THC and CBD: Not the Easy Path to Riches Most Expected

Unfortunately for people in the Cannabinoid world there are a few more bumps on the road to success than most entrepreneurs expected. 

I am a California lawyer, so I will concentrate on Cannabis in California.  California is now run by progressives, which is great for THC because the State of California is one hundred percent behind legalization.  Our governor, Gavin Newsome, was one of the leaders in the marijuana legalization movement.    The problem is that the progressives that now run California do not understand or have a good grasp of how to create a positive environment for business growth. 

Charlie Manson is almost more popular than Trump in California, and Trump has, for all intents and purposes, become the face and image of the Republican Party all in every state of the Union.  Republican Registration is at an all-time low in California, with Decline to state voters out numbering Republican voters in the Golden State.  In the City and County of San Francisco Green Voters now outnumber Republican voters.  The Republicans have less than a third of the vote in both the State Senate and the State Assembly.  The bottom line is that Republicans are irrelevant in California.  The Kiwanis club in Fresno has more political influence in California than the Californian Republican Party.    

So what is the problem with THC in California?  Traditionally in most states the Republicans have been the pro-business party.  They often insure that the democrats/liberals/progressives across the aisle don’t overregulate and overtax business.  The U.S. Supreme Court in McCulloch v. Maryland said the power to tax is the power to destroy.   I would add to that the power to regulate is also the power to destroy.  Progressives in general don’t have a good grasp of those prior two concepts.  And as a result, California has over taxed and over regulated the legal Cannabis business to where consumers are returning to the black market because obtaining legal weed is increasingly cheaper and less of a headache.

California has three regulatory bodies, the California Cannabis Bureau, the Manufactured Cannabis Safety Branch, and the CalCannbis Division of the Department of Agriculture.  These three regulatory production facilities are overwhelming the California weed entrepreneurs with a constant deluge of new regulations.  This matrix system, where the state of California wants to track every Cannabis product from “seed to sale” is harder to navigate than the straights of Magellan. 

And the taxation has gone to comical levels.  Every state, county, city, water district or local municipality has a myriad of separate agencies with taxing power that are soaking up every ganja dollar that can get their hands on.

It has become the opinion of many businessmen in California, if you are completely legally compliant and pay all your taxes it is next to impossible to return a profit.  Normally when this type of situation develops the overregulated and overtaxes businesses turn to the Republican Party to stave off the regulatory and tax feeding frenzy.  But in California there are no Republicans to turn to for help.   They have gone the way of the Dodo bird.  

Hemp and CBD face the opposite problem of the THC world.  After the USDA legalized hemp in 2019 there was no effective regulatory body.  The State of California considered any plant that has less that .3 percent THC as not covered by the THC regulations.  Everyone concluded that if Hemp is now legal then any product produced from hemp should be legal.  Generally this has been true.  No US Government agencies have tried to regulate Hemp.  The sole exception is the FDA.  In 2018, before Hemp was legal, it approved a drug called Epilodix that contained CBD from Hemp.

After the legalization of Hemp, as stated, everyone thought that CBD products derived from Hemp were legal, but the FDA got territorial.  They stated even though Hemp is legal, CBD products are still considered a drug and they have to approve it before it is legal.  But they are like a lone voice in the wilderness.

However, as of the date, no Federal agency, including the FDA has taken any concrete legal action against Hemp or CBD products.  Unless someone can correct me, in the past year no Federal officers has fined, arrested or seized any hemp or CBD products.   

Everyone has gotten into the Hemp and CBD business. reports the average price per percentage point of $3.94 on 10% raw CBD biomass in July was expected to drop to $2.30 for early harvests and could sink even lower in the fall (which is exactly what has happened).  At the beginning of May 2019, the cost of a single kilo of CBD isolate was $6000 a kilo.  This dropped to an average price of $5000 / kilo. Spot prices for kilos from smaller labs continue to drop into the $4000’s and upper $3000’s. 

I get constant calls from people claiming to be hemp brokers who then seem to disappear into thin air.  Many people claiming to represent hemp sellers will find a buyer, and once they get a purchase agreement will take that agreement to try and find an actual buyer.  Brokers also play this scam from the other direction.  I have been personally contacted about situations where a broker pretending to represent a buyer has hooked up with a person pretending to represent a seller.  Negotiation and commence and the whole project is doomed to failure because there is actually no real buyers or sellers involved. Both the THC business and the CBD businesses having gone through serious growing pains but I believe that those that are able to stick it out to the end will find that there is actually gold in them there hills.

Leave a Reply

Your email address will not be published. Required fields are marked *