Is California setting marijuana growers up to fail?

With the state’s adult-use cannabis market barely two months old, CalCannabis, a division of the California Department of Food and Agriculture (CDFA), has issued more than 2,000 temporary cultivation licenses, sanctioning 400-plus acres of pot gardens.

Collectively these state license holders could produce nearly 4.2 million pounds of weed per year — more than double the amount Californians are expected to consume, according to estimates by the CDFA. More licenses are being approved every day as aspiring growers up and down the state rush to get in on a $5 billion market.

And in Humboldt County, only a small fraction of our local growers have gained access to the legal marketplace.

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Britain is the world’s largest producer of legal cannabis, a new report from the United Nations has revealed. 

Ninety five tons of marijuana was produced in the UK in 2016 for medicinal and scientific use, accounting for 44.9 percent of the world total, its International Narcotics Control Board (INCB) found. 

The UK is also the largest exporter of the drug, with 2.1 tonnes exported in 2016 – roughly 70 per cent of the world’s total, the report stated.

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Editor's note: Lincoln Fish, the CEO of the vertically integrated Southern California cannabis company OutCo (and Outliers Collective, its El Cajon-based dispensary), has been working in the legal cannabis space for three years. "The changes I've seen take place in this short time are nothing short of astonishing," he says. "We've had business challenge after business challenge, but through innovation and persistence, we have made real progress toward industry legitimacy." As 2018 unfolds, here is what Fish predicts will be the cannabis trends to watch. 

1. This will be the year of cannabis acceptance.

I believe that 2018 is the year that will turn the tide in the cannabis industry. Legalization of cannabis has been coming for a long time, and California will be the state that breaks the camel’s back. With several states legalizing cannabis, the government seeing the industry mature and the tax revenue opportunities growing, momentum is on the rise.

We’re also seeing a decrease in stigma as people are becoming more accepting of cannabis. New cannabis customers are creating this change, and lifelong consumers are coming out of the shadows. More and more people are realizing and accepting cannabis’s health benefits. Many politicians are finally realizing that people want cannabis and that it is here to stay.

2. There is a great need for cannabis education.

New consumers are entering the market, and they’re hungry for knowledge. Our industry needs to explain how cannabis is grown and extracted and how to use it. One of the most important aspects of OutCo is that we’re vertically integrated (we cultivate, extract, package, distribute and sell), and I can honestly say that our process is controlled from start to finish.

When it comes to extraction, there are many different methods used, which can affect what people ingest. Often, the average cannabis consumer (let alone a brand-new consumer) does not know the difference between extraction methods—or even what an “extraction method” is. The good news is that there are a variety of cannabis products and a variety of consumption methods, including vaporizing, tinctures and capsules, that do not require smoking. The bad news is that people don’t know what’s available or how to dose. All consumers need to know more.

3. The move to a consumer demand-driven business.

Right now, the cannabis industry is by and large a product-demand business. Once it shifts to being more focused on consumer demand, the industry will be able to better respond to what consumers want. Technologies and input from the market will change how we know what products are out there, what is selling well and what will help us predict trends, enabling us to respond with the products people want. Current sales trends show flower sales at 65 percent of total sales, vape cartridge sales at 25 percent and tincture sales at 10 percent, according to BDS analytics, whose team analyzed point-of-sale data from Washington, California, Oregon and Colorado.

With legalization and the marketplace opening to a new, more educated consumer, we predict an increase in tincture sales in 2018. Tinctures offer this new consumer more control with dosing. The vape market is also experiencing increases, most likely due to the discreetness and the ease of inhaling versus smoking. By the end of the year, we see sales categories most likely averaging out to 50 percent flower, 30 percent vape and 20 percent tincture sales. 

4. Recreational cannabis use will challenge alcohol popularity. 

We’re all aware of the comparisons between cannabis and alcohol, and we know there’s growing curiosity about cannabis as a recreational substitute for alcohol and other substances. OutCo commissioned a large study at the end of 2016 on cannabis use in California that revealed that 51 percent of millennials are replacing alcohol with cannabis—and for some surprising reasons, including fewer side effects (no hangover, low calorie) and perceived health benefits.

