APPLY FOR YOUR CULTIVATION STACKING LICENSES NOW

THE LICENSES

As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis.  The small license is a (Type 2) license that allows one to grow up to 10,000 square feet (close to a quarter acre).  That license is the smallest license.  The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet (around a half acre).  The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023.

THE LOOPHOLE

However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one.  However, there is no stated limit in the regulations for the amount of type 2 two licenses one can apply for.  Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of multiple Type 2 licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This stacking system is how the big growers can cultivate multiple acres for cannabis at this time.

THE LAWSUIT

The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims that Proposition 94 clearly spells out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.

If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation.  The court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with the ability of cultivation only a ¼ acre lot.

THE DECEPTION

The fact that California’s new regulations issued by the  CDFA CalCannabis Cultivation Licensing Department by allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected, makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.

THE PROBABLE VERDICT

I have been a lawyer for twenty five years, and it is my opinion that the Court will rule in favor of The California Growers Association and close the loop hole so grows will be limited to one half acre licenses until 2023.

Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very compelling argument.  It is very clear in the language of Proposition 94 that its intent was to protect small cannabis farmers.  The CDFA CalCannabis Cultivation Licensing Department when issuing its regulations was clearly supposed to conform their regulations to Proposition 94 in that their regulations were supposed to help protect the family farm CalCannabis seemed to be setting up a regime that on its face limited massive cultivations because that regime created licenses for quarter acre and half acre lots and won’t allow grows that are larger than twenty two thousand square feet until 2023.  Why else would they have structured the law this way if not to protect the small farmer?   However, the 1/4 loophole of stacking licenses completely defeats the purpose of making people wait until 2023 to apply for large licenses, when they can get all the cultivation acres they need with stacking type 2 licenses.

THE POSSIBLE CATASTROPHE

It is clear that the CDFA CalCannabis Cultivation Licensing Department was attempting to look like they would protect small farmers when in fact; through the ¼ loophole they were doing just the opposite.  If the California Courts rule against the California Growers Association they will have to go through some serious legal calisthenics to justify their ruling.  The obvious ruling would be to agree with the California Growers Association and close the stacking loophole but the practical effect would be catastrophic.    All the large multiple grows that exist or are being planned would immediately become illegal.  That would obviously create a lot of law breaking cultivators in one stroke and seriously reduce and hamper the availability of legal Cannabis in California.

THERE IS STILL HOPE

However, there is hope for the large cultivator.  In my opinion, if the court rules in favor of closing the loophole, they will grandfather in all the grows that are larger than a ½ acre that were licensed before the court’s ruling.  Why would The Court do this?  Because when these growers applied for the stacked licenses such licenses were legal.  There is a strong precedence for this type of court ruling.  California used to use what was called the blanket primary.  I won’t go into to the details but basically the blanket primary put all the candidates, Republican, Democratic or other party candidates on the same primary ballot (this blanked primary system is actually different than an open primary, and if you are interested in the details of why please contact me).  Many candidates, who would not have been elected under the old election system in California, won their seats because of the blanket primary.  In other words, if not for the open primary, they would have not won their seats.  California used the blanket primary in a few election cycles before the U.S. Supreme Court struck down the open primary system as Unconstitutional in the year 2000 in California Democratic Party v. Jones which was a 7-2 opinion.

IT’S GOOD TO BE A GRANDFATHER

After the Supreme Court reached this decision the big question was: what to do with the candidates who would have lost their elections but only won because of the blanket primary system that was in place until the Supreme Court stated it was Unconstitutional.  The court decided to let the candidates who won under the now illegal open primary system retain their seats, instead of giving their seats to the candidates that would have won if the primary system was not in place.  In other words, the Supreme Court ruled that the candidates that won in a blanket primary system that would have otherwise lost in a normal system could keep their seats.  The court’s reasoning was that the candidates that won before the US Supreme Court declared the blanked primary unconstitutional could keep their seats because the blanket primary was the valid law of the land before the US Supreme Court declared the system unconstitutional.  The court realized that going back and kicking candidates out of their seats was completely unpractical and would lead to too much chaos and uncertainty.

