Transition Period Requirements

July 1^st is the date in which all licensed operators must abide by the rules set forward by the Bureau of Cannabis Control. As such, many retailers, cultivators, and manufacturers have stockpiles of what will soon be deemed “non-compliant” product. In other word, products that do not have proper labels, dosage above the maximum, and are untested. So, as the date approaches, many retailers that hold licenses will be slashing numbers to get rid of such products in the upcoming weeks. With the BCC stepping up enforcement and Lori Ajax proclaiming that “it’s about time” to start shutting down non-compliant businesses, it surely puts a lot of pressure on cannabis businesses to get rid of non-compliant product.

There are several issues with this July 1^st deadline, which we will dive into in this email. First, almost no one has been testing their products in laboratories until recently. I’ve spoken to several heads of laboratories in California, Oregon, and Canada. The California market has been slow to adopt to using laboratories. As such, the labs are now expecting a major clot as newly licensed businesses try to catch up to speed. “Too many people are waiting until July 1^st! They don’t know that the process takes a while, and that they should’ve been doing it since January!,” said one of the owners of a lab.

This is coupled with that fact that some of the biggest markets – Los Angeles and San Francisco (and many, many others) have not even open their doors to licensing. Yet, the Cities are asking people to go out of pocket on expenses for labs without giving them a clear schedule towards licensing. It’s the “chick or the egg” conundrum. Should businesses be compliant and get licensed or should businesses get licenses and then become compliant? At the end of the day, any compliant business owner knows exactly how much it costs to run a cannabis business. Some of the heftiest expenses include:

• Security Costs
• Video Surveillance costs (extremely expensive to store data for 3 months as per regulations)
• Taxes
• Track & Trace as well as Record Keeping Services

This, on top of the fact that there are no licensed laboratories in Los Angeles, have put many people in a tight spot. Indeed, in order to qualify for Phase II, a business must have a formal agreement with a licensed lab. This will surely need to be done with the few laboratories that are licensed and open in SoCal. In other words, this will further create a clot in product that is supposed to be compliant by July 1^st.

Now that we see all of these problems coming forward, it is easy to see why investors are speculating that the price of cannabis goods will spike due to shortages. To many consumers, cannabis prices are already sky-high with incredible taxes. For example, some cities have taxes of up to 10% of gross sales! Not only that, many cities require that business owners also donate money as part of a neighborhood benefits plan. As such, with a shortage of tested products, the consumer will face the consequences of inflated prices.

This will, ultimately, help bolster illegal operations. As mentioned in my previous email, as a member of Nugg, I often see “NO TAXES” proudly displayed on some of the delivery services. Many of them also entice me with “FREE PRE-ROLL WITH EVERY ORDER” yet this too is illegal under new regulations. With tons of non-compliant businesses raking in cash and not paying taxes, the State is leaving those that chose to be compliant and obtain a license in a tight spot. Despite being blatantly available online, the BCC has been unable to win its battles with WeedMaps and other such websites that advertise unlicensed businesses.

In a perfect world, the BCC would be able to enforce its regulations and shut down all unlicensed locations – especially those bold enough to admit to not paying taxes online. I wonder, is it a good time to invest in cannabis? With all the dips there are also highs – pun intended. Though the state of the industry may seem chaotic today, the fact that so many people have chosen to become licensed has enabled the industry to stay strong. As more and more cities open to licensing, more and more people will be able to monitor the industry. Indeed, as licensed cannabis businesses, it behooves us to enforce the rules of the game in which we’ve all elected to play.