It’s an indisputable fact. Americans spend billions and billions of dollars on cannabis, legal and illegal. In states with a legal adult-use or even medicinal cannabis market, the numbers are staggering. Illicit weed still overtakes legal in dollars spent.
Why is this so in a state where cannabis is legal? For starters, the regulatory agencies that are tasked with creating maintaining a legal regulatory market just aren’t up to the task. They try to make it appear that cannabis is still quasi-legal, which it’s not. It’s legal. If they handled the market the same as the alcoholic beverage market, things would slowly improve. This includes growers. Some states just haven’t figure out how to deal with this new market. They’d better learn fast because if they don’t, the legal market will be dwarfed by the illegal market for years.
In states where there’s only a medicinal market, the vast majority of people who want weed are going to go to their dealer. Sad. These states are passing up on a great source of revenue. And this is revenue they could use, especially because of their economy.
There’s still a stigma attached to cannabis. It’s going to be a long time going, but it will go and cannabis will take its place among all the other things that humans do to alter their consciousness.
Always good to see what’s new and what’s trending at the retail level where we get our cannabis unless we’re growing our own. My only problem is Leafly doesn’t seem to want to tell us where to get the product and in what state. Until products are available nationwide, ti’s will continue to be a problem. It is fun though to seek out the best cannabis cultivars we can find.
This is not an ordinary strain review. If you’ve read my reviews, you’ll know I’m a fan of whole flower consumption. I like flower because it’s holistic. The whole plant might be better than the parts like trichomes, THC, CBD or any other partial use of the plant. I don’t consume vape cartridgess. I have no idea where what they contain comes from, how the ‘oil’ was extracted, and what additives there might be in them. So why am I reviewing a “concentrate”? Lazercat is why. And this won’t look like one of our regular reviews. No 4-20s score here.
What is Lazercat?
Lazercat Cannabis is a small company located near Breckenridge, Colorado that specializes in water process concentrates. They do seem to sell flower, but haven’t seen it in any dispensary, although one said they’d had some the week before. There are almost no other companies in any legal state who only make water process live resin products. Nearly all concentrates are made with solvents like alcohol or butane or CO2. Why would I want to ingest any of that?
Why Water Process Is Important
I never know how most concentrates are made. I have come to find over the years that most concentrates are pretty mysterious. They can be made any way that’s possible to extract the THC from the plant. Hopefully, terpenes come along, but terpenes (all the tasty parts of cannabis) are notably fragile. They are usually destroyed at temperatures above 150F. One of Lazercat’s differences is their use of very cold water to separate the trichomes, which contain all of the terpenes and THC type chemistry of the plant. A cold process keeps the terpenes smelling and tasting the way the plant made them. It also doesn’t destroy any of the THC type chemicals. The trichomes are the frosty parts of a bud. The more frost, the more trichomes, but they’re then a bunch of frosty bits on a flower.
This product is named “Premium Live Rosin” and the strains in this particular iteration are Cheese Dog + GMO. Lazercat grows many strains and 5 products. These are both very good strains if somewhat more difficult to grow. That’s another thing about Lazercat. They don’t seem to be afraid of growing difficult strains. And the difficult to grow strains are usually the best. It’s kind of hard to imagine when cannabis came from Mexico or farther south and would just be allowed to grow in mostly untended fields, harvested, destemmed, and dried.
Premium live rosin is made from a whole plant that has its trichomes separated from the rest of the plant, is water-washed, then sifted through a small (90 micron) sieve. The resulting pile of goodness is then lightly pressed (I think) into this wonderful-looking pale gold glob of pretty hard material. The picture here shows how pretty it is. One note: when consuming this kind of product, I believe it’s meant to be vaped. I don’t vape, but rather put it on top of a bowl of flower. The whole idea of setting up a rig is just too much to deal with if I’m going to enjoy the effect.
Appearance – Lazercat Silver Fume
The usual categories of appearance don’t hold for this product. But it is a pretty pale yellow color almost like a pale lemon. As I looked at the product, I thought about how I would mix that color on my palate and what I’d use. I came up with using a touch of cadmium yellow mixed with Naples yellow (you’ll have to look up a color chart to see what I mean) and some titanium of white. It was a very pretty color, but it was really a lump of beautiful concentrated essence of cannabis.