THE PROBABLE OUTCOME

Following this precedent, it is my strong opinion that if the courts rule that the stacking loophole violates the parameters set down by Proposition 94 the courts will rule just like they did with the open primary.  In other words, the cultivators that received stacked licenses before the court decision to close the stacking loophole would get to keep their licenses but courts would not allow future stacking licenses to be issued in the future.

Like the Supreme Court when faced with the chaos of declaring the blanket primary unconstitutional, and to avoid such chaos, the California courts should grandfather in the stacked licenses in existing.  The courts could choose to do noting and keep the status quo.  The court could completely close the stacking loophole and then everyone that has either a licensed large grow or planning on cultivating and a large grow is screwed.  But if the court chooses the third path and closes the loophole but lets the people who currently have stacked licenses keep them that will give the people or organization with existing stacked licenses a huge advantage.

BOTTOM LINE:  APPLY FOR AND STACK YOUR LICENSES BEFORE THE CALIFORNIA COURTS CLOSE THE STACKING LOOPHOLE. 

Medicinal and Adult use Cannabis: Do they get the same treatment? Part 2

Drop you linen and stop your grinning.  It looks as though the Manufactured Safety Branch of the California Department of Health and Safety Brand has had a change of heart.

The adoption of emergency regulations for cannabis manufacturers, issued by the California Department of Public Health (CDPH), has been approved. The effective period for these regulations and those issued by the Bureau of Cannabis Control and California Department of Food & Agriculture has been extended 180 days while the state licensing authorities finalize permanent regulations.
The re-adopted regulations, summary of changes and findings of emergency can be viewed at the links below:

One of the most prominent changes in this adoption is removal of restrictions created by the adult use (“A”) and medicinal (“M”) license designations. Businesses will be able to complete one license application and receive one license allowing them to operate in both markets. Beginning June 6, 2018, designation of cannabis and cannabis products as adult-use or medicinal will primarily occur at the time of retail sale, except for higher-THC products permitted only in the medicinal market.

The state cannabis licensing authorities developed emergency regulations to implement the mandates of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), signed into law in June 2017. CDPH’s regulations, which became effective on December 7, 2017, outlined the statewide standards and licensing requirements for commercial cannabis manufacturers. Emergency regulations are effective for 180 days and must be re-adopted to stay in effect. CDPH provided public notice of the re-adoption on May 18, a public comment period was held from May 25-29, and OAL approved the regulations on June 6.

So basically, it is time to get your manufacturing license approval before June 6, 2018.  This mean if you haven’t already started, it  is time to get approval from you local authority (City, Town or County), get approved and then apply for the state emergency temporary license.  The perfect time to get start is now.

Goodnight and good luck

The barriers are High to Enter the California Cannabis Market

Proposition 64 created a taxed and regulated marketplace for cannabis cultivation and distribution in California.

California Growers Association (CGA), with an estimated 68,150 cannabis farmers working in California today, the CGA is concerned with the open question of how many of them will end up licensed in the legal market.

Essentially in every step of the process, thousands and thousands of dollars are foisted upon preexisting businesses that have been for the most part operating at a subsistence level.   For a lot of people who are just getting involved, these costs are being assessed right now. It’s a massive burden. People can’t get bank accounts, and they can’t get financing because they are too small and the industry is still illegal federally.   People are being asked to do things that are pushing them into bad situations with really little recourse.”

As of March 19, the California Department of Food and Agriculture (CDFA) had issued only 2,477 temporary cultivation licenses. O’Neill says that the path to legitimacy in California is too much to bear for many farmers; a lot of them aren’t even applying for licenses. The CDFA has received 4,451 applications; that’s a 6.5-percent application rate in the first three months of the year.

