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End of the marijuana free for all? - By - September 2, 2015 - SF Weekly
SF Weekly

End of the marijuana free for all?

Governor Jerry Brown has spoken: It is time to get a grip on California's unregulated medical cannabis industry.

But even with JB's blessing, nothing is guaranteed.

It's nearing the 11th hour in Sacramento, where lawmakers and lobbyists are hammering out the final details of the first statewide regulations for California's multibillion-dollar marijuana industry.

Last week, Brown circulated among lawmakers his preferred vision for a regulated California cannabis industry.

Licenses would be required for every level of commercial cannabis activity — with a carve-out for individual patients and patient caregivers — and each license would be tiered, giving mom-and-pop operations a chance while taxing Big Marijuana appropriately. All this would be overseen by the state.

There's a real sense of urgency to get this done before next year, when voters will potentially be asked to legalize recreational marijuana. The deadline for bills to escape the Legislature is Sept. 11; Brown's signature is needed in October.

This means the time is now.

However, as of press deadline Tuesday, Brown's language was absent from proposed bills in the Legislature.

Instead, Assembly Bill 266, the bill most watched by cannabis industry insiders, is almost entirely empty. In a parliamentary maneuver called “gut and amend,” the bill was stripped of earlier, rejected language. At some point — one would hope soon — it will be amended to have preferred language inserted.

What did remain as of press deadline was a requirement that another bill — Senate Bill 643 — be passed in order for any of AB 266 to become law.

What's standing in the way of getting this done? “Egos,” one insider said.

As of now, SB 643, authored by Sen. Mike McGuire (D-Healdsburg), would, among other things:

• Create an “Office of Medical Marijuana Regulation” in the state Business, Consumer Affairs, and Housing Agency, which would be responsible for crafting and imposing regulations by Jan. 1, 2018;

• Require all commercial cannabis activity to be licensed;

• Allow for cannabis to be “tracked” from seed to sale to prevent California weed from flowing to other states;

• Allow for every conceivable form of marijuana activity to be taxed;

• Mandate laboratory testing and allow for the state certification of testing labs;

• Allow for regulators to establish a maximum potency level for cannabis and cannabis extracts (1,000 mg brownie lovers, beware);

• Require the Department of Agriculture to create standards for organic marijuana by 2020, and create a cannabis appellation system similar to wine by that time;

• Allow for unregulated cultivation of medical marijuana by individual patients or patient caregivers;

• Require the California Highway Patrol to figure out a way to find out if a driver is stoned;

To do all this would cost $25 million to begin with, according to an Aug. 26 state Senate analysis, and as much as $50 million on an annual basis.

The state's general fund would pay for that in the beginning. After that? Hopefully cannabis would pay for itself, but under McGuire's bill, the state money would come from licensing fees. The tax money — aside from state sales tax — would stay local.

This all sounds reasonable enough. However, there are many industry players working overtime to kill the bill, or at least weaken it enough to protect pre-existing business models.

Just like any other industry.

The situation is apt to change daily, so keep your eyes out.

2,000 Dispensaries, 1,500 Tax Scofflaws

Nobody really knows how many medical marijuana dispensaries are in California (the lack of a state license and statewide regulation is a major reason why).

That hasn't stopped Board of Equalization member Fiona Ma from hazarding a guess — and from guessing how many of those are dodging state sales taxes.

After crunching what data is available — some of the best of which are listings from WeedMaps, as sad as that sounds — Ma arrived at a figure of about 2,000 brick-and-mortar cannabis businesses from the Mexican border to Oregon.

Of those, only about a quarter have BOE sellers' permits. Which means 75 percent of the state's medical marijuana clubs are dodging the taxman, according to Ma.

It's better in the Bay Area, but not by much. Here, only roughly half of dispensaries are dodging their taxes, according to Lizette Mata, a spokeswoman for Ma.

(This is real money. One since-closed San Francisco dispensary on 10th Street and its former operator, Robert Martin, are on the list of the state's top 500 tax scofflaws, with debts to the taxman of more than $1.6 million.)

As for how much tax revenue those dispensaries are bringing in? Wait for it: nobody really knows!

The BOE last ran an estimate of statewide marijuana sales and resulting tax revenue in 2007. Back then, sales could be as high as $1 billion.

That was eight years ago — before dabs, CO2 oil cartridges, high-end, branded edibles, and before Barack Obama became president — in other words, before the industry as we know it existed.

How much bigger has the cannabis industry become since then? Double, triple?

The BOE is anticipating a new estimate at some point, Mata said. No word on what it will be, but it won't be small.