Aroma – Lazercat Silver Fume
The aroma is a bit harder to describe then a cannabis flower aroma. It’s the same, but different. A little lighter. Perhaps more concentrated and not as complex, but it’s still nice. Flowers, but not just any flowers, are what it reminds me of every time I smell it, which is every time I open the jar.
Taste – Lazercat Silver Fume
The taste is hard to describe. It’s a lot like the effect (see below). It was very ethereal. It tasted almost exactly as it smelled. I cannot explain it any other way. The flavor was very light but concentrated. It filled my mouth with flavors of lemon, perhaps honeysuckle and flavors I don’t usually associate with cannabis flower of any type. It was extremely pleasant. It wasn’t hash-like and it was very present. Loved it!
Effect – Lazercat Silver Fume
The effect continued with the theme of ethereal. It was VERY present. It was intense, but at the same time it was vety intense in a wonderful way. It felt as it gave me great powers of concentration at the same time as it put my head in the clouds. This product just felt like pure cannabis pleasure. I could go on (and on), but I cannot write about how pleasant it is. I liked it. A lot. I couldn’t consume it all the time though. If there was one thing that is negative about the effect, it’s how it’s not ’rounded’ in the same way that the effect from good flower is. There’s a certain completeness about the effect of flower, but that’s not to denigrate the quality. It’s just different.
Conclusion – Lazercat Silver Fume
If you’re in Colorado, try to find this product. It’s worth the few extra dollars over some other products in the market that state. Their website has locations of where the product has been purchased, but it’s not very up to date nor are the dispensaries that up to date either with what’s there. I called one in Trinidad that I like a lot, but when I tried to order a specific product I liked, they didn’t have it. I wish there was a way to ‘reserve’ the product I want, but there’s not.
If I was going to give this a score, I’d give it a 96, which is very high (as was I), but I haven’t developed the correct vocabulary to properly explain it. So the score will have to remain buried in this review and I’ll leave it at that.
All the states where cannabis is legal report monthly sales. All the states, except one, have had rising sales all year, even during, or especially during, the coronavirus pandemic in the U.S. The one state reporting downward sales at the same time; California. Why? California is the outlier in the states with legal adult-use markets and there appear to be a lot of reasons for this. First the other states.
In Oregon, Illinois, Michigan, Colorado, Washington, and Massetussets are all reporting increased sales during the COVID-19 pandemic. Not California though. They’re reporting a downward trend in sales. Why? For starters, California has some of the highest prices for cannabis in the U.S. This is because the state has some of the highest taxes for cannabis. California counties and communities all have different regulations. Many counties and cities don’t even allow adult-use cannabis stores. Additionally, in about half of California, cannabis just isn’t allowed to be sold because of an opt-out provision in the state law.
Rising sales in some states might be just because of the newness of the adult-use program. Illinois, for instance, has only had legal cannabis sales since the start of 2020. In a situation like that, sales are bound to be rising. The other west coast states, meaning Oregon and Washington, sales have been rising especially during the pandemic. In Colorado, sales have been setting new records every month. In California, they’re going the opposite way. Why?
There seem to be several reasons for this. Much of the bureaucratic turf wars are just plain infighting. Coupled with blind regulatory opaqueness and what appears to be plain old ordinary regulatory incompetence is the fault. Too many regulators want to control the market in greater ways than the alcoholic beverage market is regulated. While it can’t just be pinned on the regulators, regulation and implementation is something that needs to be addressed and addressed quickly.
Oregon and Washington Issues
Oregon and Washington have had their own issues. Oregon let the market open up for everyone who wanted to be a grower or retailer. So there were too many retailers and too many growers. There was a huge oversupply of cannabis products because of this. But…in hindsight…always 20/20…it wasn’t that bad a move and now the cannabis is. The best growers and the best retailers prevailed.
