California

Calif. Industry Faces New and Familiar Challenges in 2021

By Willis Jacobson
Dec 29, 2020
Photo by Karolina Grabowska from Pexels

It will be a new year, but the driving mission for the California cannabis industry in 2021 will remain the same: Take down the illicit market.

Cutting into the sizable unregulated market – estimated by some analysts to account for as much as two-thirds of cannabis sales in the state – continues to be a top priority for operators and regulators alike as the REC industry enters its fourth year. That overarching goal is likely to be reflected in many decisions over what is expected to be a year of both growth and transition.

The illicit market was atop a list of challenges top regulator Tamara Colson, who took over as acting chief of the Bureau of Cannabis Control (BCC) on Dec. 3, shared with WeedWeek as she transitioned into her new role.

“In order for the legal market to thrive, the illegal market has to be shut down,”  Colson, formerly the BCC’s assistant chief counsel, said.

Here’s a look at some of the issues on deck for 2021:

Regulatory consolidation

The merger of the state’s three regulatory agencies is among the foremost priorities for Colson and other regulators. Expected within the first six months of 2021, the consolidation will merge the BCC with the cannabis-focused arms of the Department of Food of Agriculture (CDFA) and the Department of Public Health (CDPH).

  • The consolidation aims to streamline processes and make the resulting agency, the Department of Cannabis Control, more efficient than the current framework. Delays and regulatory holdups in licensing have been blamed by operators for limiting the legal market and, in turn, boosting the illicit one.
  • Temporary delays and other issues could arise during the period in which the consolidation takes place, Colson cautioned. She cited a “workload challenge” during the transition period as the main reason for those expected delays.
  • “However,” she said, “this temporary challenge will be well worth the effort once we have a consolidated department.”
  • Colson credits her experience with the BCC – she has served on its counsel since 2016 – with helping a “relatively smooth” transition into her role atop the agency.
  • A spokesman for the BCC suggested that Gov. Gavin Newsom will appoint a full-time chief regulator post-consolidation.

Managing growth

Some of the state’s major markets, including Los Angeles, are expected to ramp up the issuance of licensing, following months and sometimes years of delays. Residents in more than 30 municipalities across the state voted in November to allow or expand or commercial cannabis in their jurisdictions. Those electoral results can be attributed, at least in part, to municipalities seeking economic recovery post-pandemic. But they are also likely to expand access for consumers and opportunity for operators.

  • The results of those local ballot measures were celebrated throughout the industry. The fact that large swaths of the state have maintained prohibition policies has inhibited the growth of the legal markets, operators say.
  • “It’s great to see California voters continuing to see the benefits of legal cannabis businesses in their cities and counties,” said Ellen Komp, deputy director of California NORML. “Legal businesses bring in sales taxes, payroll taxes, jobs, and economic stimulus while reducing crime and providing safe, tested products to consumers.”
  • That growth could pose challenges for the state’s supply chain if issues like the ratio of cultivators to retailers aren’t also addressed, operators say.
  • Addressing tax rates, which many operators believe are too high, is likely to be a top concern for operators, regulators and lawmakers.

Shifting consumer behavior

The COVID-19 pandemic has led to a shift in how consumers obtain their products. Options like delivery and curbside pickup have gained ground in the time of social distancing, and those trends are expected to carry into 2021.

  • State regulators suspended rules this year that require all sales to take place inside a retail facility. This allowed curbside pick-up options, which gained in popularity as health became more of a concern for consumers during the pandemic. A BCC advisory committee discussed recommending a pathway for permanent curbside pick-up, but that recommendation failed on a split vote. The conversation is likely to continue in 2021.
  • Delivery and curbside pick-up “will remain a critical asset of the industry,” said Jessica Billingsley, CEO of business intelligence firm Akerna. She suggested consumers now have an “appetite for convenience” and will not want to turn back.

Fixing social equity

Social equity programs throughout the state have mostly underwhelmed, according to many applicants, operators and regulators. The programs are meant to bolster industry participation from communities disproportionately impacted by the War on Drugs, but they have seemingly led mostly to headaches. As the industry grows, and new municipalities develop regulations, fine-tuning social equity programs could take on added importance in 2021.

  • Los Angeles, which has faced lawsuits and do-overs over elements of its social equity program, finally moved forward with a new-look framework this fall, but is still facing legal challenges. A recent suit alleges the city’s regulators conspired to favor some social equity applicants over others.
  • Cat Packer, the director of the L.A. Department of Cannabis Regulation, told WeedWeek in October that fixing the city’s social equity woes remains a top priority.

For a look at some of the top issues facing the state legislature in 2021, click here. Here are some of the top lawmakers and power players to watch for in 2021.

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