California’s regulatory costs favor well-financed businesses that focus solely on cultivating and manufacturing cannabis as a monocrop—businesses that can weather a few years of losses while the marketplace settles. Where subsistence farmers were once able to maintain their own financial pace, the market is insisting that those smaller operators boost their revenues (and, invariably, their expenses) enough to cover the baseline entrance fees of this new industry.

Through one-time application costs, annual licensing fees, hefty new tax codes, land-use modifications, ecological remediation expenses, building infrastructure improvements, water storage requirements—to say nothing of the stiff competition of well-heeled agricultural businesses entering the so-called “Green Rush”—the price of running a farm that’s survived for decades has suddenly become overwhelming.

Criminals do not pay taxes, ensure customers are 21 and over, obtain licenses or follow product safety regulations,” he said. “We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.

This current licenses and regulatory climate in California compelled the CGA to author a report titled, “An Emerging Crisis: Barriers to Entry in California Cannabis” earlier this year. In 38 pages, the organization laid out a case that state regulations were actually achieving the opposite of what many voters had anticipated at the ballot box in 2016. Growers with deep pockets can now waltz into the marketplace with ease, and small farmers are draining their balance sheets just to have a shot at the fringes of commerce.

The MAUCRSA regulations are only temporary for now. Licenses issued by the state of California—for cultivation, manufacturing, distribution, retail—are good for only four months. The state is expected to deliver more permanent regulations this summer.

And it may be that the regulators are aware of this problem and are addressing it.  A bipartisan pair of California lawmakers has announced a bill which would drop the state excise tax on cannabis to 11% from the current 15% for a period of three years. As Leafly reported on March 16, 2018, the bill was introduced by Assembly members Tom Lackey (R-Palmdale), Rob Bonta (D-Oakland). The bill’s co-authors include Assembly members Ken Cooley (D-Sacramento), Reggie Jones-Sawyer (D-Los Angeles), and Jim Wood (D-Healdsburg).

Since recreational cannabis became legal in California at the start of this year, medical marijuana dispensaries and cultivators have struggled to make the transition to a new market with new, often waitlist-requiring steps toward being licensed and legal. Between legal cannabis’ banking challenges, the significant regulatory changes, and California’s booming grey and black market operators, smaller businesses, in particular, have had to face a lot of legal and financial issues to survive in 2018.

How Serious is the State of California in Enforcing the New 2018 Regulation System

California’s Bureau of Cannabis Control has issued more than 1,000 cease-and-desist letters to unlicensed cannabis operators since the recreational use law took effect on Jan. 1, 2018, according to a KCET report.

According to the report, regulators are using online advertising platforms to find the illegal shops. This likely includes Weedmaps, who were sent their own cease-and-desist by regulators last month due to their advertising of unlicensed retailers.

The BCC is including information on how to obtain licenses along with the cease-and-desist letters, and is issuing temporary licenses, free of charge, which are good for 120 days and can be extended by the agency for additional 90 days.

Licensing fees in California run from $4,000 to $72,000, depending on the size of the operation, but, according to the report, fines can run four times the amount of the license itself.

Over 6,000 cannabis businesses have received temporary state licenses in the five months since California began issuing such permits.

Most of California’s massive marijuana industry is still operating without permits.  But these operators should not be complacent.  The fact that that the State of California has issues over 6,000 Cannabis licenses and that number is growing daily and the fact that they have issued over a thousand cease and desist letters shows that California is serious about implementing the Cannabis regulatory system that went into effect on January 1, 2018.

Some people thought that California would be lax in implementing this system, but they are very wrong. My guess is that the Legislature can’t wait to get the tax revenue under the new system and therefore they are pushing for change.  In any event, all cannabis business operators should get their new state licenses quickly before they are fined by the state.

Medicinal and Adult use Cannabis: Do they get the same treatment? Part 1

After Proposition 64 legalized recreational marijuana, the legislature passed the passed the “Medical and Adult-Use Cannabis Regulation and Safety Act” (“MAUCRSA”), creating a combined regulatory system for both medical and recreational marijuana.

