If you want to get into the cannabis industry in California—where more than $5 billion worth of legal, adult-use cannabis is on pace to be sold this year, according to tax figures—and you want to do it quickly, don’t bother with selling adult-use cannabis. Instead, you want to grow it.
Most cities in the state still don’t allow retail adult-use sales. Many of those that do cap the number of dispensaries allowed within city limits. And almost everyone running a retail storefront says that high taxes and an abundance of cheap, illicit-market weed is killing them. It’s not a good way to make money!
The quickest way to get into the cannabis business, then, is to get a cultivation permit and start growing massive amounts of cannabis. That’s what big companies in the Salinas Valley and Santa Barbara County did.
And what they’ve done, according to interviews with industry experts, is grow entirely too much cannabis. Exact figures are not known, but according to one rough estimate, California’s legal cultivators grow more than three times as much cannabis as is sold in legal dispensaries.
Whatever the exact figure, the common belief is that it’s so much cannabis that the market is flooded, prices are crashing, and legal growers—in the red this year—may finally be forced out of business.
“It’s gonna be a bloodbath,” said one industry insider, who works in wholesale sales and distribution, speaking on condition of anonymity in order to speak freely.
BUELLTON, CA – JUNE 16: Rows of plastic hoop houses, generally used to grow agricultural crops such … [+]
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Exactly how much cannabis is grown within the state of California is still a state secret, known only to state regulators and select elected officials. But using available data, you can hit at some estimates.
According to the most recent public estimate—published in 2017—the state’s appetite for cannabis is about 2.3 million pounds. That includes medical and adult-use consumption.
That’s roughly consistent with the amount of cannabis on which the state Department of Tax and Fee Administration reported collecting cultivation taxes between July 2020 and July 2021, according to the most recent data available.
But in mid-2021, the state may be producing up to three times as much cannabis as the state can consume, according to Natalynne DeLapp, executive director of the Humboldt County Growers Alliance.
That estimate comes from tallying up the total acreage of permitted grows registered with the state Department of Cannabis Control. When the total acreage of indoor grows, outdoor grows, and mixed-use grows is tallied up, the permitted, legal cultivation capacity in the state tops 6 million pounds.
Long Beach, CA – MAR 06 : Outdoor marijuana cannabis flowering plants, June 7, 2019 in Long Beach … [+]
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“And that’s real back of the napkin math,” said DeLapp, who advocates for small farmers up in the forested hills and mountains, the state’s traditional “cannabis basket.”
And they can’t compete with massive greenhouses producing lower-quality but higher-margin cannabis in valleys in Salinas and Santa Barbara.
So the reward for the more than 2,500 Humboldt County farmers who pursued state licenses in 2016, even before adult-use cannabis was legalized? With the price of an outdoor pound of cannabis dipping under $1,000, and last year’s harvest returned, unsold, “They’re selling their farms and selling their businesses,” she said.
But on top of threatening small businesses still trying to grab a foothold in an emerging industry, this surfeit of cannabis also threatens the integrity of marijuana legalization itself.
According to other industry insiders, despite too much cannabis already in California, higher quality cannabis grown in Oregon—where production costs are cheaper—is supposedly crossing state lines and appearing in California dispensaries. If true, that would violate all kinds of laws: state, federal, you name it.
But if that’s true, and if there’s too much weed grown in the state—where is the California cannabis going?
No one but state regulators and law-enforcement (and whomever is moving the stuff) can say for certain, but the conventional wisdom is that it’s either being sold off-books within state lines for half the price of heavily taxed legal cannabis—or it’s appearing in New York, Florida, and other states where California cannabis fetches a premium.
“The legal market is still one-quarter what the illicit cannabis market is,” said Mark Ponticelli, the founder and owner of the People’s Remedy, a dispensary in Modesto, California, in the state’s agricultural Central Valley—where the illicit, underground market cannabis is both cheaper and better.
“The black market is still coming here,” he said, noting that the greenhouse-grown cannabis produced in the massive farms that are killing the small growers just isn’t as good. It’s not cured right. The nutrient mixes are wrong. It’s grown at scale, and it’s just not as good as the traditional growers’ product.
On the illicit market, “You can get pounds in the streets, $2500 to $3000, all day,” he said. “And it’s fire, fire weed. And then you can sell it over in Florida for $4,000, $5,000 on the streets.”
Too much cannabis. The wrong cannabis. Cannabis that’s too expensive. And cannabis that’s not profitable.
There’s no one factor that led to this particular situation. There are loosened regulations after legalization that allowed for massive grows. There are environmental quality regulations that favor big producers. And there’s also the natural cycles of the market, which may seesaw between too much and too little before settling into some groove resembling equilibrium.
But that’s not where California is right now. And after an imbalance, comes an inevitable correction. And with the state busy with COVID-19 and a recall election, it appears the market will be left to itself to figure out what to do with all this extra weed—and whether the people who grew it can stay in business.
