California’s transition from a long-standing medical cannabis market to a fully regulated recreational industry is creating a seismic shift for businesses like Berkeley Patients Group (BPG). As the state’s oldest operating dispensary, BPG is navigating significant hurdles while preparing to meet the demands of a regulated recreational marijuana market.
A Race Against Time: Compliance Challenges
BPG, like many others, is racing to align with regulations unveiled just weeks before the January 1 launch. The condensed timeline has posed major challenges, with dispensaries scrambling to interpret and implement the new rules.
Confusion Reigns Over Key Regulations
The new framework has left many businesses questioning how to manage aspects like edibles, purchase limits, and inventory tracking. Sean Luse, BPG’s COO, highlighted several sticking points:
- Edibles compliance: Uncertainty about selling 2017 inventory and whether high-potency products will be restricted to medical patients.
- Purchase limits: Tracking daily sales to ensure customers don’t exceed the one-ounce limit for recreational buyers.
- Inventory systems: The dispensary’s new system, MJ Freeway, must eventually integrate with California’s METRC tracking program, but compatibility issues loom.
Adding to the chaos is delayed communication from regulators. With countless businesses vying for clarity, timely responses are scarce. “We’re all trying to make sense of the rules, but answers are slow to come,” Luse admitted.
A Fragile Supply Chain in Transition
California’s new regulations also bring uncertainty to the cannabis supply chain. BPG and other dispensaries must now source inventory exclusively from licensed operators, a departure from the long-standing reliance on gray-market suppliers.
From Hundreds of Sources to Dozens
BPG expects to reduce its network from hundreds of suppliers to a few dozen licensed distributors. This consolidation means adapting to a new way of doing business while maintaining a diverse product selection.
- Brands like Emerald Family Farms, Flow Kana, Kiva, and Bloom Farms are positioning themselves to supply licensed dispensaries.
- Luse expressed cautious optimism about having sufficient inventory for January but acknowledged lingering concerns about the number of cultivators and distributors who will meet licensing requirements.
The uncertainty is palpable. “There’s plenty of cannabis in California,” Luse said. “The real question is whether it’s tested, licensed, and compliant.”
Taxes and the Illicit Market: A Balancing Act
The cost of cannabis in California’s regulated market could be the tipping point for consumers deciding between legal and illicit options.
A Mountain of Taxes
With state and local taxes expected to reach 45%, dispensaries like BPG must grapple with sticker shock. Sabrina Fendrick, BPG’s director of government affairs, projected that an eighth of flower might cost upwards of $60.
- State Taxes: A 15% excise tax, cultivation taxes ($9.25/oz for flower, $2.75/oz for trim), and sales taxes ranging from 7.75% to 9.75%.
- Local Tariffs: Berkeley’s own ballot measure adds a 10% sales tax at multiple points in the supply chain, inflating costs further.
This price disparity could push budget-conscious consumers back to illicit sellers. “The regulated market could feel smaller than expected,” Luse warned.
Testing Woes Could Compound the Problem
By mid-2018, stringent testing requirements for contaminants like pesticides will take effect. A failure by growers to meet these standards could choke the supply chain, forcing retailers to turn away from legal options.
A Glimpse at the Road Ahead
The road to full implementation of California’s recreational cannabis market is fraught with uncertainty. From clarifying regulatory ambiguities to stabilizing supply chains, dispensaries like BPG are at the forefront of the industry’s growing pains.
Despite these challenges, Luse remains hopeful that Berkeley’s forward-thinking approach will serve as a model for others. “We’re preparing as best we can,” he said. “But this is uncharted territory for all of us.”
While the first months of 2018 will likely reveal more challenges, they will also test the resilience and adaptability of California’s cannabis pioneers.