Rerolled from a High Times Original Article
“This is an extinction event,” Johnny Casali, owner of Huckleberry Hill Farms, a cannabis farm in southern Humboldt County, said over the phone. “Things are really, really bad.”
Casali is referring to a recent wholesale price collapse in California’s outdoor-grown cannabis market.
This time last year, a pound of the best quality sun-grown, light dep weed on the market cost between $1,200 to 1,600, according to Chris Anderson, founder of Humboldt County-based distributor Redwood Roots and a former cannabis farmer himself. Wider wholesale prices settled between $800 to 1,000 per pound.
Now, the same quality cannabis is fetching as low as $400 to 600 a pound and “going downhill,” though some outdoor growers are still getting in the $800-1,000 range, Anderson explained. That is for the best outdoor pot money can buy, “fresh, sun-grown, light dep,” which he said is genuinely limited and harder to find.
For contrast, Anderson says that indoor-grown “shitty, low end” flower is fetching around $1,000/pound, up to $3,000/pound for the best “designer, truly AAA, best indoor pot in the industry.” He added that lower quality pot, whether indoor or outdoor grown, exists in nearly “endless” quantities.
Data firms like Leaflink have not yet registered a price drop. A representative for Leaflink said it’s too soon to see definitive or robust data for this summer’s outdoor price drops.
That’s just in the legal market. Elsewhere in the country, pounds of the same pot trades at higher multiples in the illegal market, in some cases reaching upwards of $5,000. Supply and demand still rule the day, Anderson said, followed by quality. Indoor pot always fetches higher prices and outdoor lower, owing to outdoor weed’s relative lack of potency compared with top-shelf indoor, as well as its potentially variable appearance.
The decline in pricing, which began at the beginning of June, is expected to get worse as the cannabis harvest season proliferates and finishes in late October and November.
Following that, a remaining glut of outdoor-grown cannabis from last year’s and this year’s harvests is expected to keep prices low for “at least the next couple of years,” said Anderson. By that point, industry insiders say, many small farmers could be all but wiped off the legal cannabis cultivation map.
The immediate cause is a lingering market surplus from last year’s grow—a supply that has proved to be too large to be absorbed by the legal market.
In years past, since outdoor cannabis is not harvested during the winter, an autumn harvest will supply the market for several months. Come spring, supply is lower, therefore, prices are typically higher. Late spring and early summer are when the first rounds of harvest—referred to as “light deps” for the cultivation technique employed (which involves light deprivation)—typically begin. From there, prices begin to drop, usually to more reasonable levels. The harvest continues and the cycle begins anew.
This year, farmers are beginning a new harvest with last year’s cannabis still in hand. The expected spring price drop never came, which signaled to small farmers that something was seriously wrong.
Fast-forward to now, after the first rounds of deps, and farmers are realizing that not only could they not sell last year’s weed, but they will have to sell this year’s crop at a steep loss if they are able to sell it at all. Off the record, many growers commented that this is the weed that ends up on the illegal market.
“This state has an over-production problem,” said Natalynne DeLapp, executive director of the Humboldt County Growers Alliance. She explained that owing to the local control provision of Proposition 64, so many municipalities in California have opted out of allowing sales and distribution within their limits that there simply are not enough places to sell the amount of legal cannabis grown in the state.
“Currently, there are 1,775 acres of cannabis licensed by the state, which conservatively produces more than six million pounds of cannabis,” Delapp said. “CDFA [California Department of Food and Agriculture] has estimated in its Standard Regulatory Impact Analysis in 2017 that California likely consumes 2.5 million pounds of cannabis. Not all cannabis consumed in California is purchased at legal retailers, so a very conservative estimate is that we’re producing twice what the legal market can consume, but in reality it’s probably worse than that.”
That 2.5 million number, Delapp explained, is the “only and ‘best’ number we have from the state back in 2017.” She added that the state’s opacity and not releasing data from METRC, the tracking system, that shows what amount of cannabis is legally sold in licensed retail shops is part of the problem.
At the same time, the state and its counties continue to issue cultivation licenses, the fees from which produce revenue for municipalities. As the number of growers increases in size, so does the amount of cannabis being produced, but the pool of would-be legal customers isn’t following in lockstep.
Bigger cultivators pose a very specific problem. In addition to flooding the market with large amounts of cannabis, driving down prices, they are also able to sustain market fluctuations, seeing as they are highly capitalized.
According to industry insiders, like DeLapp and Genine Coleman of legacy grower advocacy organization Origins Council, larger cultivators weren’t supposed to be able to participate in the legal market until 2023, but the provision that granted small farmers a five-year-long head start in the market was scrapped just as Prop 64 was passed.
“It’s basically systemically dysfunctional,” said Coleman. “As for prices, the lowest I heard was $275. But that was a month ago. The thing to remember is that that farmer is paying a $150-per-pound cultivation tax,” she added, citing a harsh truth that applies to every cultivator regardless of what price per pound their weed ends up being sold for.
Coleman also lays out immediate solutions that she and others in California’s small grower community say would provide meaningful relief.
