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Drugs

Are California's Small-Scale Pot Growers About to Get Screwed by the State?

We caught up with Steve DeAngelo, the head of the nation's largest medical marijuana dispensary, to see how the state's new legislation will affect the fate of farmers already struggling to survive.

by David Bienenstock
Mar 29 2016, 4:15pm

Steve DeAngelo. Photo by Nick Carew

Tuesday's episode of Weediquette on VICELAND opens with host Krishna Andavolu talking through the dicey future of California's small-scale cannabis growers with Steve DeAngelo, founder and head of Harborside Health Center, the nation's largest medical marijuana dispensary. DeAngelo began his cannabis career decades ago as an underground retailer and a fiery political activist, then moved "into the light" by opening a licensed medical marijuana store designed to serve as a model for the industry.

His flagship shop in Oakland has helped transform the popular conception of retail cannabis from something shady to a showplace. In that capacity, DeAngelo tells VICE, his enterprise has "worked directly with more small cannabis growers than any other organization in the state of California, and perhaps the world."

Since the Weediquette episode was filmed, the state legislature in California has passed a landmark piece of marijuana legislation—the Medical Marijuana Regulation and Safety Act (MMRSA)—that will create statewide regulation of medical marijuana cultivation, distribution, and sales for the first time. And this November, voters in the Golden State will very likely decide on full recreational legalization via the Adult Use of Marijuana Act (AUMA), a ballot initiative bankrolled by tech billionaire Sean Parker. So we caught up with DeAngelo to see how these profound changes will affect the fate of small-scale weed farmers already struggling to survive the coming age of corporate cannabis.

VICE: California has gone through some seismic changes in terms of cannabis regulation in the last few months. How do you see things shaking out, particularly for small growers?
Steve DeAngelo:
I'm terribly concerned about the state's medical marijuana regulations, which we call MMRSA. If some key provisions of this legislation are not changed, it threatens to destroy the entire legal cannabis distribution system in California by imposing a novel framework that no other state that has regulated cannabis thus far has imposed. And that is a mandatory distributor level. This means growers would have to sell their cannabis exclusively to a licensed distributor, which would then handle and transport the cannabis at each intermediate step in the supply chain.

What happens now in California is that a grower can bring cannabis directly to a dispensary, an extract maker, or an infused-products manufacturer—one step in the supply chain. But under MMRSA, the grower has to supply cannabis exclusively to a distributor, and those distribution companies—I know because I've talked to them—want to be paid fifteen to thirty-five percent of the value of the product every time they transport it. So at the very least (grower to distributor, distributor to testing lab, testing lab to dispensary), you're talking about adding forty-five percent on to the cost of the product. Then the dispensary keystones that forty-five percent price increase, turning it into a 90 percent price increase. Which means, at a bare minimum, the medical cannabis sold under MMRSA is anticipated to be almost twice the cost of what we're selling now.

Well, we happen to have a very robust underground market here in California that already underprices the legitimate market—at current rates. So if there's a doubling of prices in the dispensaries, there will be massive outflow back to the illicit market, and dispensaries (and the growers working with them) will either go out of business or get forced back into the black market.

How did California end up with, in your view, such an unworkable system?
Southern Wine & Spirits and the Teamster's Union wielded their political influence with California's legislature and executive branch. This is a power play by the liquor lobby and the union that supports it, neither of which have ever lifted a finger to help medical marijuana patients suffering under these unjust laws. They're attempting to parachute in and extract something like half the value of the state's entire medical cannabis supply, even if it means doubling the cost of this vital medicine to patients, just so they can go from rich to even richer. It's a travesty.

Do you think the specter of "Big Marijuana" has distracted people from these types of large outside interests moving in?
There is no Big Marijuana in California. It hasn't been allowed to exist because twenty years after passing Prop 215, we still haven't implemented statewide regulations. So what's happening is that Big Alcohol is now filling that vacuum and trying to grab a big chunk of the market.

Are the same mandatory distributor provisions in AUMA?
No, but here's how it's all connected. AUMA wisely removed the mandatory distributor provision, except for the highest volume level of cultivator. And that's a good thing, but AUMA also gives the state legislature the power to change that, and require the mandatory distributor for all cultivators, including on the smallest scale. So the strategy of the liquor lobby is to get this distributor system in place now through MMRSA, and then when AUMA passes in November, it'll go back to the legislature and try to convince them to edit the adult use initiative to its liking.

