California Joins the Bonanza

Prop 64 Recreational Sales Finally Effective January 1

After California’s passage of Proposition 64 in November of 2016—which paved the way for recreational cannabis sales—there was a brief period of elation at the future possibilities in the Golden state. The hangover came quickly as recreational sales were not set to start until January 1, 2018—more than a year and unknown reams of legislation away. The state released regulations on November 16 from the Department of Food and Agriculture, the Bureau of Cannabis Control, and the Department of Public Health in preparation for statewide commencement of sales. With the date fast approaching, here’s what comes next as the biggest state economy in the nation adds recreational cannabis to its marketplace.

New Testing Requirements

Along with the new availability come new regulations, including a host of new testing rules. All marijuana sold in a recreational dispensary will have to undergo third-party testing for mold, bacteria, and pesticides. There is a six-month grace period on the testing/labeling requirements, but the testing rules will be stringent and undoubtedly lead to questions about certification and potential supply bottlenecks.

Edible Restrictions

In an effort to protect children from predatory advertising and confusion that could lead to accidental ingestion, strict rules will be placed on the marketing of products in any way that could be conceived as targeting children. The word “candy” can’t even be used and no edible can be made in the shape of people, animal, fruit, or bugs, so gummies are going to be tough to find or in bizarre, boring shapes. The rules also limit edibles to no more than 10 milligrams per serving of THC, or 100 milligrams total.

Spotty Availability

Municipalities have had 13 months to get their acts together, but that doesn’t mean they all did. Those that didn’t create their own local permitting process first will not be eligible for state permitting until they do. And some pretty key counties, such as San Francisco, didn’t get theirs ready in time. So as of January 1, the Bay Area will have less access than other population centers.

Mandated Store Hours and Location

Like Oregon, recreational dispensaries and medical dispensaries alike must remain a distance from any school or daycare center. Unlike Oregon, that distance is only 600 feet—nearly half as far as is allowed in Oregon. Store hours are from 6 am to 10 pm and the stores are required to sport 24-hour video surveillance, as banks in California will still largely not accept dispensary money and, hence, they will be mostly cash affairs and magnets for robbery.

Price Increases Ahoy

As in Oregon and basically any state with separate recreational and medical marijuana markets, the difference in price between the two will be steep. Medical patients will continue to enjoy the prices they currently do, but recreational prices are expected to be 30% to as much as 60% higher than current medical/black market recreational prices. Dispensaries will be forced to pay 15% state excise taxes in additional to local taxes (which could be as high as 15% themselves) and normal sales tax as well. The testing rules will also cause additional costs to dispensaries that will be passed on to consumers.

No Sampling for Recreational Customers

This one shouldn’t really come as a surprise to anyone, but recreational sellers will still be strictly forbidden from doling out free samples to potential customers. The rules are different for medical dispensaries. Interestingly, because of the clash of laws governing medical versus recreational sales in California, many dispensaries that are currently operating will not be able to add recreational sales because their municipality may still not allow cannabis sales of any kind. In California, many medical dispensaries still sell in direct opposition to local rules and are not sanctioned by local government.

Product Shortages

Once the grace periods on existing merchandise and testing labels end, and the products that dispensaries have that satisfy the myriad new rules run out, expect shortages. As happened in Oregon and other states, when that initial product runs out there will be gaps as administrative morass makes it hard to keep cannabis products on the shelves—during which time people will undoubtedly return to the black market to fill the gap. Fortunately for them, California growers will still be dedicating a sizable portion of their crops to the black market within the state and across the country.

Stiff Competition

California’s tight regulation, high regulatory costs and flourishing black market will leave small businesses in a precarious spot. It won’t be easy for the state’s smaller cannabis growers and processers to compete with larger operations and those that don’t bother to adhere to regulations. Unlike Oregon, which has seen a boom in businesses proliferating products, California is already home to many and could see a certain size and class of business disappear.

Time will tell how the new regulations will affect the marijuana market in the state where recreational sales have debatably been the most eagerly anticipated. On January 1, 2018, California will join the recreational sales bonanza and the biggest petri dish in the experiment of marijuana legalization will be observed.