“Between COVID, the fires, that reality [of crashing market prices], and the budget process unfolding, there could be some legislation and a trailer bill. There could be temporary actions taken while time is taken to sort out a broader policy issue,” Coleman said, referring to a potential temporary moratorium on issuing cultivation licenses, as well as amending the cultivation tax, which are two fixes many growers say they would gladly welcome.
“From our perspective, the most immediate thing that can happen is some kind of tax restructuring, that at least offers temporary relief from the cultivation tax. Because the rest of the supply chain is better positioned than small farmers, in particular,” Coleman said. She added that these larger operations are also much more equipped to handle compliance as it relates to state regulations, like the California Environmental Quality Act (CEQA), from both a manpower perspective and a monetary one.
“The next order of business is, ‘What can be done for market expansion?’ The lateral growth in the retail sector is unacceptable and can’t carry the production trajectory that we have,” Coleman explained. She said that larger-scale operations continue to come online and everyone in the industry is preparing for an eventual interstate market that doesn’t exist yet while at the same time there has been a contraction of customer access.
For Coleman’s part, she is on the board of the Alliance for Sensible Markets, another advocacy organization that has been in conversation with a number of states to evaluate interstate compacts and prospective trade between legalized states. Nothing has been decided on that front as of yet, but she indicated that news was coming soon.
As for the state, Nicole Elliott, director of the Department of Cannabis Control, shared, “The Administration has always been committed to supporting small and legacy businesses in the cannabis market, as evidenced by a number of the policies and programs that have been pursued and implemented in our 2.5 years in office.”
Elliot points to the creation of a standalone state department, the Department of Cannabis Control, which recently consolidated from three separate state agencies to help simplify the administration of regulated commercial cannabis businesses. She says this includes a “sustained focus on streamlining licensing processes and regulatory requirements. All of this is being done with an eye towards making it easier for businesses, particularly small businesses, to operate within the legal, regulated market.”
Elliott added that the state’s budget, which is enjoying a $75.7 billion surplus this year, allocated $100 million for a Local Jurisdiction Assistance Grant Program.
“These grants specifically target regions with high numbers of small farmers and was structured in a way that really sought to preserve significant funding locations with legacy small cultivators that often have unique regulatory needs,” Elliott said. She also adds that some legacy operators in the Emerald Triangle are also equity beneficiaries who receive funds from a $35.5 million Local Equity Grant Program and $30 million for fee waivers and deferrals.
Both Coleman and DeLapp said they appreciate this cash injection from the Local Jurisdiction Assistance Grant Program but that the money is already earmarked for other projects. Specifically, DeLapp said that in Humboldt County, they are looking to use it to bulk up water storage systems, which addresses the other looming catastrophe of climate change. Across the board, cultivators and their advocates say the state needs to do more. Halting the cultivation tax and enacting a moratorium on new cultivation licenses appears to be at the top of everyone’s lists.
There are other longer-term measures the state and industry advocates have taken, like the recent ratification of Senate Bill 67, which creates appellations of origin for cannabis grown in specific geographic areas. This is expected to increase tourism and provide an extra layer of education and protection around legacy growing areas that believe their cannabis is unique to where it’s grown. In an age where interstate commerce looms, it should be a huge boon—who from further afield is not going to want to buy California weed? But it’s not expected to meaningfully take effect for at least a couple of years.
Meanwhile, back in the Emerald Triangle, farmers are hurting. DeLapp says this is not only a likely “extinction event” for small legacy farmers but that it’s one of several. Back before Prop 64 passed, there were a number of cultivators who jumped ship, claiming they knew the bloodbath to come. Just after legalization was another when small farms struggled to find the capital and manpower to get and stay licensed. This outdoor price collapse is expected to be another.
Jackie McGowan, who is currently running as a candidate in Governor Newsom’s recall election, told us that she’s running specifically because she knew “at least four” grower friends of hers who died by suicide since the beginning of June 2021, owing to the price collapse. Her despair over the lives of her friends and colleagues, as well as the state of the industry, is what has compelled her to run, she said.
Coleman said that, apart from the injustice done to the small farmers who quite literally began and weathered cannabis cultivation in the United States throughout prohibition and into the legal area by allowing them to fail at this critical juncture, there are other potential losses to consider should small farmers be forced out of business.
“Something I’m always aware of regarding the extinction of small legacy farmers and farming communities is the extinction of a whole bunch of genetics,” Coleman said. “From the broader, more international perspective and especially in the medical realm of cannabis research, that’s a lot of loss in terms of the genetic library that should be researched and preserved. For an annual plant, in particular, it happens really quickly,” she added soberly.
At the end of the day, the growers and their advocates lay the blame both on the state’s failure to properly implement rules and regulations for a healthy legal cannabis market, as well as the large cultivators who are taking advantage of a law that was, frankly, made just for them.
“We were supposed to have this runway to 2023 before the market was overfilled. We didn’t get that,” DeLapp said.
She added, “What is the state going to do to fix this? Is the plan going to be to just let the legacy regions die?”
The post Growers in the Emerald Triangle are Facing a Potential Extinction Event appeared first on High Times.
Rerolled from High Times