When this law was passed it was thought that subsequent regulations from the three regulatory bodies, the Bureau of Cannabis Control, CA Department of Food and Agriculture, CA Department of Public Health would make no distinction between Medicinal and Recreational Marijuana and therefore licenses from these organizations would be for Marijuana and they would not be divided between medicinal and adult Use Cannabis.

However the regulations that were issued on November 19, 2017 and came enforceable on January 1, 2018 did make a distinction between medicinal and adult use marijuana.  All the licenses issued by these State Regulatory Bodies, like a Transportation License, Cultivation license or a manufacturing license, if one wants to sell both medicinal and adult use marijuana they have to send in two applications for each license: one for medicinal use and one for adult use marijuana and medicinal use marijuana.

The interesting point here is that the medicinal marijuana and adult use marijuana for all the state licensing use the same license.  You just simply check a box for medicinal or adult use marijuana.

Below is a question posed to The California Department of Public Health’s Manufactured Cannabis Safety Branch (MCSB) which issues manufacturing licenses to cannabis businesses.  They say that one needs two licenses.

So as I stated one needs to obtain two licenses from each licensing category if they want to do both medicinal and adult use cannabis.  However, the interesting point about these licenses is that each type of license uses the same application for both medicinal and adult use cannabis.  In other words, each license contains a question of whether your applying for medicinal use or adult use marijuana otherwise all the questions on the license are the same.  You just simply check a box either for adult use marijuana or for medicinal marijuana. So in a practical sense that means you send in the exact same license application for both medicinal and adult use cannabis, you just need to check the adult use marijuana or medicinal marijuana, and your answers the rest of the questions are all the same.  Please review the license for manufacturing issued by the CDPH Manufactured Cannabis Safety Branch.

Manufactured Cannabis Safety Branch – Temporary License Application

In practical terms, this means that medicinal marijuana and adult use marijuana state application have the exact same requirements for approval.  This lack of distinction begs the questions of why have two applications for medicinal and adult use marijuana if the requirements are the same?

One explanation is that some local jurisdictions only allow medicinal use marijuana.  Remember that one has to get a local jurisdiction license, (city, town or county), before one can apply for a state license.  So if the state had only one application for medicinal or adult use marijuana that would be mean in practical terms the local jurisdiction would have no way of ascertaining whether an applicant was planning on doing only medicinal or if they were selling both medicinal and adult use marijuana.  If the is some other reason for the state making this distinction please let me know.

THE IMPORTANT POINT HERE IS THAT ANY MARIJUANA BUSINESS THAT IS DECIDING WHERE TO LOCATE THEIR CULTIVATION, COMMERCIAL KITCHEN OR OIL EXTRACTION OPERATION IN A CERTAIN LOCATION, THEY HAVE TO MAKE SURE THAT THE LOCAL JURISDICTION (COUNTY, CITY, OR TOWN) ALLOWS BOTH MEDICINAL AND ADULT USE MARIJUANA.

Here are some links for further research on this issue.

Bureau of Cannabis Control – Licensing Information

 Manufactured Cannabis Safety Branch – Licensing Information

 CalCannabis Cultivation Licensing – Licensing Information

How much marijuana can I grow?: Part 3 – THE DANGEROUS LAWSUIT

As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis.  The small license is a (Type 2) license that allows one to grow up to 10,000 square feet.  That license is the smallest license.  The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet.  The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023.  Therefore one would think that the largest cultivation allowed would be 22,000 square feet.  At this point, the medium type 3 license is the largest license that you can apply for.  And one can only apply for one type 3 licenses.

However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one.  However, there is no stated limit in the regulations for the amount of 2 two licenses one can apply for.  Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of my multiple licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This is how the big growers can cultivate multiple acres for cannabis at this time.