Other California Problems
In California, there is a hodge-podge of cities and counties that allow cannabis cultivation and/or retail sales. It’s quite a mess and about 1/2 the population of California doesn’t have ready access to legal weed. Guess where they’re getting their weed? The black market, that’s where. Black market cannabis collects no taxes, is not regulated in any way. It is what it is and the people who buy from black market merchants really have no way to know what they’re getting. The whole situation in California is a hot mess. All the above points to why sales during this COVID-19 crisis are going down in the state.
If you do some simple math, California has about 39 1/2 million total people living in the state and (usually) many visitors. Of the total population, 23 million are over 21. If only 10% of that population consumed cannabis, that would be 2,300,000 people who consume cannabis. We know that the actual number is at least twice or possibly three times that. Let’s stay with twice. So if 5 million people consume cannabis and spend $10 a week for their product, it would annualize at just over $1 billion. That’s billion with a “B”. Compared to Colorado, with 1/5 the population of California has $1.6 Billion in sales last year. Sales in Colorado should pale in comparison to California and obviously they don’t.
What Can California Do?
Obviously. California really needs to get its act together. Regulatory environments need to be open, fair and honest. Tax structures should be modified to face the reality that other states have less expensive cannabis. California also needs to open it’s market to the people who have been exploited when cannabis was illegal; Minorities and economically disadvantaged peoples need to have opportunities to be included in the market. Then California will move to the forefront of legal cannabis. After all, there is no other state with Humboldt County.
[Canniseur: If you love wine as I do, there really isn’t a whole lot of difference between a wine shop and a dispensary. A wine shop is not a liquor store, although it sells alcoholic beverages. A dispensary should be called a cannabis shop and not a dispensary. A liquor store, that sells mostly spirits is pretty much self-serve, but a good wine shop is not self-service. Wine shoppers need help deciding the same as cannabis shoppers.]
What’s the difference between stepping inside a neighborhood weed store and retail outlets designed to cater to the alcohol consumer?
Back when cannabis advocates were first successfully moving to legalize marijuana for recreational use at the state level, one of the most popular phrases used to describe what that might look like is “in a manner similar to alcohol.” The gist of the pitch was that upon the legalization of marijuana, there would be a taxed and regulated market put into place — same as the alcohol trade — that would allow adults 21 and older to buy cannabis products close to the same way they might purchase beer at a liquor store.
Fast forward a few years and there are now marijuana dispensaries open in several states, with more of them set to come. But what is the difference between stepping inside a neighborhood weed store and retail outlets designed to cater to the alcohol consumer? You might be surprised to learn that the two are very different.
Unlike the average liquor store, marijuana dispensaries like to make sure a person is of legal age before they ever step inside. These establishments typically have security personnel standing at the entrance to check IDs.
You won’t see a weed buyer standing at the cash register of a cannabis dispensary patting their pockets in a panicked quest to produce a driver’s license that may or may not exist. You know the ones who might say, “I don’t know what to tell you, I guess I left my ID at home,” while trying to convince the clerk that they are indeed 21. Without proof that a person is a legal age to buy weed, they simply are not getting any further than the front door.
Alcohol customers can walk into a liquor store and track down their beverage of choice without much social interaction. They do not need to be told where to find the Mad Dog 20/20, and they sure don’t need someone to explain to them how the beverage might make them feel.
But a marijuana dispensary is a different beast.
Rather than just the one clerk waiting up front to ring up customers, a cannabis dispensary has several workers on the floor that are answering customer questions and offering product recommendations. The dispensary experience is more like walking inside any retail setting where the employees work on commission than it is stopping by a liquor store for a bottle of hooch.
Even if a cannabis consumer is an old pro at shopping for legal weed at his or her favorite dispensary, the process is always the same: show ID and wait for customer service to offer some assistance. It’s not like a liquor store where a person can just run in and grab a six-pack of their favorite beer and get out within a matter of minutes. The person buying weed, even if they know what they want, is still going to spend more time inside than those folks who frequent shops where alcohol is sold. There are sometimes long lines in a dispensary, and budtenders have been known to devote 10-20 minutes with new customers to make sure they are getting what they need.
If anything, buying marijuana at a dispensary is more comparable to visiting a wine shop. Chances are, even if a customer is only going in for a bottle of Cabernet Sauvignon, they are going to walk out with a bottle of something else, as well, because of an interesting conversation they might have had with a salesperson about a specific product.
