Struggling in California

Ken Morrow details the complicated and legally dangerous process legacy breeders went through to improve cannabis plant traits in this month's Tomorrow in Cannabis column.

“The early pioneer breeders of yesteryear put themselves at great legal risk to breed the cultivars that are the basis of all the cultivars we know today,” he notes. “We would not be where we are today without [them] ….”

But the risks and challenges continue despite the progress advocates have made in establishing legal markets across the U.S. David Holmes, founder and CEO of Clade9, a cannabis cultivator, consultant, and breeder, once operated in California’s “gray market,” which, as Cannabis Business Times Editorial Director Noelle Skodzinski notes in the cover story, was full of “legal landmines.”

Holmes is one of the many craft cultivators who continues to innovate today within California’s legal framework, using cultivation and breeding practices honed over decades.

But still, for Holmes and other specialty growers, times are anything but certain. While pre-adult-use-legalization fears no longer plague those who are fully licensed, California’s tax structure, price compression, and competition from a still-thriving illicit market are threatening growers doing things the right way.

A state Senate bill introduced Feb. 15 has the potential to alleviate at least some of the tax burden for Golden State growers, as it would end the cultivation tax, which is $10.08 per dry-weight ounce for flower and $3 per dry-weight ounce for leaves. But, as the proposed legislation stands now, there would be an excise tax hike that would increase by “an additional percentage estimated by the department,” the bill reads, to make up for the lost revenue from the dry-weight tax.

Moving the tax burden to consumers would still not fully address competition from the illicit market. Further complicating matters are the restrictions that still exist; only about half of the 58 counties in California allow for commercial cultivation or retail.

If passed, the changes within Senate Bill 1074 would take effect for cultivators July 1, 2022, but the excise tax would not begin to increase until July 1, 2025, providing a window of time to assess how the bill affects the market.

As CBT previously reported, cultivation taxes netted California $163.2 million in 2021 alone, and the state had a record-breaking year in cannabis sales overall, at $5.2 billion. Carrying the weight of that success are cultivators struggling to navigate myriad challenges, including falling wholesale prices, which, in some cases, have dropped by 50% to 70%, Skodzinski notes in the cover story.

Without meaningful changes, the biggest cannabis market in the world—and the legacy breeders and growers who built it—may not be able reach the potential legalization was supposed to make possible.