Obviously these licensing regulations have the odor of duplicity and deception.  Why even have medium acre grows, or type 3 licenses if one can just stack type 2 licenses.  And why would they postpone the type 5 licenses until 2023? You would think that they were postponing the type 5 licenses to give the small growers time to establish themselves before the big cultivators started to operate.  However, the postponed 2023 licensing is deceptive because right now large corporation can cultivate multiple acres by stacking type two licenses.  So no one needs to wait until 2023 to cultivate more than ½ acre.

This loop hole of stacking type 2 licenses really makes the medium type 3 licenses and the large type 5 licenses superfluous.  With stacking type two licenses large cultivator have no need of type 3 for type 5 licenses.

As I stated, since January 1, 2018 many grows have stacked licenses to at least ten acres, and probably more.  Therefore now all these large growers have nothing to worry about.  However, some people saw the misdirection and hypocrisy of the cultivation licenses limits and started a lawsuit claiming that the current regulations do not follow the intent of the of Proposition 64 which was to protect small growers and give them time to establish themselves before the large corporate cultivators move in.

California’s largest cannabis farmer organization has filed a lawsuit against the California Department of Food and Agriculture’s decision to not limit marijuana farmers to 1 acre.

The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims the state’s cannabis laws clearly spell out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.

The association’s executive director Hezekiah Allen said Wednesday that they have exhausted every other option including meeting with state regulators and staff from Gov. Jerry Brown’s office during the past few months.

“Our government has checks and balances for a reason,” Allen said, “and it is an appropriate time for the judicial branch to weigh in and provide an interpretation of state law.”

Please see https://www.mercurynews.com/2018/01/25/california-growers-association-sues-state-seeks-1-acre-marijuana-grow-cap/

If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation.  It may be the court will grandfather in all the large grows that were created while stacking was legal.  But just as easily the court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with a ¼ acre lot.

The fact that California’s new rules allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.

Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very persuasive argument.  It is a very cogent and logical argument that small farmers will be protected by quarter acre and half acre lots and won’t have to deal with grows that are larger than twenty two thousand square feet until 2023.  Why else would they have structured the law this way if not to protect the small farmer?  And the 1/4 loophole  of stacking licenses completely defeats the purpose of have to making people wait until 2023 to apply for large licenses, when they can get all the acres they need with stacking type 2 licenses.

Their argument is compelling but practically the success of this lawsuit would throw the whole cannabis cultivation sector in California into utter chaos.  Corporations hate uncertainty and try to avoid risk.  But right now many cannabis corporations that have already stacked licenses are taking a huge risk and are facing disaster if this lawsuit is successful.  And many corporations are waiting to jump into the cultivation sector until this huge uncertainty, the stacking of license, is ended.

This lawsuit is compelling but if successful it will seriously damage the cannabis cultivation sector in California.  Trying to protect small farmers is a laudable goal but only if one doesn’t understand basic economic theory.  If successful, this lawsuit will seriously reduce the amount of legal cannabis available to the California market, which would drastically the raise the price of raw cannabis, and therefore create a huge opportunity for black market cannabis.  The goal of Proposition 64 was to make all the operators in the cannabis market to become legal, therefore ending the black market and bring in an exorbitant amount of tax revenue.  However, the success of this lawsuit would just create the black-market they were trying to destroy through legalization.  The road to hell is paved with good intention and this lawsuit is a perfect example of this age old saying.

Will the Black Market Still Thrive Under the New Regulations

 

California can still screw up legalization so that the black market still survives, so criminals  will continue to get the money to buy weapons and wage war over market share.  The firs way California can screw this up is through taxation.

No one likes the high taxes on Tobacco cigarettes more than I do.  These high taxes mean taxes can be decreased in other areas (income tax, sales tax etc.), or we can pay more for needed government institutions like education and health care.  High cigarette taxes are a great way for the government to obtain income without reducing a worker’s paycheck, or taxing needed products like nutritious food.