The cannabis dispensary is a lot like that with respect to how there is always something new coming onto the scene that curious patrons might be interested in trying if they were just showed the way. Just think of the cannabis dispensary as more of an interactive experience while the liquor store is more of a place of self service.
[Canniseur: Lynette Shaw is a very important person in the normalization of cannabis. She’s done so many things to help the acceptance of cannabis in our society. Take a few minutes to meet her in this video. Great music too!]
[Canniseur: Legal cannabis cannot hope to compete with the black market until the laws and regulations governing production and distribution look more like the wine industry. As of this writing, California, as are most other states, is woefully behind working this out and here’s some living proof.]
California, the largest licensed cannabis market in the world, can’t seem to compete with illicit activity. What’s the problem?
Every morning in the misty hills of southern Humboldt County, John Casali wakes up at 5, brews a pot of coffee and walks through his cannabis garden. Huckleberry Hill Farms is the very picture of the Emerald Triangle’s small-farm agriculture, a second-generation plot of gently rolling land with just under 5,000 square feet of cannabis.
On his morning walks among the plants, he makes a point of touching each one. Casali grew up here, watching his mom grow a cultivar that he now calls Paradise Punch. Every cannabis plant at Huckleberry Hill Farms is crossed with Paradise Punch, a horticultural ode to his mother’s influence. He walks past rainwater catchment ponds filled to the brim and tends to new cultivars like White Thorn Rose and Sweet Marlene, named after his mother.
In June, typical mornings might include visits from distributors or tourists. But very little in 2020 is what you would call typical. The coronavirus outbreak has not spread into the rural ranges of northern California on the concentrated, New York City-scale, but the attendant economic pressures sure have. Casali does not know if he will be able to welcome visitors to his farm this year, a major blow to the business model that brought him into the licensed marketplace after a lifetime on the fringes. Those tours are the modern foundation of this long-running farm. They are one way of setting Huckleberry Hill apart from the rest of the cannabis market.
“One of my biggest regrets is not being able to share that with people,” he says. “That’s a huge part of this farm, being able to share the story of the Emerald Triangle.”
It’s a story that arcs back through decades of what farmers now call “the traditional market,” the unlicensed landscape that blended a back-to-the-land ethos with the communal nature of cannabis. And it’s a story that persists in new forms today. Casali was awarded his temporary cultivation license in early 2018. As the state continued to hone its regulatory oversight, he picked up a permanent cultivation license the following year. Working in the licensed market has not been as simple as that, though.
He holds one of the 5,350 cannabis cultivation licenses issued by the California Department of Food and Agriculture (as of April 27). But getting a license in this competitive marketplace is only the latest chapter in the ongoing story. Now, Casali says, it is more important than ever to share what’s happening in California.
“What I am seeing here at this farm is, as the market becomes more competitive with bigger and bigger farms coming online from southern California, the price is getting pushed down, which makes it a lot harder for this farm to be profitable,” he says.
In February 2018, the California Growers Association (CGA) published a report titled “An Emerging Crisis: Barriers to Entry in California Cannabis.” The document outlined an economic imbalance that would preclude much of the traditional cannabis market from entering this newly regulated regime. The association listed oppressive tax burdens, “license stacking” and a multi-layered bureaucracy as barriers to entry. From the jump, larger businesses quickly began assembling smaller-scale licenses to cover more acreage under one entity—and on one property.
“The current system will not achieve its goals without fundamental and structural changes that allow small and independent businesses to enter into compliance,” the CGA wrote in its report.
Two years have flown by since then.
Casali says there’s plenty of hope to go around, but it’s a complicated picture. He spent 10 years in prison, serving a mandatory minimum sentence for growing cannabis in the ’90s. Now, he is a licensed business owner partnering with Flow Kana and Willie’s Reserve to share the plant his mother once grew in secret. Clearly, the legal landscape is working on some level.
“It’s something I take a lot of pride in,” he says. “It’s something I love to do, and it’s the first time in my life I’ve ever been able to share something that I’ve been doing my whole life.”
But how long can this continue?
