SACRAMENTO (CN) – Racing to get recreational marijuana sales permitted in California by 2018, Gov. Jerry Brown this week rolled out draft rules that would let companies control all levels of the business, from cultivation to sales, a move that drew both praise and criticism from the industry.
Restrictions barring any one business from growing, manufacturing, distributing, transporting and selling cannabis were part of a regulatory scheme for medical marijuana approved by the California Legislature in 2015.
Brown’s 79-page proposal, unveiled Tuesday, seeks to reconcile conflicts between the medical cannabis regulations, which have yet to take effect, and new rules adopted as part of the voter-approved November ballot initiative that legalized recreational marijuana.
Not surprisingly, opening multiple layers of the state-regulated cannabis trade to businesses was welcomed by the California Cannabis Industry Association. But small-scale farmers oppose it, saying the lack of restrictions could hurt small farms, which serve as the economic “backbone for huge swaths of rural California.”
“It’s important to have limitations on vertical integration,” said Hezekiah Allen, who heads the California Growers Association, a coalition of small-scale cannabis farmers. “It’s going to prevent folks from conglomerating massive supply and retail chains and really abusing the marketplace.”
An introduction to the governor’s draft legislation states that “overly restrictive” rules on vertical integration would “stifle new business models” and do little to enhance public safety. It says the law already has anti-monopoly provisions in place and other rules to prevent overconcentration of business licenses in certain areas.
But Nate Bradley, policy director for the California Cannabis Industry Association, said the idea of making separate businesses distribute cannabis to sellers, similar to rules for the alcohol industry, is based on “a very antiquated model from the 1930s when they repealed Prohibition.”
With a modern system to track and trace “an intoxicating substance” from cultivation to sale, independent distributors are no longer needed in the equation, and in some cases could suppress small businesses, Bradley said.
“The last thing you should have to do is fight with a distribution company,” he added. “To state that forcing a farmer to use a distributor is going to protect small businesses – there’s no reason or logic to that whatsoever.”
In his draft regulations, Brown did limit how many acres large-scale farmers can harvest, a feature has been part of the medical cannabis rules but not included in the Adult Use of Marijuana Act that voters approved in November.
The proposed regulations cap the number of licenses issued for medium-sized growing operations and limit large-scale cultivation to 4 acres.
“Limitation is good in our perspective,” Allen said. “This prevents large-scale grows from emerging. More small farms are better.”
Allen said he’s received feedback from business owners displeased with the removal of a provision from the rules that would require the state to issue cannabis business licenses only to California residents for the first year.
Bradley said his organization supported that provision, but he believes the governor removed it because the California Constitution forbids restricting businesses licenses to state residents.
“The governor’s office knew that wouldn’t hold up in court and didn’t want to go to court to fight over it,” Bradley said.
Bradley’s group, the California Cannabis Industry Association, is not 100 percent pleased with the draft rules either, he said. One issue he’d like to see resolved is a provision that bars medical dispensaries and processors from making the transition to recreational business in the same location.
“Several extraction sites in Berkeley have invested millions to get extraction machines up to state standards and fire code for chemical extraction,” Bradley said. “To have to move all that to a new location would take years and years and would be impractical.”
Bradley described the proposed regulations as “the first draft of an idea” and said he and other stakeholders are working with government officials to iron out the final details by year’s end.
Another recommendation from the governor seeks to abolish a requirement that medical marijuana patients obtain a state-issued ID card, given that about 80 percent of cannabis patients in the state use a doctor’s recommendation rather than a state-issued card to buy medical cannabis.
The draft legislation strives to harmonize two sets of rules, for recreational and medical cannabis, but “the administration proposes to preserve the integrity and separation of the medicinal and adult use industry by maintaining these as two separate categories of license types with the same regulatory requirements for each.”
On the federal level, marijuana remains an illegal Schedule 1 drug under the Controlled Substances Act, though the Department of Justice under President Barrack Obama announced it would not prioritize enforcing marijuana laws in states with “strong and effective regulatory enforcement systems.”
President Donald Trump offered conflicting statements on marijuana policy during his campaign, saying he was “100 percent” in favor of medical marijuana and that legalization should be “a state issue, state-by-state.” He also called the pot industry in Colorado “a huge problem” and said “all of the state legalization laws are up for discussion now.”
On Wednesday, Attorney General Jeff Sessions issued a memo directing the Justice Department to review its marijuana enforcement policy as part of a new task force designed to combat violent crime.
Sales of state-regulated cannabis are expected to generate nearly $7 billion in revenue and $1 billion in taxes for California, the world’s sixth-largest economy, if new regulations are enacted and licenses issued by Jan. 1, 2018, as planned.