The Teamsters and Southern Wine & Spirits rank among the largest political contributors to the legislature, so unless we organize some pretty intense opposition—something I'm working on now—it's very possible that the legislature could over-rule the will of the people and allow these guys to come in and take a huge chunk of the market for adult sales, just as they have in the medical market.

And in exchange for all that market share, they'll provide no real value. Keep in mind what we're talking about. You've got a pound of cannabis that's worth let's say $2,000 wholesale and fits in a box that's one foot square. And these distributors—who don't know a thing about cannabis—are expecting to get fifteen percent of that—$300—every time they move it from Point A to Point B?

Are you organizing opposition to MMRSA entirely or just these provisions?
Just these provisions. They were passed literally in the dead of night, at the very end of the legislative session, by lawmakers who did not read them. There was no opportunity for stakeholder input, and it is an unworkable system that will crash legal cannabis in California. Because these distributors, who are operating out of blind greed, don't understand that since there's a parallel, unregulated underground market for cannabis, their avarice is going to collapse the very market they're trying to hone in on.

Is this going to affect small growers disproportionally?
It's gonna wipe everybody out because there's not going to be a viable legal market. If these provisions go forward, something like eighty percent of small growers won't even make it into the MMRSA system, for a variety of reasons. If they're growing on land where the landlord isn't aware of what they're doing, that's not going to work. Or they could be on land that does not meet environmental standards, or they're not on land zoned for commercial agriculture, or, and this is a huge number of people, they may have felony convictions. The biggest hurdle is that MMRSA will impose regulatory costs, meaning growers will have to hire lawyers and accountants and install security equipment and seed-to-sale tracking to comply. That's serious money. Even for a small grower it could be $100,000 or more.

And then the small growers who get through all that will be beholden to the distributors. We don't know how many will be licensed, but if the people responsible for putting this provision in the law have their way, there would be very few of them. And so the distributors will control shelf space, and the small growers will be transformed from farmers into serfs. If you talk to any independent winery in the state of California, who also suffer under a mandatory distribution system, they hate it. It's the bane of their existence.

In the Weediquette episode, you advise small growers to focus on producing the highest quality cannabis possible. Why?
Small growers just can't compete on price with larger growers, because of economies of scale, so they need to conceive of themselves and market themselves as artisan producers of a very high quality special product. One of the things we see in food production is that it's very difficult to maintain the highest quality when you expand past a certain level of output, and that's true with cannabis as well. Which creates a viable niche for small growers.

Overall, my message to anyone looking at these transitions in the market with a sense of dread is to please come in to the light anyway. Because this industry desperately needs people whose value system reflects the collaborative, cooperative values the cannabis plant has taught us. It can be irritating, frustrating, and even dispiriting to deal with all of the laws and regulations that are coming our way, but if we don't do that, then people like the liquor lobby—who know nothing about cannabis, and care nothing about cannabis—are going to be the ones in control.

Looking forward to the 2016 elections, can the next president possibly roll back the progress of the last four years, or have we reached a tipping point?
As much of a disappointment as Obama has been on this issue, things could be a lot worse in the next administration. If we don't pass an adult use cannabis law in California this November, we could easily see a revival of the kind of enforcement actions we saw here in 2011, when US Attorney's across the state vowed to wipe out medical cannabis distribution. They closed over six hundred dispensaries, including many that were raided.

I've been through enough political campaigns to know that no piece of legislation—AUMA included—is going to make anybody completely happy. There's always something you don't like and something you wish were in it. But until we pass it, we're going to live in the shadow of ourselves or our family members having their lives ruined through arrests and incarceration. Maybe some people would rather keep cannabis prohibition in place, so they can go on making millions, but I think that what serves the cannabis community best is having this plant finally be liberated and legal. And so I can't imagine anybody who loves and cares about cannabis not embracing this initiative. Because we could be in terrible trouble if we don't have this shield going into the next presidential administration.

WEEDIQUETTE airs Tuesday nights at 11 EST on VICELAND

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