But tax policy is another opportunity where the government can screw up a great source of income.  If the taxes are too high, like it is on cigarettes you create a black market for untaxed cigarettes.  The taxes on cigarettes are so onerous that when organized crime buys them whole sale and sells them on the black market and (thereby avoiding excise as sales taxes), they can sell them for a 100% markup.  They can do that because even when they sell them at a 100% markup the cigarettes are still significantly cheaper that cigarettes are sold including all the taxes.  So the various government institutions in this country taxes are so high, they leave an opening for organized crime to make money.  And when organized crime gets a solid and high cash flow the result is the corruption of government officials and violent fights over market share where innocent civilians eventually get caught in the cross fire.

The other way the government can screw up legalization is by limiting supply.  If the legal supply of a product is restricted, the price of that product will increase and thereby creating an opening for organized crime.  This has happened with marijuana in Colorado.  Because of the national laws outlawing the sale of Cannabis, no one wants to transport marijuana over state lines.   Thereby limiting the supply of cannabis in Colorado, driving up the prices of legalized marijuana that organized crime can grow illegal cannabis and sell in at a cheaper price.

The State of California’s regulations on the amount of Marijuana one can grow will create the same sort of problem.  These one acre farmers will simply not be able to provide enough weed to satisfy the demand for recreational marijuana in California.  And the obvious result will be illegal grows and sales by organized criminal organizations.  And, as stated once organized crime coffers are filled the inevitable result is violence and the corruption of governmental officials.

I appreciate the State of California’s attempt to create a market place where small family farms can thrive.  But this noble intention is going limit the supply of legal Marijuana, which will increase the price of legal Marijuana to a point where a black market ensue putting a large swath of cash into the hand of criminals; which will lead to the obvious violence.

The Legalization of recreational marijuana on June 1, 2018 will put a huge dent into the income of marijuana cartels.  But this dent will be reduced if the government restricts the supply or taxes the product too much.  The ironic thing is that the more the supply, the cheaper the product and therefore the higher you can raise the taxes without creating a black market.  So the government in California should do everything in its power to increase the supply, because increase in supply will allow higher taxes and make a black market untenable.  Therefore, the restrictions on the size of marijuana growth will only facilitate the growth of a black market, with the ensuing corruption and violence, and reduce the amount of taxes that can be charged so one can avoid creating a black market because the taxed legalized product is too expensive.

One of the main reasons for legalizing marijuana, was so that the income earned from marijuana would stop flowing into criminal hands, and flow into the hands of honest hardworking entrepreneurs.   The restrictions on growth are well intentioned but in the end such laws will only help to make this state more corrupt and more violent.  If you ignore the basic economic laws of supply and demand, the result is almost always disastrous.

How much cannabis can one grow:  Part 2  – Why the Legalization of Marijuana is so Important for the Welfare of this Country.

 

After reading part one you may ask yourself why is the government trying to restrict the amount of Marijuana one can grow?  Why aren’t type 5 licenses being issued until 2023?  The answer is the government is trying to protect “family farms”.   The government of California is trying to give the “family farms” a chance to thrive before the competition from the large growers enters the market.

California’s new marijuana regulations will hurt small farmers, two lawmakers say

I believe this policy is well intentioned but it will have disastrous results.

Many people like me, who strongly believe in the legalization of marijuana, have a libertarian streak.  Libertarians think it is my body and if I want to smoke marijuana why shouldn’t I be able to?  Most of the time when the government tries to legislate morality it just creates an opportunity for criminals to make money.  And when criminals are able to make a lot of money violence and corruption almost always ensues.  In legal markets the battle over market share is fought in the consumer market.  He who makes the best product at the cheapest price gains the most market share.  Consumers benefit from the competition by being able to buy high quality goods at a cheaper price.  But when a product is illegal, like marijuana in a large swath of this country, or alcohol during prohibition, the fight over market share becomes a violent war.

When the product in question is illegal trying to beat your competitor in the market place by providing a cheaper and greater quality product gives way to the laws of the black market where you gain market share by killing off your enemies.  Gaining market share by killing the competition does not make the product cheaper or better quality.  The quality and price is determined by the organization that wins these black market wars and they will charge a higher price for lower quality products because that is how they maximize their profits.  In these black market scenarios the consumer loses on many fronts because they have to pay more money for a lower quality product and the society they live in becomes more corrupt and violent.

