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How Changing Cannabis Laws Will Affect Sonoma County – Part 2

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How Changing Cannabis Laws Will Affect Sonoma County – Part 2

By Sam Euston

Continued from PART 1 in the September Sonoma County Gazette summaries of the presenters at the August 17th conference on Cannabis Impact: How Changing Cannabis Laws Will Impact Sonoma County

Cannabis Farmers Marketing to Retailers

The farmers can maintain marketing agreements directly with the retailers. The marketing arrangement is a chain of custody and control (not a chain of possession and ownership).  So me as a producer, can still maintain my marketing relationship with the retailer; there is an intermediary check point where products are tested, taxed, QA QC. There is an efficiency of audits gained in this process control point.

Hezekiah also remarked that Proposition 64 repeals this requirement. And the members of the California Growers Association are just about split on this proposition.

Prop 64 does create an open marketplace, and distribution goes away. And, the legislature is allowed to amend the proposition.  It’s looking like there will be many compromises, changes and challenges that will be on the table.

Here are several comments from Hezekiah that I thought were worth noting:

“Sonoma County is at the crossroads of the most dynamic technologically advanced marketplace in the world, and the most innovative dynamic production region in the world. And with that, there are swirling currents of opportunity of innovation, dynamism, so what you can do is get in front of it.

Just as in the wine industry, California is a leader, that holds true in the cannabis industry as well.  Sonoma County is the closest place to the Bay Area (SFO) major international airport. So potentially it can be the closest place to real bona fide growers. It’s also the logistical hub between the world’s leading production region and the world’s largest market.”

“70% of the California’s Grower’s Association grow produce, meat, or dairy for market in addition to cannabis. How they make their ends meet is done with cannabis. Economically viable family farms help support and build the community.

There are CSA’s out there delivering farm fresh produce in food deserts / urban areas, and it’s financed by the medical delivery of cannabis.”  

“Every single farmer in California can grow an acre and every single farmer in California can make ends meet.” Note: Cannabis is economically viable at 2500 ft.² outdoor space (a fraction of an acre).

Hezekiah stressed several times “there is no real reason to drive the product price down. All that does is increase consumption. That’s not how we need to structure the marketplace. We need to structure the marketplace with an eye for efficient use of natural resources, community values, our value, and ultimately preserving, protecting and promoting independent ownership.” Also, “Efficiencies in the supply chain are not always the best thing, and they usually come at the expense of good jobs.”

Hezekiah also talked about the four segments of growers:

1. Regulation growers: folks that follow and encourage regulation.

2. Unregulated conforming growers: these are the folks that can follow the rules.

3. Unregulated non-conforming growers: these are the folks that even if they wanted to, they built in a place they shouldn’t have, they’re in limited resource conditions, and /or unauthorized watersheds.

4. Criminal growers: these are the folks that are an ongoing challenge for law enforcement

With a regulated marketplace and permitted growers, the law enforcement challenges can be focused and better utilized in addressing the industry criminals.

Also, California has made some advances, and encouraging the local small farming commercial based regulation and policy can also help drive the kind of policy reform that’s needed at the federal level. Alliances built with Colorado and Washington (as well as other states) will also allow more effective pressure on the federal level.

“We need to take care of each other locally, and as we do that we can be more helpful in making a global impact.”

Hezekiah comments regarding Cannabis sustainability:

The easy way to deal with the energy issue, is to grow it in the sun. Even if you’re inside, grow it in the sun. Indoor growing happened because growers were hiding.

vi. We consume way too much water in California, most of it comes from out of basin.

This year, SB837 was a budget trailer bill, it did go in this budget and it went into effect immediately. This does effect the growing Cannabis. 

a. There are four types of water in California:

i. CalFed water – can’t use this for cannabis, it’s federal water.

ii. Cal State water program – these are the state owned and developed reservoirs. They have been over allocated for over 110 years, and there is a backlog on the Cal State water rights program.

iii. As per SB837, cannabis is last in line for the program. Cal State water won’t be used anytime soon.

iv. Surface and groundwater  – The sustainable groundwater act signed in 2013 provides for a much more responsible use of groundwater going forward. The days of pumping the groundwater out of the ground are gone. Cannabis is also last in line for ground and surface water.

v. Stored rainwater – It’s a non-jurisdictional type of water that cannabis can use.

Cannabis is the first industry to be subject to the sustainable surface and groundwater provisions.

