Cannabis Businesses Struggle to Stay Compliant in California

Cannabis Businesses Struggle to Stay Compliant in California

With key regulations becoming mandatory July 1, companies must find ways to adapt and survive in the state’s constantly evolving market.

July 30, 2018

California’s cannabis industry is growing up fast, and it hit an important milestone July 1 when the Bureau of Cannabis Control’s (BCC) transition period ended and many exceptions to the state’s rules expired. As of July 1, all cannabis products must meet all statutory and regulatory requirements outlined by the BCC.

As part of the new mandatory rules, only lab-tested products that pass all testing requirements can be sold in the state. Edibles cannot contain more than 100 mg of THC per package and must be separated into 10 mg servings. Nonedible adult-use cannabis products cannot contain more than 1,000 mg of THC, and nonedible medical products cannot exceed 2,000 mg. In addition, all products must be in child-resistant packing when delivered to retail outlets by licensed distributors.

Cannabis products that do not meet those requirements must be destroyed in accordance with state rules.

The mandatory lab testing and stricter packaging requirements are arguably the most difficult transitions for cultivators, according to Nick Rinella, COO for Verdant Distribution, a third-party, independent distributor in the state.

“The testing and packaging requirements that started on July 1 have changed everything for a lot of folks,” Rinella told Cannabis Business Times. “A lot of folks were able to operate without the testing requirements, and now that you have that in place, you’ve seen a lot of brands drop off because they weren’t able to meet the testing requirements for their products.”

Some companies have had to completely change their packaging to meet the new requirements, Rinella said, which can be time-consuming as businesses find a source for new packaging. “You have to get it right. It has to be child-resistant,” he said. “So, it’s really created a bottleneck situation.”

The new rules on edibles have also created shortages, Rinella added. “A lot of the folks who were making edible products have tried to shift their products into something that’s compliant, so it’s made it much more difficult,” he said. “You’ve seen a shortage of edibles on the market because of those changes.”

Although adjusting business models to remain compliant can be challenging, compliance is imperative, Rinella said. “It’s just the same problem for everybody. I guess that’s the thing that they need to remember, that it’s not easy on anyone,” he said. “Everyone has to play by the same rules now, so compliance is key. You’re not going to be able to sell your products into the dispensary without compliant products—it simply will not happen. As expensive as it may seem, there’s just no quick fix and way around it. It’s better for a lot of these cannabis companies to accept that fact and to build that pricing into their model and determine how they want to enter the market because it’s a real thing—it’s a reality.”

The new regulations may also pose challenges to consumers and patients, Rinella added. Adult-use customers who have been consuming cannabis for longer periods of time may want edibles with higher doses of THC, but products with a high THC content will be problematic for new users, he said.

“I know on the medical side, some of the folks have really been dependent on heavier doses to deal with pain and other things, … and 10 mg just isn’t enough for them, so there have been complaints on that side, also,” Rinella added.

Although medical products tend to be less expensive and contain a higher dose, most businesses and consumers continue to transition to the state’s newly legal adult-use market, and the medical market may begin to fade, Rinella said. “You need to have a medical card, and that’s kind of a pain,” he said. “You need to get it updated every year, and then you’ve got to come in and show them your card, as opposed to showing them your ID and buying a product, so I think you’re going to see it drop off over time.”

And as California’s market continues to evolve, some brands will die out as others emerge as household names, Rinella said. “We foresee eventually brands starting to come around and brands really starting to stake their flag,” he said. “Right now, there’s a couple bigger players, but nobody has any tremendous market share. … We see that coming, but it’s going to take some time. There’s going to be a lot of dust that needs settled in the industry before you’re going to have it shake out and realize who’s going to be able to survive and who’s not going forward.”

For now, brands will need to choose a niche and find a way to compete in that space, Rinella said. “I think you really have to pick the lane that you want to be in, and then just be able to compete within that lane,” he said. “If you’re trying to do too many things to jump into the market, you’re going to have a very difficult time.”

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