Right now because Marijuana is still illegal in much of the United States Mexican marijuana cartels are ripping Mexico apart.  These cartels are fighting for market share with each other, and because they have so much money brought in by illegal marijuana sales in the United States, they are able to buy the firepower to fight a very serious and deadly war.  And this serious and deadly cartel war is killing countless innocent Mexican citizens.  And these civilian deaths are a direct result for our demand for illegal marijuana.

The ignorant rationalizations that are causing the cartels wars are the same rationalizations that created Prohibition in our country; the idea that you can legislate morality and tell people what they can and can’t do with their bodies.

When alcohol was made illegal, the demand for alcohol didn’t decrease, the market for alcohol just switched from the legal market to the black market.  The result was the golden age of organized crime in America.  Gangsters made so much money from selling “bath tub gin” in local “speak easys” that they were pretty much able to buy most of the cops, judges and elected officials in many cities; just like Al Capone did in Chicago.  And of course higher market share was not achieved through cheaper and better quality products, but by killing the competition i.e. The Saint Valentine’s Day Massacre.  The citizens in the United States realized the only way to prevent organized crime from completely corrupting our government institutions, and pretty much taking control of this country; was the legalization of Alcohol.

A complete legalization of Marijuana across the United States would end these cartel wars in Mexico because it would cut off their money supply to buy soldiers, weapons, law enforcement and politicians.  If Marijuana is sold freely and cheaply there would be no black market for the Mexican cartels to exploit, and hence their easy money supply would be shut off.  There would be no black market share to fight over and in addition, without the ridiculous income they get from selling illegal marijuana, they would not have the money to buy all the sophisticated weaponry that is costing many innocent Mexican citizens their life.

The legalization of the fifth largest economy in the world is going to put a serious dent in the cash flowing into criminal coffers.

How Much Weed Can an Individual or Corporation Grow in California?: Part 1

There seems to be much confusion on how much weed a person or organization can grow for recreational purposes in California starting on January 1, 2018.  The most recent “law”, not regulation (see my recent blog on “What is the Difference Between Proposed and Binding Regulations”), that is binding on this issue is SB 94 which was enacted into law on July 15, 2017.

This law reads in pertinent part:

SB-94 Cannabis: medicinal and adult use.

SEC. 49.

Section 26061 of the Business and Professions Code is amended to read:

(2) Type 5A, or “indoor,” means for indoor cultivation using exclusively artificial lighting greater than 22,000 square feet, inclusive, of total canopy size on one premise.

(3) Type 5B, or “mixed-light,” means for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority, greater than 22,000 square feet, inclusive, of total canopy size on one premise.

(c) No Type 5, Type 5A, or Type 5B cultivation licenses may be issued before January 1, 2023.

This law seems to indicate that until January 1, 2023, people cannot obtain Type 5 licenses, so the maximum amount of  land an individual or organization can use for the cultivation of cannabis is the limits proscribed by the medium (type 3) license delineated in SB 94 which only allows a maximum growth of 22,000 square feet.

The Cannabis regulations that were released on November 16, 2017 reconfirmed that only small and medium-size grow licenses will be issued between 2018 and 2023 (for up to quarter-acre and one-acre grows, respectively).  This statement should be of no surprise to anyone because state regulations cannot overturn state law; such regulations can only clarify state law.

However, according to the article; “California’s Limit on Big Growers Just Vanished. Here’s Why” published by Leafly on December 8, 2017, (https://www.leafly.com/news/politics/californias-limit-on-big-growers-just-vanished-heres-why) asserts that the regulations did say that while medium-size licenses are limited to one per person or organization, there is now no limit to the number of small-size licenses any person or commercial entity may obtain.  In other words, you can only apply for one medium sized license (or type 3 license) which will allow you to grow up to 22,000 square feet and are prevented from obtaining a large (Type 5) license which would let you grow beyond 22,000 square feet.  However, according to this article, you can apply for more than one small (Type 2) license that allows you to grow up to 10,000 square feet.  Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis.

