California Invests $100 Million Into The Legal Cannabis Industry 💰

With the legal market struggling to displace the illicit market, lawmakers are opening the States checkbooks to solve this problem.

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The State of California is arguably the most advanced cannabis market in the world having legalized cannabis for medical purposes in 1996 and adult-use purposes in 2016.

In the years since, many of the brands that were created in the region to serve the consumers who were permitted to purchase cannabis have gone on to become some of the most successful cannabis brands in the United States.

From Cookies to Kiva, California has seen no shortage of successful cannabis brands, however, in spite of their success — the cannabis market in California is struggling to compete with the illicit market.

On Monday evening, the California Legislature approved a $100-million investment plan in response to the challenges the legal industry continues to face in the region.

(📸: Cookies)

How will the money be spent? 💰

Right now, it’s estimated that some 80% of the cannabis licenses held in California today have “provisional licenses” ie. temporary licenses.

As such, the primary purpose of the funding is to provide regions with the resources they need to help cannabis businesses transition from provisional to regular licenses such that the State is not forced to shut down the cannabis businesses that are yet to obtain regular licenses.

“Governor Newsom is dedicated to the success of the legal cannabis industry in California,” said Nicole Elliott, the governor’s senior advisor on cannabis.

“The purpose of this one-time $100 million in grant funding is to aid locals and provisional licensees, many of which are small businesses, legacy operators and equity applicants, in more expeditiously migrating to annual licensure.”

What’s next? ⏭️

With this funding secured, cities & counties will begin hiring experts to assist cannabis businesses in completing environmental studies (a key component in obtaining a regular license) to identify how their operations will affect the surrounding water, air, plants, and wildlife.

In addition to this funding, the governor of California is seeking to grant cannabis businesses a six-month extension beyond a Jan. 1 deadline to transition from provisional licenses by complying with mandates of the California Environmental Quality Act.

Originally, cannabis businesses were supposed to transfer from temporary licenses to regular annual licenses by 2019, but many businesses were unable to comply in time, so the state allowed provisional licenses until Jan. 1, 2020, and then extended the deadline again to Jan. 1, 2022.

If this deadline remains intact, many cannabis businesses will have no choice but to shut down, however, with some cannabis businesses having to wait as much as 4 years to complete the process — this deadline won’t hold.

The symptom of a much bigger problem? ❌

If the government in California is seeking to address the challenges the legal cannabis industry faces in competing with the illicit market then I foresee this approach falling significantly short.

When California voters approved Proposition 64 in 2016 state officials initially expected to license as many as 6,000 cannabis shops in the first few years, however, 5 years later and 1,086 have so far been issued.

To make matters worse, in 2019, industry officials estimated there were nearly 3x as many unlicensed cannabis businesses in California vs legal operators.

Why are consumers choosing the illegal market?

This is a billion-dollar question to which no government officials in the region possess an answer to, however, the answer is hidden in clear sight.

  • Three-quarters of cities in California don’t allow cannabis retail stores in their jurisdictions such that consumers have little to no choice but to purchase cannabis from the illicit market.

  • In certain regions of California, consumers are asked to pay between 20-40% extra in taxes whereas those purchasing cannabis from the illicit market pays ZERO dollars in State taxes.

If California law markers are seeking to displace the illicit market then they need to employ a much more pragmatic approach by providing consumers with every reason to purchase products from the legal market as opposed to spending their dollars in the illicit market.

As Canada has shown with its substantial reduction of the percentage of transitions occurring in the illicit market — this isn’t rocket science.

Consumers want high-quality cannabis products, and if these products can be purchased at similar price points vs the illicit market… then the rest is history.

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