When the legalization of marijuana in California was announced, both investors and entrepreneurs alike anticipated a veritable “Green Rush” of economic activity—a new ecosystem from which a multi-billion dollar industry could flourish and grow.
But legalization has brought with it a variety of complications and challenges that many in the industry––especially small-scale growers and businesses––have found burdensome or, in some cases, insurmountable.
These challenges pertain primarily to the need of satisfying new state and municipal compliance laws. According to a report from the California Growers Association, less than one percent of California’s cannabis growers have registered with the state’s new legal licensing system, and an even smaller number has taken steps to ensure their facilities are compliant.
But come July 1, 2018, that will become a huge problem for growers. July 1 is when the state’s traceability system is scheduled to go online, meaning it’s a de facto deadline for growers and businesses to prove they’re compliant with these new rules.
The truth is, one major reason smaller growers haven’t taken steps yet to ensure they’re compliant is they aren’t aware of what exactly is required of them.
Larger, less insulated organizations with more resources have already started building the infrastructure required of compliance. As a result, they now control an outsized portion of the market, since they’re the only growers who’ve been issued licenses.
Smaller growers, in comparison, lack compliance education. Maybe they haven’t been reached out to in the same way, or they’re just used to a culture in which formal compliance is sort of an alien idea.
But regardless of the cause, there’s a gap of understanding separating smaller growers from larger organizations that could have dire effects on smaller growers once July 1st rolls around—namely, repercussions.
Marijuana is a unique industry in that the consequences of non-compliance can range from fines to imprisonment.
This is something we at DAMA understand well, and it’s why we’re working hard to prepare growers for the huge challenge they’re currently facing. If you’re a small grower, the cards are stacked against you, and you might not be around to reap the benefits of the Green Rush unless you prepare purposefully.
The first step? Educate yourself. Here are four of the biggest challenges you need to start preparing for as the state approaches its July 1 deadline.
Challenge 1: Compliance requires extensive recordkeeping.
One of the primary challenges of California’s new standards of compliance is the intense amount of recordkeeping required.
Growers are expected to keep every single piece of inventory tagged at all times. Every time someone moves that inventory, it needs to be recorded and reported, and those records need to reconcile with the state’s records, too.
The state wants complete oversight into what growers are doing at all times. That means in addition to keeping track of your own inventory, you have to collect data to report to the government, as well.
The amount of infrastructure this requires is considerable, amounting to a complex operation that necessitates care and precision. And for smaller growers who were operating in the dark before legalization, it also runs counter to the way they’re used to doing business––for a long time, keeping records of your operations could harm you more than it could help you.
Ultimately, it’s a huge shift in mindset.
Challenge 2: Being compliant is expensive.
In addition to the intense and thorough amount of recordkeeping now required of growers, there are a number of other expensive investments mandated, too.
For example, growers will soon be expected to install 24/7 security cameras around all parts of their facilities. They will be required to train their employees, and will need to have handicap accessible facilities. For generational farmers up north in the Emerald Triangle whose farms are set up outdoors—often on the sides of mountains and hills—this will require an immense amount of construction and retrofitting.
For many growers, these requirements will prove prohibitive. There has already been a variety of growers coming out proclaiming that legalization will push them out of the business, simply because they can’t afford to ensure their operations are compliant. Sadly, many who could get squeezed out are generational farmers who risked everything to help push the industry to what’s it’s evolved to today.
What’s more is the price of marijuana is steadily dropping, as it does whenever a state legalizes marijuana. This results in profit margin compression, which growers should factor into their plans, too. In Canada, where the largest licensed producers not only have a head start in legalization but also have access to capital markets, cultivation costs are nearing $1 per gram. When producers have the ability to scale, they will compete on price, driving down pricing across all categories.
Challenge 3: You don’t have much time.
Growers in California are still operating under temporary rules the state put in place as something of a stopgap at the beginning of 2018. But those temporary rules are soon to be replaced by the much stricter and more thoroughly enforced regulations on July 1––the same time its traceability system will go online.
Growers and businesses are expected to have infrastructures to ensure they’re compliant in place by that time.
If they don’t, the state will send enforcement agents to their sites to shut them down.
Challenge 4: The legal interpretation of compliance is muddy.
Perhaps the biggest challenge that growers big and small face is navigating the ever-shifting legal loopholes and restrictions that exist at both the state and municipal levels.
County laws and local ordinances differ from state laws—and they change regularly.
Even if you simply want to explore the licensing or permitting process, you have to first confirm that marijuana sales are legal in whatever area you happen to be in. The bad news? In 70 percent of jurisdictions in California, it’s not.
If your municipality hasn’t legalized marijuana and you’re calling city hall with questions, you could be exposing yourself to a level of liability or exposure that might not be in your best interest.
For growers already in operation, there’s also the issue of enforcement. Often, growers are shut down on account of technicalities—one little piece of compliance not being met that gives enforcement agents freedom to impose fines or, in the worst case, throw owners in jail.
Ensuring you’re abiding by all of these various and changing laws is yet another investment growers need to make.
At the end of the day, you don’t really have a choice: you have to play the game.
Your options are varied, but your best bet is to educate yourself around what is required of your business and to start investing in means of satisfying those requirements. One business I spoke with in Massachusetts hired a full-time employee whose sole focus is entering data into their computer and then uploading it to the state’s traceability system. This company would have a clipboard outside every door, manually log information by pen and paper. The employee would collect these logs every afternoon and re-catalog everything digitally. That’s not a bad idea.
It might seem unnecessary, but you need to start recording everything you do. You need to keep track of every piece of inventory. Think about investing in software solutions to help optimize your operations. Whatever you do, you need to be building these habits now.
Although expensive and time-consuming, investing in these areas of your business on the front end will save you headache later on—and might even empower you with the data you need to improve other aspects of your business, such as agro techniques to improve your yield and increase your bottom line.
This will enable you to lead the charge in the coming Green Rush instead of sitting it out.