5. Other businesses will recognize the validity of cannabis businesses.

Insurance, banking and other services that weren’t available before are now becoming available to cannabis-touching companies. Legitimacy is helping to make cannabis a more reliable business partner, and many investors that were waiting to see how legalization would roll out are now committing. It’s already happening internationally (in Canada) very quickly. Investment-wise, large, institutional funds (pensions, endowments, etc.,) are interested in investing in cannabis in the U.S., but few have taken the plunge.

From maturing business practices to an explosive consumer marketplace and acceptance for our burgeoning industry, I feel that 2018 will be the year that we all remember.

Pennsylvania’s medical cannabis program has faced significant hurdles in its infancy. Since retail sales began in mid-February, the six dispensaries across the state have experienced demand that far outpaces their collective supply, prompting some dispensaries to temporarily close in the early days of this new retail market.

The economic discord was one factor that led members of Gov. Tom Wolf’s Medical Marijuana Advisory Board to recommend the sale of flower in the state.

Minnesota is the only other medical-cannabis state that has an active ban on flower sales. All told, 29 states have legalized medical cannabis.

Shalawn James, a patient advocate appointed to the board by Wolf, says that several subcommittees have been studying the merits of flower sales. In February, board members learned about the effects of flower on patients, and about the particular physiological delivery system of flower as opposed to concentrated oil.

The board has not yet voted on allowing flower sales; once the move is fully approved, it will be sent to the state legislature.

“One of the things we are hearing heavily from the medical marijuana community is that the flower product provides better relief in much lower dose and quantity—and it’s quicker relief,” James says. “As a parent of a kid that has a sickle cell disease, I know the importance of curbing the pain as soon as possible.”

Businesses are also excited about the prospect of flower sales. Charlie Bachtell, CEO of medical marijuana cultivator Cresco Labs and co-founder of Cresco Yeltrah (a cultivation and retail partnership specific to Pennsylvania), says that an underlying tenet of medical marijuana retail management is to cater to the needs and desires of patients.

“First and foremost, it’s great that we would move in that direction in Pennsylvania for the patients,” Bachtell says. “One of the things that we’ve learned in our experience in this industry is that flower is great for a couple different reasons: One is its speed to efficacy.  You’ll feel the effects from inhalation of flower faster than you’ll feel any other form.”

So far, more than 21,000 patients have registered for Pennsylvania's medical marijuana program, according to the Philadelphia Inquirer. Of those registrants, more than 2,000 have visited medical marijuana dispensaries in the first month of sales.

For all involved in the budding program, the learning process is active, especially at the policymaking level.

“It’s been an open debate. Clearly there’s going to be some education and some training that will need to go on within that arena,” James says. “Our law specifically states that the flower form of medical marijuana can only be dispensed for vaporization. That is specifically written into the law, and that is not something the board can change.”

In tandem with patient demand for flower is the idea that regulated sales will further erode the influence of Pennsylvania’s black market and prevent patients from going there to obtain the products they desire.

 “We really, as a state, want to curtail that,” James says. “We are listening to what the consumer wants and working [however] we can within the law.

“There’s a heavy demand for the product, and so the board is really listening to that from a number of different aspects. We don’t want people going to the black market, because it is dangerous.”

But in the current regulated market, patients are confronting a common issue: high prices. Flower sales would allow dispensaries to offer a product that has a lower price point per milligram.

 “We see this in every new medical market that comes online, especially east of the Mississippi: A little bit of reaction of consumers going, ‘Hey, this is more expensive than I expected it to be.’” Manufactured products, of course, command more instruments, more manpower and more time.

In the days following the start of sales in Pennsylvania, a half gram of Lime Skunk liquid resin was $70 at Cresco Yeltrah, according to the Pittsburgh Tribune. A gram of Bio Jesus wax was $75.

Flower provides an opportunity for dispensaries to lower the overall medical sales price range. “We like to provide a variety of options to patients,” Bachtell says. “From our experience in other markets, flower sales could be … around 50 percent of all sales in traditional medical markets that are up and running.”

The Medical Marijuana Advisory Board meets monthly. Dr. Rachel Levine, the acting secretary of the Pennsylvania’s Department of Health, will review the recommendations next month. A decision is expected thereafter.

Top image courtesy of Cresco Labs