Profit and Middlemen: Regulation Means New Weed Era - September 16, 2015 - SF Weekly
SF Weekly

Profit and Middlemen: Regulation Means New Weed Era

Nothing like a deadline to get something done. Just ask state lawmakers.

After years of stalemate, the Legislature just barely beat a midnight deadline last week to approve a set of laws that dictate how medical cannabis can be grown, processed, and sold in California. (How you use it is still up to you.)

This means California, which has allowed access to medical marijuana since a 1996 ballot initiative, now has answers as to “how” cannabis is supposed to be supplied.

It also means that even more investors are hungrily eyeing the state's multibillion-dollar cannabis industry for opportunities. Up to two-thirds of the country's cannabis is grown here, and with an estimated 1.1 million medical marijuana users in the state (and untold more using the drug illegally) the Golden State is an enormous market.

At the same time, many existing marijuana enterprises are consulting lawyers to figure out if they can stay in business, and if so, how. (The short answer: Anyone currently in business can stay open until at least 2018.) With legalization of recreational marijuana likely to go before voters next fall, there's a real sense of urgency before the inevitable explosion.

But what does this all mean for the public? For now, very little, whether or not cannabis is part of your lifestyle.

The regulatory package cobbled together by Assemblymen Rob Bonta (D-Alameda), Reggie Jones-Sawyer (D-Los Angeles), Ken Cooley (D-Rancho Cordova), Jim Wood (D-Healdsburg), and state Sen. Mike McGuire (D-Healdsburg) passes on the rulemaking to a new Bureau of Medical Marijuana Enforcement. Once written, rules won't be enforced for several years.

However, a few things are clear.

Cannabis is a for-profit enterprise.

These bills expressly allow retail sales of cannabis, something that was always hotly contested by law enforcement. Many cops and prosecutors argued that weed could only be given away — and to this day, some dispensaries call the money you fork over for an eighth a “donation.”

Sorry, prohibitionists: The industry is here to stay, and it will only get bigger.

Prop. 215 patients have nothing to worry about.

The rules repeal Senate Bill 420, which stated patients could “associate collectively” to cultivate marijuana. This is a good thing.

Instead of nonprofit dispensaries trying desperately and creatively to hide their money, storefronts can behave like real businesses, and groups of up to five patients are expressly allowed to band together and grow cannabis for themselves (provided they do not sell it). Whether or not this will solve cannabis's banking problem — nearly all banks reject deposits from cannabis businesses — is unclear.

Marijuana will be taxed more.

Currently, state sales tax is paid on cannabis sold in a dispensary. Under the new rules, local taxes levied by cities or counties will be added on top of state sales tax.

Nearly anyone will be able to access marijuana.

Accessing medical marijuana is simple, fast, and relatively cheap. This has been one of law enforcement's chief beefs with Prop. 215 from the start.

On this, law enforcement has lost. Physicians will be able to write medical marijuana recommendations in the same way they can now — and, in fact, stricter controls were abandoned after opposition from the California Medical Association.

You need a license.

All “commercial cannabis activity” will require a state license. There will be licenses for dispensaries, deliveries, transporters, manufacturers and processors, testing labs, and distributors. And what, exactly, is a distributor?

Marijuana now has a middleman.

Growers won't be able to vend directly to a dispensary. All cannabis will have to pass through the hands of a distributor, who will receive product from a grower before it's then transported to a seller.

In other words, marijuana middlemen are now mandated by the law of the land.

This should sound familiar: it's how alcohol is distributed in California. Safeway doesn't buy Lagunitas directly from the brewer — it goes through a distributor.

Insiders involved with the process say this new requirement is thanks to the Teamsters union, which has a Warehouse Division ideally suited to take on the distribution of cannabis.

The Teamsters saw the United Food and Commercial Workers — so far the only labor union to organize marijuana workers — helping write the cannabis industry's rules. They apparently smelled opportunity and demanded their cut. And unless this requirement is changed, they appear to have received it.

Deliveries were targeted.

If cannabis dispensary storefronts are an unregulated Wild West, marijuana delivery services are pure First International-grade anarchy.

Even in places with regulated dispensaries, like San Francisco, unlicensed delivery services have proliferated for years, with few penalties from authorities.

This is slowly changing — and just in time, as more venture capital-backed software companies attempt to disrupt the weed delivery game.

The bans stand.

Nearly half of California's cities and counties restrict or ban outright marijuana sales or cultivation, according to the League of California Cities — and those bans will remain.

A 2013 California Supreme Court decision upheld the right of localities to set their own rules about weed. That right is codified in the bills.

But if marijuana cultivation is expressly allowed for patients and if communities can expressly ban it — what does that mean? A good question for an attorney, and one that will likely end up in court.