While Californians prepare to celebrate 4/20, the cannabis industry finds itself at a crossroads. It’s been nearly four months since adult-use marijuana became available for sale in cities across the state, but bureaucratic red tape and cumbersome taxes remain major roadblocks on the path to a fully realized market.
When Berkeley Patients Group COO Sean Luse first opened the doors to his dispensary on Jan. 1, he knew the initial numbers might level out. However, what’s he found is that some of BPG’s longtime patients are now avoiding his dispensary in favor of growing their own plants at home or purchasing cannabis through unregulated channels. Luse is pretty sure he knows the reason why.
“A lot of what we point to is the sticker shock that people are getting from the dispensaries,” he says. “It feels like we’ve lost some of our legacy medical patients, and we’ve replaced them with new adult-use consumers — but it wasn’t like we just kept everybody we already had and then let the rest of the adults in. We’ve kind of scattered the market in a lot of ways in California.”
The rising price of cannabis has certainly taken many medical patients by surprise. As part of the regulations put in place following the passage of Proposition 64, marijuana is now taxed across the supply chain, leading to compounded taxes that ultimately result in a substantially higher cost to customers.
Luse — who also serves as a board member of the California Cannabis Industry Association — notes that while the prices won’t put dispensaries like BPG out of business, they have left retailers with far slimmer profits than they’d originally anticipated.
“We’re not trying to exaggerate how bad it is,” Luse explains, “but we’ve definitely realized just how much of the market is not being served by legally licensed outlets. We’re seeing a modest gross in our business. We’re a little bit up from last year, but it’s nothing bonkers like two or three times more, yet the market should’ve easily grown that much going from medical to adult-use. In fact, the market did grow that much, but the state and its cities just haven’t been able to capture it.”
One possible solution is AB 3157, a California Assembly bill that would reduce the state’s excise tax from 15 percent to 11 percent and temporarily suspend a cultivation tax imposed on growers. Spearheaded by Republican Assemblyman Tom Lackey of Palmdale, AB 3157 would offer some financial relief to cannabis businesses that are losing sales to unregulated alternatives by simply following the current letter of law.
As Luse sees it, the tax situation is something the market should be able to absorb in the long-term. The real difficulty is the abrupt shift to a sizeable tax, essentially from nothing. By leaping into the regulated market without offering a bridge or transition period for existing patients, California has alienated some of the consumers it was counting on to kick-start the industry’s next chapter.
“I think a lot of local governments have to get their heads on straight and realize the importance of that,” Luse says. “It’s getting there, but not any time quick enough.”
Another point of contention is the fact that while marijuana may be legal under California law, there are still very few places to buy it. According to a recent Mercury-News investigation, only one in seven California cities currently allows recreational sales.
“There is a crushing bottleneck at the local level,” Luse notes of the state’s current permit situation. “It’s so hard in so many jurisdictions.”
In this sense, the Bay Area is actually ahead of the curve. While the number of applicants eager for permits in cities like San Francisco, Oakland, and Berkeley remains high — a February lottery in Oakland awarded eight permits to a group of more than 100 applicants — at least permits get issued at all. In Los Angeles, momentum for the adult-use market has ground to a halt thanks to local in-fighting and the myriad jurisdictions the county oversees.
“I do think that has been a continuous story here in California,” Luse says. “The Bay Area is out ahead of the rest of the state and doing it better. It’s not perfect, but it’s definitely better here than in a lot of areas.”
For now, Luse has a busy weekend ahead. Despite the industry’s stumbles, he expects a big crowd for the 4/20 festivities being offered at BPG. Perhaps some recently procured tax refunds will be exchanged reefer. Either way, the doors will be open. Luse just wants to make sure they never have to close.
Zack Ruskin covers news, culture, and music for SF Weekly.
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