According to Hezekiah; California is a rain rich state. This comment encouraged my curiosity for further research. 

According to the NOAA National Climate Data Center, California ranks 40th in the 44 states surveyed at 22.2 inches per year. Alabama is the highest at 58.3 and Colorado is the lowest at 15.9.  *1 

Note: 

• The precipitation averages are based on weather station data collection throughout each state from 1971 to 2000.   

• Sonoma County average rainfall (years 1931 to 2005) was 30.5 inches, and in 2015:  23.39 inches. So water is an issue and rain water catchment and storage can be a solution.

Hezekiah’s continued... “in 10 years, the limiting factor on California’s cannabis production will be water. If you want to grow in a decade, store your water.  Don’t pump from the ground, river, or anywhere else from May till November. If you can’t do that, you won’t be competitive in a decade.”

Hezekiah’s remarking regarding banking and taxation:

The board of equalization reminds us that 85% or more of the current sales tax liability is avoided in California currently.

This leaves us at a 15% compliance rate.

There are Wall Street and local banks that are working with the cannabis industry. Particularly for the better capitalized and positioned cannabis businesses.  California is pre regulation, so it’s a lot trickier to get there so with that said, 75 to 80% of the transactions are in cash. Yes, there is tax evasion.

A lot of folks don’t feel that medicine should be subject to sales tax. Technically cannabis does not meet the requirements of the sales tax exemption formula for medicine.  And, there are a lot of people who don’t pay, on philosophical grounds as well.

Banking and Taxation:

“We estimate that 85% or more of the current sales tax liability is avoided in California currently. This leaves us at a 15% compliance rate.

There are Wall Street and local banks that are working with the cannabis industry. Particularly for the better capitalized and positioned cannabis businesses. California is pre regulation, so it’s a lot trickier to get there so with that said, 75 to 80% of the transactions are in cash. Yes, there is tax evasion.

A lot of folks don’t feel that medicine should be subject to sales tax. Technically cannabis does not meet the requirements of the sales tax exemption formula for medicine.  And, there are a lot of people who don’t pay, on philosophical grounds as well.

Terry Garrett, Co-managing Member, Sustaining Technologies and GoLocal Coop

Using Colorado’s methodology Terry came up with the following data:

Calibrating based on population:

I. About 16% (60,000) of the adult population, in Sonoma County are regular users of cannabis

II. There are several consumer segments:

a. Light user

b. Medium user

c. Heavy user

Using Colorado’s methodology (based on the above 16%):

I. 23% of cannabis consumers/users are considered heavy users, they consumed 67% of the cannabis volume.

Because Sonoma County is a producer market, Terry believes it’s more of a mature consumer market. And because they are influencers, they will try different products, a wider variety of product as well as new products. There are distinctions here that may make a more sophisticated user/market.

Terry estimates (conservatively), on the low-end is approximately $126 million in annual residential consumption of cannabis consumables. The ICF predicted $210 million. Compare this to (the Sonoma County resident) wine consumption which in Sonoma County is $50 million.

The next level are the indirect businesses in the cannabis industry. Terry estimates that these could add about 3 to 4000 jobs.  Examples are: attorneys, accountants, architects, janitorial and maintenance positions, building, HVAC, plumbing, electricians, roofing, paving contractors, real estate brokers, transportation, trucking, security systems and services shelving and display case makers and installers, communication services, advertising and promotions, IT products and services, computers, financial services, furniture, furnishings, machinery and equipment, commercial kitchens and equipment, lab equipment, processing and supplies, administrative, and sales personnel.

Terry and staff will also be publishing a trade magazine titled CRED, that will have issues that provide information on the supply chains and all the jobs that can be created underneath the supply chains.

Terry relayed that the business (the consumer demand) is already there, and his estimates on the production side are in the range of $2 billion for Sonoma County.

Terry also talked about the food processing and manufacturing cluster in Sonoma County which employs approximately 9300. Adding the cannabis related jobs already, takes a total up to 13,000, adding in the indirect and induced Terry estimates the tolls closer to 18,000 employees.  This doubles the industry that Sonoma County treasures.

From GoLocal’s perspective; the local, the independent, the artisan, the craft, the high quality, “IS” the brand of Sonoma County . It’s important to support these intrinsic values, these attributes, and the quality of life of the people running these businesses

In the cannabis industry, one of the things that comes up is the uncertainty, and how disruptive uncertainty is. The counterbalance to that is building in stability. And that includes price and operations stability.