Pain in the Bottleneck
On April 23, a group of cannabis business organizations published an open letter to California Gov. Gavin Newsom, urging action on behalf of both social equity businesses and the licensed marketplace. It reads like an update to the CGA report from 2018. Its tone is urgent.
“The vast majority of legal cannabis businesses have been struggling since the implementation of Proposition 64,” according to the letter. “Now, when our state, country and the world is facing its biggest public health crisis in generations, we are asking you to consider tax relief for the cannabis industry to ensure our businesses make it through the COVID-19 crisis and are able to compete, much less thrive.”
Adam Spiker, executive director of the Southern California Coalition (SCC), a signatory to the Newsom letter, says that the novel coronavirus outbreak and its economic squeeze aren’t the only sources of pain for the cannabis industry. But they’re certainly not helping.
“These issues started the moment people got licensed under Prop. 64 and MAUCRSA [the Medicinal and Adult-Use Cannabis Regulation and Safety Act],” Spiker says. “They’re probably being elevated under COVID-19, and they will be there post-COVID-19. The price point for legal cannabis is way out of whack with illegal cannabis. It’s at or more than double the price.” And now, more than in recent history, customers are attuned to price.
The history of legal cannabis in California follows a simple progression: Prop. 215 ushered in a “gray market” for medical cannabis sales in 1996. In 2016, voters passed Prop. 64 to legalize adult-use sales. In 2017, legislators blended the medical and adult-use markets under MAUCRSA. Adult-use sales began Jan. 1, 2018. The idea was to legitimize and regulate the state’s decades-long history of cannabis farmers and sellers. Yet, the current climate leaves thousands of operators continuing to work the traditional market in the state.
This past fall, the United Cannabis Business Association (UCBA) published a report that showed a three-to-one ratio between the illicit market and the licensed market. The report claimed that 2,835 illicit “sellers” were actively feeding into demand in the state. At the time, 873 licensed retailers were operating. (As of May 20, the state has issued 723 retail licenses, according to Alex Traverso at the Bureau of Cannabis Control, the discrepancy being a product of some microbusiness license holders operating retail storefronts as well.)
Spiker points to the operating principle of competition in a commercial marketplace. That’s what’s missing from California, he says. Taking price point alone into account, it’s virtually impossible to compete with growers and sellers who aren’t shackled by high tax costs and compliance fees.
“In the vast majority of cases, the reward for getting a license has been pain for that operator,” he says. “Part of being licensed is you’re making a commitment to no longer do things in the gray market that they all used to under Prop. 215 and the collective model. You can only operate in the legal ecosystem, and they’re not able to compete. There are just not enough consumers purchasing legally.” If the question is one of getting consumers to choose the legal landscape, price is important.
And on top of price pressure, more than 60% of the state’s municipalities have maintained some form of moratorium on cannabis sales. Half of the state’s counties have done the same. (In many cases throughout California, “unincorporated communities” are governed by county rules.)
“There’s a bottleneck on legal access, a true bottleneck,” Spiker says. “I’ve heard state regulators, many who are experts in the realm of growing, tell me that we’ve probably licensed a handful times more than all the product we would need to consume if everything was captured in the legal market currently. We might have five times more licensed [businesses] than we need already, but it’s still our job to give them the best chance to compete and have a level playing field. And if there’s too many of them, unfortunately, that’s what the free market is for, right? Who does a better job is going to stick, and who doesn’t is probably going to go to the wayside. But, damn it, they deserve a fair playing field. I would argue that they don’t have one right now.”
Casali, in Humboldt County, where New Frontier Data estimates 27% of the state’s cultivation licenses are clustered, agrees with the supply-and-demand argument: “You have this giant funnel, and then it all gets bottlenecked at the retail market. They need to have thousands of retail shops within California. That would eliminate some of the illegal shops that are happening, like in L.A. and elsewhere.”
In December 2019, the Los Angeles Police Department raided and shut down 24 illicit cannabis dispensaries, seizing $8.8 million in unlicensed products. The UCBA report warned, however, that raids tend to move illegal actors from one shuttered storefront to another. It’s whack-a-mole on a statewide scale.
