Opinion: The Spectacular Fall From Grace of California Cannabis

LOS ANGELES-California cannabis’ fall from grace has been nothing short of spectacular. High taxes and fees, local bans, contaminated products making it to market, and misdemeanor penalties for commercial-scale unlicensed grows have hurt the regulated marketplace and emboldened an increasingly organized underground.

Far from the idyllic personification of mom-and-pop growers bucking the system to provide clean, organic medicine to the masses, California cannabis production is increasingly associated with forced labor, environmental destruction, and the use of toxic pesticides and systemic fungicides.

Once a land of allure, respect, and adoration with farms operating behind the Redwood Curtain and other mountainous regions, sprawling desert grows and clear-cut forestland now dominate the traditional market.

Unfortunately, many regulated grows are also tarnishing California’s reputation as a global production hub and premier cannabis destination.  Product recalls mount in the face of mold and pesticide contamination, large commercial grows are increasingly run by minimum-wage laborers, and massive corporate overproduction is depressing prices and putting small family farms out of business.

Receiverships, lawsuits, corporate scandals, and partner disputes are scattered throughout the news headlines, and the state remains seemingly tone-deaf to the industry’s struggles.

Excise taxes, currently at 15%, are set to move to 19% assuming a funding shortfall for tier 3 and other recipients of tax revenue.  With sales tax, payroll taxes, local taxes, and the inability to deduct normal business expenses, cannabis companies pay effective rates near 50%.  Given financial desperation, some companies misbehave, pushing contaminated products to market.  It’s also common knowledge that millions of pounds produced in the regulated market are leaving the state through burner distros or under the guise of THCa “hemp.”  None of this bodes well for the normalization or increasing social acceptance of cannabis.

And rightly so, consumers are getting nervous.  I’ve fielded numerous calls about product safety from friends and family members, and it’s time for the industry to step up and put consumers back at the forefront of every decision.  Regulated market sales have declined precipitously from the peak in 2021 and it’s unclear if California will retain its leadership position in the space.

At less than $5 billion in sales, California is performing far worse than its peers regarding per capita consumption.  Not a good look Cali!

Local bans prohibit retail in approximately 60% of localities, and so-called cannabis “deserts” have led to a proliferation in both underground activity and direct-to-consumer “hemp” markets.

Retailers are suffering and the operating runway for many is short.  Investor-subsidized losses are running out of steam, and I expect further business failure and consolidation in the coming months.

Once known for innovation, a consumer and earth-first consciousness, and leading the globe in organic, sungrown cultivation methods, California cannabis is at risk.

So where do we go from here?

The author, Jesse Duncan, and in main image.

The path back to global prominence in the space is twofold: creating a less predatory regulatory environment and restoring consumer confidence through product safety.

It’s the Taxes, Stupid!

Whereas approximately 25% of cannabis businesses have learned to operate profitably in the draconian environment that is California cannabis, many are failing.  Wage compression is real, employee benefits are limited, and state tax revenue is unsustainable and shrinking rapidly.  I offer the following action plan:

• Reduce excise taxes to 3%
• Cap local taxes at 3%
• Remove local bans on retail
• Reduce state licensing fees by 50%
• Allow for normal business deductions for cannabis operations

By creating a more business-friendly environment, California can encourage crossover participation from legacy to regulated markets, broaden the tax base, and improve the sustainability of state revenue collection.

California should have ample evidence that the current situation in the Golden State is concerning.  Population drain, businesses leaving the state, and a $35 billion budget deficit don’t exactly scream of positive momentum.  Lower taxes, encourage business formation and capital investment, and return to solid footing.

Consumer Confidence

Consumers are increasingly concerned as information surfaces that some growers spray toxic chemicals on their plants and that others are growing in ag belts or former food/floriculture facilities where pesticide drift and contamination are real risks.

And while organic equivalent, Sun and Earth, or Green Clean certified products are sound options, it’s hard to find these certifications on most dispensary shelves.

And this sucks.

While many producers are doing the right things and producing clean products, with lab testing scandals and irregularities rocking the state, folks are concerned about who they can trust.

We need:

• Uniform testing standards
• Uniform standards for testing equipment and calibration
• A State sponsored watchdog lab that aggressively verifies test results
• Radically expanded testing panels for pesticides and fungicides
• Huge fines levied on producers pushing contaminated products to market
• License repeal after the third instance of pesticide/fungicide contamination
• Publicized sources of contaminated product so facilities and regions inappropriate for cannabis cultivation are remediated or closed altogether.

Bringing it Home

California should be a $ 15 billion market. The fact we are limping along at less than a third of that indicates just how dire the situation is.

As a lifelong California resident who has been entrenched in the cannabis scene since 1993, this is painful to write about.

Decades of sacrificial effort from pioneers, advocates, and patients paved the way for the regulated market many of us participate in today.  Let’s honor their efforts with our actions and remember always that cannabis saves and improves lives.

Many operators have their life savings invested in the space and don’t deserve a black eye based on the actions of others.  Let’s unite around product safety and sensible policy reform, and help our beloved Cali regain its leadership position in the space.

The California State Capital Sacramento

Copyright © 2024 The Highly Capitalized Network – HCN Media Group and Jesse Duncan. All Rights Reserved. The team at Highly Capitalized Network would like to thank the author, Jesse Duncan for his opinions shared in this article. Jesse Duncan was born and raised in Humboldt County California.  With artisanal multi-environment cultivation skills, he is passionate about cultivating cannabis and helping others.  Duncan runs NorCal Financial and Cannabis Consulting, a no-cost platform designed to help small cultivators level up their financial, business, and cultivation skills.  After retiring from commercial cultivation in 2024, Jesse entered retail tech to lobby for policy reform and help operators address a challenging operating environment in California.  You can reach Jesse via LinkedIn Direct Messaging by clicking this link.