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Inside California's Scramble Toward Legal Weed

Inside California's Scramble Toward Legal Weed
From Rolling Stone - October 12, 2017

When Alex Zafrin and Rekka Nicholson decided to make marijuana-infused ice cream, they started off small. They bought a small, $30-something ice cream maker and began experimenting with processes and flavors at home. While they'd eventually make flavors like Coffee Pot, Vanilla Kush and Go Fudge Yourself, the learning curve was steep. They made their share of mistakesincluding a peanut butter and crispy maple bacon flavor that contained chunks of chewy meat and turned out to be "really awful," Zafrin saysbut after just three months, they finally found a balance. They found a company that could supply the THC oil, and landed themselves in 100 medical dispensaries across the state.

When Proposition 64 passed last Novemberwhich legalized adult-use recreational marijuana in the state as of January 1st, 2018Zafrin and Nicholson felt a mix of emotions. Like many in the cannabis sphere, they welcomed regulation in order to ensure quality and establish a system of checks and balances, but were concerned about overreach.

"When government gets involved with an industry, there are challenges," says Zafrin. "Especially with something like this they tend to over-govern...a little bit."

In this instance, it seems his concern was founded. In the push to make standardized guidelines for marijuana products across the state, the Department of Public Health determined that perishable cannabis itemslike ice cream, for examplewould be illegal. Zafrin and Nicholson had built their business on a recipe that would be banned.

The Fully Baked team are not the only ones to feel like they got the rug pulled out from under them. Throngs of cultivators, manufacturers, dispensary-owners and others in the cannabis industry are bracing for impact of the new state regulations and want nothing more than to get complianta difficult feat as final regulations are yet to be completed. For more than 20 years, municipalities up and down the state have slowly adopted their own policies on medical marijuana, from simply banning dispensaries to embracing them to offering responsible operators limited protections from legal prosecution. However, this process of regulation has been slow and sporadic, with no sweeping changes made across the board.

That's where the Bureau of Cannabis Control comes in. Previously known as the Bureau of Medical Cannabis Regulation, this state agency was tasked last year with developing separate regulations for both medical and recreational cannabis. After months of research and a draft release of medical guidelines, that effort was scrapped in June 2017 when the state passed Senate Bill 94, which merged the two cannabis industries into one regulatory framework. Under its new role, the state went to work building a dual-purpose set of regulations to govern all commercial cannabis practices in the 583 jurisdictions throughout the state.

But the state is now facing a rapidly ticking clock. In fact, the time crunch is so pressing that as of August, the Bureau of Cannabis Control invoked an "emergency rulemaking process" that allows them to forego public hearings in the interest of time. (These hearings will be held sometime next year, after the regulations take effect.) Then in September, bureau chief Lori Ajax announced they'd be launching a temporary licensing program to avoid any rollout delays in the New Year. Under this system, applicants will be able to submit some basic information in exchange for a cannabis license that will be good for four months, with options for extensions if the final regulations are not completed by that time.

Overall, the year following the passage of Proposition 64 has become a bit messy, and there's a lot at stake. Within its first year of having a legal marijuana industry, California is expected to make $684 million in excise taxes, according to the 2017 Budget Act revenue forecast. In the years that follow, that windfall is expected to expand exponentially, with predictions that the state will make more than $1 billion in taxes by fiscal year 2021.

"Cannabis is a big business but it also touches on a lot of aspects of our lives," says Ariel Clark, an attorney with the Los Angeles-based cannabis specialty firm, Clark Neubert LLP. "The challenge is that we have had 20 years of a thriving cannabis industryreally a cottage industryand we are now in a process of regulating that industry. There are people across the state who depend on this economy to live their lives," says Clark. "So this is a very, very, very, big deal."

These new laws will dictate everything from cultivation practices to lab testing standards and packaging requirements, and had to be developed in coordination with nearly a dozen state agencies, including the Department of Public Health and the Department of Fish and Wildlife. The state's new guidelines must balance competing public and industry interests (of a state of more than 39 million people), and reflect the numerous public hearings and thousands of comments received by the bureau, while ultimately cohesively regulating all jurisdictions within California. It's a state largely divided along geographical lines, says Alex Traverso, chief of communications of the Bureau of Cannabis Control.

"When you go up to Eureka and then you go down to L.A. and San Diego, what people are concerned about are very different things," he says.

For example those from the Emerald Triangle, the lush cultivation epicenter of Northern California, seems most preoccupied with growing requirements, says Traverso, while Los Angeles residents have voiced concern over dispensary regulations and allowable hours of operation. Residents across the state are concerned with the price tag of going legit. In addition to forking over licensing, permit and application fees at both a state and local level, restrictions on where weed businesses can operate has created a limitedand very expensivepool of real estate. Not to mention the standard startup and construction costs of any new business.

"When you run these sorts of numbers you are looking at not less than half a million to five-million-plus, for some of these projects," said Clark, who's also chair of the Los Angeles Cannabis Task Force.

Even for serial cannabis entrepreneur Todd Mitchell, who has multiple businesses including cultivation operations in Santa Barbara and Santa Cruz counties and delivery services in Goleta and Paso Robleseach of which has their own marijuana policy. Ordinances can change in a single city council meeting, and the process is costly; both in time and money. For one, the legal murkiness of the cannabis industry often necessitates the (very pricey) help of attorneys, and because local regulations have been in constant flux, it can be a huge financial risk to plant your flag in one location. *

For Mitchell, the fiscal burden is eased by one his partners, a successful real estate developer and entrepreneur who bankrolls much of the operation.

"Financially, it would be very, very difficult for me to have done this on my own," said Mitchell.

Although state cannabis officials say they aim to keep taxes and fees manageable, as hefty requirements damper a market and discourage businesses from going legit, fear remains that big business will stomp out mom and pop shops. More than anything though, potential licensees are itching for some direction. Not just from the state, which is scrambling to release final regulations, but from their local jurisdictions.

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