State cripples legal dispensaries

Six months after adult-use cannabis became legal in California, dispensaries are struggling to meet regulatory requirements, and customers are suffering the consequences. The situation has gotten so bad that some dispensary owners are longing for the days of California’s medical marijuana system, which was in place for two decades before voters approved recreational weed in November 2016.

Under the medical marijuana system, customers had to have a doctor’s recommendation, which theoretically reduced the potential number of customers. But medical marijuana was sold without the state regulations that are causing headaches now.

Some of the most vexing regulations for dispensary owners are that cannabis must be tested for mold, pesticides and other toxins, and licensed distributors must transport cannabis. While dispensary owners say they don’t object to testing eventually, they wanted a delay so they could unload thousands of pounds of untested weed.

The requirements have added more work to the process of shipping cannabis from growers to stores, and not enough companies have taken on these new roles. As a result, since July 1, dispensaries have had fewer products on the shelves, just days after they were offering products at huge discounts because of the new testing requirements.

A look at the menus for about a dozen Sacramento dispensaries showed a couple had no loose cannabis—called “flower” in the industry—and was only selling concentrates or edibles. Other shops had few or no concentrates for sale.

“Our customers are pretty upset because they don’t have access to the flowers they want,” said Mark Pelter, co-owner of River City Phoenix, or RCP, a Sacramento dispensary. “If we had the supply, we would have a line out the door.”

RCP had more business under medical marijuana laws than under the existing system, he said. About 100 more customers a day made purchases under the old system, he said.

Joe Devlin, Sacramento’s pot czar, said he’s heard similar figures from other dispensaries. He said it will take several months before the state’s planned supply chain is operating efficiently.

Alex Traverso, spokesman for the state Bureau of Cannabis Control, declined to comment for this story. In the past, Traverso has said the state has given the industry plenty of advance warning about the regulations. The regulations that kicked in July 1 were announced in November 2017.

BCC has licensed 45 “distributor-transport” companies, and only one in Sacramento. Most of the companies are located in the section of Northern California with the highest concentration of growers—Humboldt and Mendocino counties.

Likewise, only 30 companies have been licensed for testing statewide, with just two in Sacramento. Most of them are in the Bay Area or Southern California.

Revenue for commercial cannabis has been far below expectations, and the picture isn’t expected to improve soon. A recent report by two industry analysts, Arcview Market Research and BDS Analytics, says the state’s “strict regulatory regime” is a “sure limit to the legal market’s ability to compete with well-established illicit markets.

“While the opening of California’s adult-use market has not been seamless due to the new regulatory regime, sales are expected to reach nearly $3.1 billion in 2018,” the report concludes. That’s $600 million less than the analysts’ previous estimate.

According to the report, not enough licensed businesses have gotten into the California market. One reason for the shortage of licensees goes beyond state regulations. It’s due to the large number of cities—roughly three-fourths—that have banned commercial cannabis activity.

One potential bright spot for the industry is that BCC, in its recently updated regulations, said delivery companies can “deliver to any jurisdiction within the State of California” regardless of local bans on marijuana sales.