In the world’s largest cannabis market, the consumer’s line between the licensed, legal marketplace and the oft-convenient illicit marketplace is blurred. For businesses trying to lure those consumers to the licensed cannabis space, the result is a burdensome set of costs (taxes and compliance fees) that make it much more difficult to operate in the legal arena. In the grand scheme of things, licensed businesses are still competing against illicit dealers—who bear none of the same costs and can get away with lower price points for their customers.
Educate With Appellations
As the coronavirus pandemic continues to crunch an already precarious economic situation, Nik Erickson says that growers in California have been turning to white labeling for some sort of financial lift. Erickson is the owner of Full Moon Farms, another small-scale operation with two separate properties in Humboldt County. He grows 44,000 square feet of cannabis plants in different microclimates, each capturing a unique suite of advantages. In recent weeks and months, white labeling has “exploded,” he says.
White labeling is the practice of selling products to a purchaser, who will then use their own branding (rather than the seller’s original branding). As uncertainty crowds out the marketplace, growers and retailers are working out futures contracts and securing distribution well ahead of time.
“Right now, the market is still kind of screaming for the gas,” Erickson says. “The OGs, and Headbands and Sour Diesels, still have a strong marketplace.”
His team sets aside 80% of the Full Moon canopy for those northern California stalwarts. The other 20% is planted for pheno-hunting and “exotic” cultivars like Ice Cream Cake and Gelato.
“There are a lot of 10,000-square-feet-and-under craft farms here that are having a difficult time in the marketplace because of the financial strains put on them,” Erickson says. “They’re just not at scale, to keep up with a lot of the finances. [The Humboldt County Growers Alliance is] looking at cooperative models, independent branding, trying to get into more of a vertically integrated supply chain for the little guys so they can get a little more value out of each pound.”
This is the central issue, he says: That familiar refrain of price point competition. The thinking is that if smaller growers can work their operation into a larger vertical infrastructure, the value per pound will increase. This is where outside brands can play a role, using small growers’ flower to develop new products for the market at a lower cost.
“We’re kind of at a scale right now to where what we’re doing is white labeling most of our product.,” Erickson says. “But there is a lot of brand saturation out there right now. Especially like in the eighth markets. I think the biggest catalyst for the small farmer is going to be federal legalization, because the California market is fairly saturated.”
Across the state, much of the legal market is value-driven by the consumer. Price matters, and consumers willing to pay to participate in the licensed dispensary setting tend to seek the most bang for their buck: High THC content, low cost. “It’s not in line with the craft grower,” Erickson says.
But that can change. Legal cannabis remains a young, still-maturing market. California is on its own timeline in how far back its cannabis legacy runs. The traditional market is deeply embedded in certain regional cultures throughout the state. Erickson says it’s vital for licensed growers to look into the future for a broader, more curious consumer base. That, he insists, is where California’s struggling craft growers might be able to place their hopes.
“I think that when the markets open up nationwide, and maybe globally, even though the market share is going to be smaller for that craft product, the overall market will be so much larger that the craft farms will actually start seeing some of that value association to how they farm,” Erickson says.
The California Department of Food and Agriculture has been tasked with designing and overseeing the Cannabis Appellations Program, a long-term plan that came out of the early Prop. 64 legalization measure. It’s a model borrowed from the wine industry, where geographic and climatic appellations help inform the marketplace of a certain product’s provenance. It’s at once a regulatory method to categorize businesses and a helpful marketing device. Places like the Emerald Triangle are an easy example: The history is already there. And growers like Erickson and Casali see formal appellations as a powerful tool to distinguish the small craft grower from the multistate operator. It will also inform the customer who’s deciding between buying from an acquaintance in town or buying from the licensed dispensary down the street.
“Having appellations on record in the California market will provide trustworthy information to consumers about where and how the cannabis was produced,” says Rebecca Forée, communications manager for the CalCannabis arm of CDFA. “And the marketing of the origin of cannabis may be of assistance to consumers with their purchasing decisions, and it will support cannabis cultivators who choose to differentiate their cannabis products,” she adds.
Following a May 6 public hearing on the topic, Forée expects additional public comment periods (beyond CBT’s print deadline). If all goes according to the mandated schedule, the regulatory rules that will govern appellations will go into effect Jan. 1, 2021. From there, it’s anyone’s guess as to when the actual appellations will come into being.
