California's Marijuana Industry Wants to Write its Own Rules - November 4, 2015 - SF Weekly
SF Weekly

California's Marijuana Industry Wants to Write its Own Rules

Monday's long-awaited announcement that billionaire angel investor Sean Parker is backing a marijuana legalization effort was welcome news.

It was also doubly misleading.

First, as of press time, Parker is not backing the Adult Use of Marijuana Act (AUMA), the legalization initiative unveiled this week by an environmental attorney and the former head of the California Medical Association. Despite headlines to the contrary in the Los Angeles Times, Sacramento Bee, and elsewhere, Parker isn't putting money behind AUMA — at least not yet.

(The Napster cofounder and early Facebook president, whose interest and long-rumored involvement in a campaign to legalize recreational cannabis in California was the worst-kept “secret” in recent history, did issue a lukewarm statement signaling his approval of the effort. However, neither he nor anyone else has cut a check for any of the $15 to $20 million that may be needed to win a statewide campaign.)

Second, the news failed to note who is behind this effort: the state's cannabis industry, the same “Big Pot” that Willie Nelson warned us about in a recent New York magazine story.

Already big business at close to $2 billion in legal annual sales — but still reaching its full potential as a $16 billion cash crop, the state's biggest — California's medical marijuana industry is poised to boom even bigger following the industry regulations signed into law by Gov. Jerry Brown last month.

Turning a profit and “commercial cannabis activity” — propositions that have been dicey for years — are now expressly allowed under state law. But there are limits. A medical cannabis business can't be vertically integrated from “seed-to-sale,” a move intended to prevent marijuana monopolies, and every shipment of medical marijuana needs to go through a third-party “distributor.”

Neither restriction is in the version of the AUMA filed with the Attorney General's Office on Monday. And while it's still waiting for Parker's warm embrace, that initiative received support from all of the necessary major players: the Marijuana Policy Project, the Drug Policy Alliance, and the California Cannabis Industry Association. Lt. Gov. Gavin Newsom, who chaired a American Civil Liberties Union committee that issued recommendations on legalization that the drafters of the AUMA followed closely, also applauded the effort.

The MPP, remember, was the main force behind Colorado's successful legalization effort in 2012, and DPA was behind the 2012 push in Washington state and Oregon's Measure 91 last year.

These are the guys who know how to win — and what's more, they are the guys with money.

There are many other proposed legalization initiatives out there. One, the California Cannabis and Hemp Initiative, has tried to qualify for the ballot without success since 2010, while another, written by Sacramento attorney George Mull, was just filed on Tuesday. The former frontrunner, Reform California — the successor committee to 2010's Proposition 19, a cash-strapped campaign that lost by seven percentage points but nevertheless proved that legalization could happen — banked on receiving support from DPA and MPP, but appears to be out in the cold.

Because, as has been said time and again, they don't have the money. No successful legalization effort has come without either the fundraising clout of the DPA, which has access to the fortune of late Progressive Auto Insurance chairman Peter Lewis via the New Approach political action committee, or the MPP, whose board is chaired by Joby Pritzker, one of the heirs to the Hyatt Hotel fortune.

Their endorsement is revealing. Pritzker is one of the principals of Tao Capital Partners, an investment firm that began seeding cannabis businesses early this year. While Parker does not have any evident holdings in the cannabis space, his former partner in the Founders Fund, Peter Thiel, does.

Thiel, who invested in web weed resource Leafly and the Bob Marley-licensed brand of marijuana via an investment in Privateer Holdings earlier this year, was one of the donors to Prop. 19 in 2010. (Other Silicon Valley types who ponied up for Prop. 19, which raised only $1.9 million, include Gmail creator and Y Combinator partner Paul Buccheit and early Facebook investor Dustin Moskovitz.)

The news that rich people are investing in public policy that could benefit them is not surprising. What is surprising — and what could cause another ugly scene reminiscent of 2010, when pot growers and sellers came out against legalization — is Newsom's apparent reversal on their presence in a legal weed industry.

This summer, when Newsom's commission report was released, he specifically said he was against Big Pot and a legalization effort “that is looking to capitalize on the next California Gold Rush.”

“If that's what proponents are after,” he said at the time, “then I am going to work hard to defeat that.”

As the California Growers Association, the lobby for the state's outdoor growers, noted on Tuesday, the AUMA's lack of restrictions on vertical integration appears to open the door for big money monopolies.

“The lack of protections against consolidation and monopolies” is a “deal breaker,” wrote Hezekiah Allen, the group's chair.

Can or will it be removed? And what does organized labor, a key force in the medical regulations left out of the AUMA process, plan to do?

All of that has yet to be determined. But now may be a good time to make some wise investments.