Six months after recreational marijuana became legal in California, consumers and the cannabis industry is complaining about steep prices, high taxes and a scarcity of licensed shops. This has not happened overnight.
With the legalization of the sale of recreational cannabis in licensed stores, there was a need for testing standards for commercial weed for health concerns.
Over the past six months the state and the cannabis industry spent a lot of time debating the standards. The state initially said uniform purity and potency testing would begin Jan. 1, 2018. Then things got bogged down, and the date was pushed to July 1.
Stock Clearing Sales
Cannabis harvested or processed before 2018 was to be sold before July 1, 2018. Retailers sold old cannabis at fire-sale prices and dumped the leftovers.
Now the companies are facing the challenge of restocking their shelves with marijuana that clears the new testing regulations. But increased demand for compliance tests has caused bottlenecks at the lab. Dispensaries fear a supply shortage.
With heavy demand for the lab test of cannabis after July 1, labs are overwhelmed with work. Lab managers have hired more staff, but the work has doubled or tripled from what it used to be before regulations. The inadequate number of licensed labs has added more to the strain. Bottlenecks in the lab will cause a shortage of cannabis in the market.
Retailers now supposed to wait for cannabis that meets the state’s new standards. California labs have to test for 66 pesticides, 20 solvents, four heavy metals, and three microbes, as well as cannabinoid, moisture and chemical profiles. Labs are also charged with measuring homogeneity – that is, whether the same concentration of THC is contained in each serving of an edible.
Spider, co-owner of San Diego-based Infinite Chemical Analysis Labs, estimates as much as half of the marijuana flower and 90 percent of marijuana distillates in Southern California won’t pass the compliance tests implemented July 1.
Beginning January 1, California implemented two types of taxes on recreational cannabis:
- One for commercial growers, who pay the state a cultivation tax on harvested, dried cannabis—$9.25 per ounce of flower, and $2.75 per ounce of the leaf.
- The second was a retail excise tax of 15 percent of the sale price to be collected by the state at the time of purchase.
It turns out those aren’t the only taxes. There’s another state sales tax of 8 to 10 percent, plus cities and counties are allowed to impose their own additional taxes, which range from 5 to 15 percent. This results in consumers paying up to a 40 percent tax on their weed.
Implications of the Crisis for California
- The shortage would be an inconvenience for consumers.
- Prices will rise sharply if there’s a shortage.
- “it could be an extinction event for companies whose products don’t turn out to be compliant,” said Pamela Epstein, chief executive of Green Wise Consulting, a Los Angeles firm that works with the cannabis industry. “They might not have enough money to recover.”
- The companies would have to destroy nearly $400 million worth of products that don’t meet the new standards.