Foregrounding those long-term questions is the matter of tax rates.
Gov. Gavin Newsom and the state legislature have openly courted tax restructuring conversations with the cannabis industry, but it remains a divisive question in the legislature and in the private sphere. Last year, State Assembly member Rob Bonta’s A.B. 286 tax reform bill picked up momentum (before ultimately stalling in committee), and cannabis growers are hopeful that meaningful action is just on the horizon.
Stakeholders in the debate, such as legislators and labor unions, generally demand a revenue-neutral plan—something that won’t disturb the flow of tax revenue toward public health, safety and the environment. For the 2020-2021 fiscal year, Newsom allocated $332.8 million in cannabis taxes (total taxes paid to the state, minus regulatory costs) to those public sectors.
In January, the California Department of Tax and Fee Administration increased the markup requirement from 60% to 80%, “which only expands the tax burden for the industry when it gets to the all-in number,” Spiker says. (A.B. 286 would have dropped the 15% excise tax to 11%.) Right now, California taxes include: a cultivation tax of $9.65 per ounce (dry weight) of flower ($154.40 per pound), a 15% excise tax and a 7.25% sales tax. From there, many local municipalities add their own excise tax rates to the bundle.
Each point of taxation not only adds a financial cost but ties up the cash flow along the legal supply chain. Spiker lauds Newsom’s stance on the matter thus far.
The argument, Spiker says, is that a lesser tax burden would galvanize the legal market’s competitive price point. The rise in consumer transactions would offset any purported loss to tax cuts. “At the end of the day,” he says, “if the all-in tax burden to a legal operator is in the neighborhood of 40%, locally and at the state, those numbers are going to get factored into the end price point for the consumer. As we’ve seen right now, that price is at least double what their illegal competition can sell it for. We’re not competing. We’re trying to push for tax relief, not tax restructuring.”
And as the state ramps up its social equity licensing, Spiker says that inertia on this topic sets up those new businesses to fail.
Even for established growers like Casali, the math is often difficult to overcome. He points out that higher-quality “AAA” flower may sell for $900 per pound in California. He ballparks $300 in costs that will come off the revenue, but he’s also quick to point out that the entire plant isn’t producing AAA product. It may only be 20% AAA product. The rest of the plant commands a lower price, which includes $500- or $600-per-pound flower that may be used in white-labeled pre-rolls. Each plant is a case study in how the regulated market impinges its own competition with the unlicensed market.
“Really, at that point we’re running at a loss,” Casali says. “Between 70% and 80% of our product, with all the different expenses that we incur, really can be sold at a loss. That’s encouraging farmers in the legal market to maybe participate in the traditional market. …. It behooves me just to throw it away and not deal with it at this point. But I want to be able to utilize all the products off of my farm.” He wants to sell to the legal market, but the tax structure makes it less beneficial than other options.
Hope Springs, Questions Abound
Two years ago, the California Growers Association warned of just such a picture: Prices being driven so low against regulatory costs that were skyrocketing, creating a great knot of economic burdens for smaller farms in the state. An emerging crisis. Whether that crisis is here to stay or is slowly concretizing as the years go on remains to be seen.
“Unfortunately for a lot of farmers that have employees that have a lot of overhead, they’re struggling with the lower price point, and it’s going to be really hard for them to survive,” Casali says. “And this year in particular, I think we’re going to see a lot of the small farmers in the Emerald Triangle not be able to continue forward.”
According to New Frontier Data, 47% of all California cultivation licenses are clustered in the Emerald Triangle—the state’s northern region comprising Humboldt, Trinity and Mendocino counties named for its decades-long cannabis cultivation history and notoriety. Many of those businesses are small farms with a few thousand square feet of cannabis canopy. After factoring in the other great outlier, Santa Barbara County, near Los Angeles, those four counties alone account for 70% of cultivation licenses in the state. What does that mean?
The state has a long way to go before its licensed cannabis market matches the girth and historical gravitas of the traditional market.
In the meantime, there’s no doubt that the coronavirus pandemic has colored the relationship between commercial enterprise and consumer base. What will retail look like in the future? How will supply chains bend and twist to meet emerging economic pressures? The list of unanswerable questions runs long in the summer of 2020.