This situation begs the question: why have medium (Type 3) or large (Type 5) licenses at all, when you can simply apply for multiple small licenses that would allow you to surpass any size restrictions medium (Type 3) or large (Type 5) license could place on your grow.  In addition, the limitations of just being able to obtain one medium (Type 3) license and no large (Type 6) licenses until 2023 are absurd because you can get as many small (Type 3) licenses as you want.  Under this system why would anyone ever even apply for a medium (Type 3) or a large (Type 5) license at all?

There is clearly something rotten in the State of Denmark (or California in this case).  If what the above quoted article is saying is accurate, then medium (Type 3) licenses and large (Type 5) licenses should be eliminated because they serve absolutely no purpose.

What is the Difference Between Proposed and Binding Regulations

One issue that I think keeps everyone concerned is what is the story about these new cannabis regulations?  Are they binding or not?  Some Regulations, unlike laws, can merely be issued by a regulatory body and have the force of law although they have never gone through the legislative process.  As most people are aware, on November 19, 2017 three California regulatory bodies came out with three sets of regulations concerning cannabis that are scheduled to go into effect on January 1, 2018.  Here they are:

Bureau of Cannabis Control regulations

CA Department of Food and Agriculture regulations

CA Department of Public Health regulations

What people should keep in mind is that these regulations are binding in that they will have the full effect of law come January 1, 2018.  In other words, if you don’t comply with them, such non-compliance will have the same repercussions as violating the law.

Lori Ajax, the Chief of the BCC, says that these regulations will be reviewed and adjusted depending on how the regulations fair through the licensing scramble and legalization of recreational cannabis that the whole state is about to face.  If all goes smoothly, she may adjust them slightly and if the next month proves totally disastrous there will probably be major changes to the regulations.

But don’t let this discussion make you think that these regulations are not binding.  Even though they can be changed rather quickly, don’t think they are not binding.  These are not proposed regulations as many in the press have called them.  The people in the press and on the blogs referred to them as “proposed regulations” because they can be changed rather easily.  However, most of these bloggers, reporters and even lawyers are wrong because the November 19, 2017 regulations delineated above are binding regulations.  Proposed regulations are regulations that have been proposed for further discussion but are NOT BINDING.  Therefore, unless a regulatory body that has issued a “proposed regulation” turns such regulation into a binding regulation, the proposed regulation will never have the force of law.  To be clear, as stated, the regulations issued on November 19, 2017 by the three agencies of the state of California are binding regulations.

Much of the confusion surrounding this issue is that most of us were taught in civics class that in order for a bill to become a law, at the federal level at least,  the bill would have to pass the U.S. House of Representatives, the U.S. Senate and then be signed by the President.  On the state level, for a bill to become a law, it would have to pass the California State Assembly, the California State Senate and then be signed into law by the Governor.  Those statements are true but there is another way for a proposed rule to become an enforceable rule.  That is when the State legislature creates a law that has vague portions and then the legislature delegates their law making power to a state regulatory agency to clear up the vague sections of the state law.  In these situations a law is passed and then the regulatory agencies must pass regulations that fill in the parts left vacant or vague by the original law.

As an example, if under state law it states that cannabis products are not to be enticing to children, then it is up to a regulatory agency to decide what enticing really means: does it have to look like candy, does it have to have a name similar to a piece of candy already on the market etc. etc. etc.

The most important point to remember here is that these state regulatory agencies can never pass a regulations that violates state law.  The people of California have already decided that cannabis should be legal.  Therefore no regulatory body can ever overturn that law.

The bottom line is that even though Lori Ajax says these current regulations will be discussed and changed in the upcoming months; don’t forget that these regulations issued by the three state agencies delineated above will be binding and enforceable come January 1, 2018.