In November 1996, the voters of California passed Proposition 215, the first medical cannabis law in the nation since the implementation of federal marijuana prohibition nearly 60 years earlier in 1937. Fifty-six percent of the electorate of America’s most populous state said yes to medical cannabis. In the process, they also made a promise of helping patients with diseases as wide ranging as AIDS, cancer, Crohn’s disease, depression, epilepsy, fibromyalgia, multiple sclerosis, and Alzheimer’s on that historic day.
Twenty years following this rebellious outpouring of compassion for patients, California’s voters again said yes to cannabis. This time, however, it was in the form of adult use (“recreational”) legalization. On November 8, 2016, voters in the Golden State—by a margin of 57 percent—made their voices heard on a global scale by ushering in what is officially the world’s largest market for recreational marijuana.
At 40 million residents, California ranks as the world’s sixth largest economy (as measured by GDP, or Gross Domestic Product). That’s up against rivals such as Germany, the United Kingdom, and China and a bigger economy than France or Brazil.
It’s not all peaches and cream, however. Dozens of the 482 localities and cities within California’s 58 counties have banned one or all aspects of cannabis business within their jurisdictions.
Stylish Ventura County, just west of Los Angeles, is one of the more conservative of the state’s counties. This regional retreat from the City of Angels has banned cultivation, manufacturing, and retail cannabis operations. In similar but slightly less strict fashion, Napa County, infamous for its central valley vineyards, has decided to allow commercial cultivation while simultaneously banning cannabis manufacturing and retail operations.
In October 2017, Kern County (home to oil-rich Bakersfield) banned cannabis cultivation and sales. County supervisors voted 4-1 in favor of the ban, stating that cannabis “has had a destructive impact on local communities.” The ban put the kibosh on a whopping 28 dispensaries in the county.
Bans Exceed Businesses
As reported in the San Francisco Chronicle in November 2017, 43 of the San Francisco Bay Area’s 114 cities and counties have outright banned the cultivation of cannabis plants by citizens. This is a whopping 38 percent of jurisdictions within what is traditionally considered one of the most progressive regions in the U.S. for cannabis regulation (it was activists in San Francisco that spearheaded 1996’s Proposition 215).
An Uncertain Future
Advocates and entrepreneurs are widely divided in their predictions of the future of the fledgling adult use cannabis market in the California. Many predict that a conservative presidential administration in Washington, D.C. will continue to punish—or at least not help—states that have entered the new market.
Others, however, predict a rosier situation in which federal opposition continues to crumble under an increasingly thin support base, the release of solid clinical studies, and the defection of previous opponents of cannabis legalization (such as Obama administration House Speaker John Boehner’s role in cannabis investment firm Acreage Holdings). Advocates point out that even conservative Republicans care about the quality of life of children who suffer from severe conditions such as Dravet Syndrome epilepsy.
Even entrenched politicians in the United States get booted from elected office if their local or regional economy lags for an excessive period. Many predict that, after two or three years, the positive fiscal effects of the success of progressive jurisdictions that have embraced the cannabis industry will be felt and publicized.
Cities and counties willing to take the plunge and allow cannabis businesses may enjoy significant tax revenues advantages over their prohibitionist neighbors that choose to ban instead of embrace the early 21st century trend of full adult use legalization, including robust regulation and taxation.
It is these tax revenues that will be oh-so-sorely needed during a continued economic recession in the U.S. The validity of this mechanism is clarvoyantingly echoed by California City, a small town of about 14,000 residents located 65 miles southwest of the Death Valley National Park.
California City features a prison, a golf course, and a small municipal airport. It is losing population and going broke. It is also one of the few jurisdictions in California that is openly welcoming cannabis businesses to remedy its financial dilemma.
As more jurisdictions in California jump on the “cannabis can save the economy” bandwagon, more success stories will emerge. Even traditionally conservative cities will be pressured to remove bans of cannabis businesses to generate tax revenues for core public services, such as schools, fire protection, and police services.
In November 2018, I interviewed Rae Anne Campellone, Executive Vice President at Kismet Consumer Product Group in Fort Lauderdale, Florida. Campellone is a veteran advertising and marketing executive who has accumulated more than three decades of executive experience in national retail promotion.
Curt Robbins: “From a retail perspective, what is the state of affairs for the emerging cannabis industry in California?”
Rae Anne Campellone: “Currently, hemp and marijuana products that are in compliance with California state laws—and that are properly licensed—can be made and sold in any California dispensary or collective.
“Companies not in compliance with state regulations will be shut down for incomplete or faulty paperwork. For the most part, it won’t be black helicopters and SWAT teams that shutter businesses in California over the next couple of years. Rather, it will be tax collectors and other public administrators enforcing the regulations that are finally coming to fruition.”
CR: “What do you foresee as the most popular consumption forms and methods in California? Which market segments do you and your colleagues predict will gain the greatest market share?”
RAC: “I think there will be a surge in product delivery methods. The products will be based on cannabinoids like THC, CBD, THCV (for appetite suppression and to combat Type 2 diabetes), and hybrids—but the consumer delivery methodology will vary. When given multiple choices, consumers will ‘buy-and-try’ until they discover their preference, regardless of price category.”
CR: “What about edibles and beverages? Some pundits are predicting a massive and highly segregated market for cannabis infused beverages such as coffee and energy drinks.”
RAC: “Edibles and beverages are separate categories and will remain self-contained. As the market expands into mainstream retail stores, there will be more interaction with the FDA [U.S. Food & Drug Administration]. They will be harder to work with on ingestible products. If a cannabis product can put it in your mouth, the FDA will have regulatory oversight authority and want to approve it for general public consumption.”
CR: “What types of market metrics are available for the emerging cannabis industry at this time?”
RAC: “Edibles, topicals, and beverages have no benchmarks at this time, so we’ve adopted a wait and see posture. We will begin testing products in these segments in a mainstream U.S.-based drug store chain in 2019.
“We’ll finally get answers to basic questions, such as exactly how cannabis products will be integrated into retail store shelves. These are all issues that must be worked out before the cannabis industry can begin expanding into interstate commerce and develop into a true national market.”
GR: “What about traditional market segments, such as flowers and concentrates?”
RAC: “Despite trends that predict massive growth for segments like cannabis infused beverages and topicals, flower sales will remain king in 2019 in California. They will likely account for more than 50 percent of total sales.”
GR: “Analysts and pundits are predicting a bloodbath in the marketplace after legalization sets in, with the majority of current participants—black market, grey market, and fully legal—going out-of-business in the next one to three years. Which brands do you think have staying power?”
RAC: “I have my eye on Perrywinkles Edibles in Los Angeles and EndoTeas in Northern California. Perrywinkles focuses on gourmet edibles for the medical and recreational markets, while EndoTeas specializes in CBD-infused teas and related products as health aids.”