In cannabis, the problem is compounded by the federal government’s hesitation on things like the Secure And Fair Enforcement (SAFE) Banking Act of 2019 or the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—measures that would turn the state-legal landscape into a normalized business platform. In most states, cannabis businesses were declared “essential” early in the crisis, which is a good sign. Growers like Casali, who’s been in the game for decades, know all too well the importance of good signs. They don’t come around every day, but sometimes all that’s needed is a fleeting moment of hope.
“I just remembered the day I stepped out of prison, how appreciative I was just being able to smell clean air and how appreciative I was of just being free and seeing the green leaves on trees or smelling flowers in my yard,” Casali says. “It’s similar to what people, I think, will take from what they’re experiencing now. And I sure hope they do. We have to remind ourselves once in a while that life is short. And we need to appreciate every single day.”
Eric Sandy is Digital Editor of Cannabis Business Times, Cannabis Dispensary and Hemp Grower
[Canniseur: If 7-11 is anti-cannabis because of some cultural craziness they have, we’ll have to take our business to Circle K, which to my knowledge is mostly an east coast chain in the U.S., although I’ve seen some popping up in the midwest. 7-11 probably needs to go if they can’t understand that their whole anti-cannabis policy is racist.]
The relationship between Fire & Flower Inc. (OTCQX: FFLWF) and its strategic investor Alimentation Couche-Tard Inc. (OTC: ANCUF) had signaled that someday the convenience store chain Circle K would get involved with cannabis. It seems the day is getting closer as Fire & Flower announced the openings of its first two cannabis retail stores adjacent to Circle K locations in the province of Alberta.
Fire & Flower’s plan is that it will gain from the high traffic at these Circle K locations that will be convenient for cannabis customers. The company said it believes it will maximize the benefit of the Spark Perks program and Spark Fastlane online ordering services at conveniently located stores.
“As we continue to build our relationship with Alimentation Couche-Tard, Fire & Flower is very pleased to be embarking on this initiative together,” shared Trevor Fencott, Chief Executive Officer of Fire & Flower. “We believe that combining convenient pickup locations with digital engagement offered by the Hifyre platform and Spark Perks program presents our customers with a differentiated value proposition in an increasingly competitive cannabis retail market. This approach to innovation in omnichannel and convenience-oriented cannabis retail differentiates Fire & Flower and positions us well to capitalize on both domestic and international opportunities.”
The company said the two stores in Calgary and Grande Prairie are expected to be the first of additional opportunities to co-locate cannabis retail stores in the future. The statement said that the co-located stores will be owned and operated by Fire & Flower and are separate from the adjacent Circle K in accordance with all applicable regulations. Alimentation Couche-Tarde said it has set its sights on the global expansion as new cannabis markets emerge.
In August 2019, Fire & Flower closed a strategic investment by Alimentation Couche-Tard. The company noted in its filing statement that this transaction allowed for Couche-Tard to obtain a controlling interest and provides more than $380 million of growth capital for global expansion. It provided significant, new possible commercialization and leadership opportunities for Fire & Flower’s proprietary Hifyre digital platform and access to Couche-Tard’s leadership team.
It has been argued that if cannabis is rescheduled and treated like alcohol or tobacco, cannabis products could end up in convenience stores. Products for adults over 21 like alcohol and tobacco are already sold in the convenience store model, so adding cannabis to the mix isn’t a stretch as long as the product is fully legal. A few cannabis companies had already begun to establish such relationships, if mostly behind closed doors.
The cannabis industry doesn’t want to discuss such an outcome as it would destroy the need for dispensaries. Plus, convenience stores typically only carry products from a small group of very connected consumer package goods companies. A look at the beer offerings demonstrates that only a handful of choices are offered. These beers, not necessarily considered the best the industry has to offer, are sold at high volumes.
This is the fear for many in the cannabis industry. The convenience stores may only carry a few big-name brands, that may not be the best cannabis, but is scalable cannabis. The winners of all this volume business will only be the ones picked by the convenience store chain. Cannabis brands will have to decide if they want to be a craft business or a volume business like Budweisers.