slam dunk of a business market so wrong?

    • Rod is on the Gas

      Gavin Newsome CA LT Governor, and candidate for 2018 Governor, is the lead politician. His ability, power and clout has altered prop 64 from pre-election promises into this circus of lies. Count the votes and follow the money. The fat cats are sucking hind-tit from our cannabis popularity.

      A huge collection of small-scale cultivators, each working hard to survive, don’t have the resources to battle first the prop 64 election and now the altered regulations. Thousands of people are about to be bankrupted and driven into poverty.

  • PatrickMonkRn

    “Legalization” basically codifies prohibition in perpetuity.

  • Truepatriot_56

    way too much regulation. typical stupid politicians not having a clue as how to deal with the situation. then having to deal with the regulators constantly up your butts, it’s a no brainer. keep on truckin!

  • christopher rose

    Always view government as a end game to your detriment.
    People got all fuzzy & warm with the word ” Legal” , when we should have been working on “Decriminalization”.
    There are so many laws on the Cali books that you can’t even google the total , with 900 added in 2016 alone.
    These are mostly written for fee collection and tax purposes.
    My prediction is That State & Federal thinkers knew that 90% + growers were not going to bar tag their plants ( HA! )
    and invite a whole host of regulatory A-holes onto their property , or tell growers that there’s no permits left …better luck next year…we will be stopping by to make sure your not growing & slowly starving to death.
    You see ….Cal State Gov has already spent all those $Billions of calculated pot taxes and tend to get pissed when you interfere with their ability to waste money and having to go through all the hassle of having to explain why it’s never enough.
    Now we get to witness a silent Prohibition on growers who don’t pay by the ‘ New Rules ‘ which favor , of course , big corporations….that pay to play big to our fine politicians.
    Why hassle with a bunch of unwieldy growers when you can cozy up to campaign money pandering corps , let the FEDS sweep through the Golden Triangle ….while the State pretends they don’t know ,implement a convenient news black out , and before you know it ….the State got their share of the FED asset seizures and righteously claim victory over those pension robbing pot growers!
    I’m sure that new Federal court house in Humboldt isn’t just for eye candy.
    Solution?….Everyone grow 6 plants and pass it around….it’s all about being free.