California cannabis

Cali Cannabis Cup Runneth Over. What Does The Excess Mean For Prices And For Black Market Sales?

Lately, says cannabis farmer Barry T., the harassing phone calls are coming more frequently — an increasing bass beat of angry creditors looking to get paid.

“Some days I’ll get several calls from multiple irate people,” laments the Northern California grower. “I feel bad about not being able to pay them. They did great work for me, really hard work, and they of course deserve to get paid.”

His angry creditors are a trimming crew he hired in October to process hundreds of pounds of freshly harvested marijuana, with the understanding that payment would come once he sold the processed flower. It’s an arrangement familiar to the trimming population, who understand the intrinsic nature of the cannabis market is often one of fluctuation due to market supply and demand.

But several months later, they want to get paid already.

At the time when he hired the crew, Barry felt optimistic about moving much of the roughly 50 pounds of dried and processed product he’d labored over in the fields since April. The farmer, who’s grown and sold medical marijuana for 11 years now, had a broker lined up who was intimately familiar with the quality of his product from previous purchases. For the past few years, his sales went off without a hitch.

“But it’s never a done deal in this industry until you have money in hand,” says Barry, “Still, I felt confident that I’d sell at least part of my crop to this guy in the first month.”

He explains that he grew a variety of strains that he knew customers were hungry for. He had estimated that he’d have much of his cannabis sold by mid-December — at the latest — ahead of California’s legal recreational pot sales ready to ignite across the state January 1. He figured his trimmers would be paid by Christmas at the outside.

He figured wrong.

Barry says that at the last minute his buyer backed out on him (finding cheaper product elsewhere due to market saturation, he guesses) and his Plan B to offload at least a portion of his crop to a busy marijuana delivery service fell through, too. Friends where he lives in Sonoma County were saying they were also stuck holding many pounds of product.

Barry is swimming against the tide of some powerful forces in California, operating parallel to a nascent state regulatory system for recreational cannabis sales, with rules that are currently murky at best. Still operating in the medical marijuana sphere, he’s caught in a gray zone that leaves him less attractive to some brokers and buyers who are opting to move steadily into the newly legal and regulated state recreational system.

The cultivator is part of a legion of California growers yet to get licensed by the state as a certified marijuana seller in the new system — which comes with hefty permitting costs that some growers find financially prohibitive. Now Barry is left holding a substantial amount of cannabis he can’t sell, even at a cut rate to his former asking price.

He’s one of many cannabis cultivators who are stressed out and stretched thin amid California’s largest marijuana surplus — perhaps ever — in its storied and extensive pot-growing history.

New Growers Flooding The System

While the national headlines regarding cannabis have been saturated of late with reports of states approving recreationally legal weed, as well as a host of recent corporate marijuana mega-mergers, less coverage has been given to the immense amount of product harvested last fall in the Golden State.

The confluence of many factors — including this year’s new legal retail sales; ongoing ramped up commercial cultivation (both outdoor and indoor); an already thriving medical marijuana system; and the ease of home gardening — has meant that the cannabis cup in California is currently well overflowing.

Legal cannabis sales and production have continued to increase on a yearly basis in the state, outperforming even the most optimistic projections. One estimate in California for 2016 from a study commissioned by the state Department of Food and Agriculture put the cannabis production amount in the state at nearly 13.5 million pounds — that’s five times more than the 2.5 million pounds Californians consumed that year.

A large part of the excess not sold legally in California no doubt finds its way onto the black market or heads out of state. Evidence of that can be seen in the steady stream of busts occurring across the US, like the 48-hour period in early August of 2017, reported the LA Times, when highway troopers stopped three different vehicles on the same stretch of Interstate 40 east of Amarillo, seizing $2.5 million worth of marijuana — all originating from California.

For those growers who would prefer to remain within the confines of the law, a fair amount of that product sits waiting to be sold.

Jenna and Patrick M. are prime examples of growers sitting on far too much pot, which they know is aging and diminishing in potency with each passing day. In 2017, the Redding couple grew their maximum allowed allotment of medical marijuana plants, which produced a total of just under seven pounds of dried and trimmed outdoor cannabis. In previous years, they say it’d been easy enough to sell off that amount.

“Sometimes it took us a few weeks or months to sell,” says Jenna. “This year, though, not a pound has gone out. And here we are, almost into February. It’s pretty incredible. I think it means there must be a lot of new growers flooding the system.”

To make matters even more frustrating, just three weeks before their harvest in September, Jenna and Patrick had a county inspector show up on their doorstep looking to verify that their garden was compliant with medical marijuana laws. That led to the necessity of hiring an attorney as a preemptive measure. Not cheap, says Jenna.

“We’d heard way too many stories from friends about these compliance officers showing up and soon all your plants are being ripped out of the ground by sheriffs the next day. So we coughed up for a lawyer,” she says. “Even if you are in the right, [law enforcement] can take everything, because the laws are written in a really dodgy way.”

Three thousand dollars later, and the couple feel mostly assured having an attorney on retainer to protect their rights.

“We’ve given up on the idea of profits this year. We’d be lucky if we broke even,” Jenna says. “But at least we know they can’t confiscate our marijuana or wrongly accuse us of a crime.”

Good News For Licensed Sellers And Buyers

At the commercial cultivation and retail level, the beefy surplus doesn’t appear to mean aging cannabis sitting on shelves and getting stale, or people getting stuck with product they can’t sell. It just means retailers need to market certain strains better or more deliberately plan out their gardens to match consumer desires.

“We currently have plenty of inventory,” says Noah Sweeters, director of cultivation at Airfield Supply Co. in San Jose, which on January 1 began selling recreational marijuana.

He says that they currently grow more than they can sell but adds that Airfield is in the midst of figuring out how to sell all the cannabis the team members cultivates themselves, syncing their growing with their retail efforts.

Sweeters isn’t too concerned about surplus issues, knowing that Airfield will eventually sell all its inventory, and has a backup plan for flower that stalls. Vacuum sealing and storing marijuana in temp-controlled chambers is an option, he says, or wholesaling to various distribution outlets.

And there’s good news for licensed sellers: Airfield hasn’t been turning away vendors, even while they’re well-stocked with their own inventory. In the event that supply suddenly dips for some reason, says Sweeters, “we need to be able to call on as many operators as possible.”

Barry says he knows that’s true. If he had the upfront capital to be a licensed seller, he wouldn’t be so stressed to sell his product and wouldn’t be sitting on the level of quantity he is currently caught with. But in Sonoma, that doesn’t come cheap. Indeed Sonoma County cannabis permits can range from $6,000 to $17,000. To him, that’s a prohibitive cost of doing business.

Sweeters adds, “The other caveat to vending is that state law requires all product go through a licensed distributor. Unless a cultivator holds his or her own distribution license, their product will be coming in the doors via a distribution company.”

That means a guy like Barry would add another cost to his books, paying for a distributor’s license or having a middleman take a chomp out of his profits.

“I’m not sure what the answer is,” admits Barry. “There’s all this good cannabis being farmed in California and so much of it leaves the state because regulation makes doing business really hard for the small guy.”

The basic principles of economics will likely sort this imbalance out, as some growers realize it isn’t worth cultivating more weed than they can possibly sell.

“I think this could be my last year in the cannabis game,” says Barry. “It really isn’t what it used to be.”

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