California Regulators Unveil Campaign to Curb Illicit Cannabis Market

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On Friday, California’s most powerful cannabis regulators came together at the Montalbán Theater in Hollywood, where the United Cannabis Business Association (UCBA) and the Humboldt County Growers Alliance (HCGA) hosted its second annual policy summit.

Industry stakeholders, including licensees and industry hopefuls, packed the venue to hear what Lori Ajax of the state’s Bureau of Cannabis Control (BCC), Cat Packer of the Los Angeles Department of Cannabis Regulation (DCR), and State Treasurer Fiona Ma, among others, had to say about plans to prop up licensed operators, social equity programs, and banking and tax hurdles.

The top priority for industry members and regulators—quashing illegal operators—was apparent even outside the venue, where posters hung for the just launched “Get #WeedWise” campaign. The multilingual public information program aims to curb unlicensed sales by encouraging consumers “to only purchase cannabis from licensed businesses” and warning those who operate unlawfully of the consequences of continuing to do so. Alex Traverso, the agency’s spokesperson, directed the summit’s participants to the state-hosted website CApotcheck.com, where shoppers can easily verify whether the cannabis they procured is from a legal source.

Early on in the program, state Senator Steven Bradford (D- Gardena) spoke to another priority: ongoing calls for banking solutions for the legal industry. In his remarks, Bradford noted that “every legal cannabis business in California, they walk into a state agency and pay their taxes, every month or however they pay it, in cash. And we, as the state of California, walk it across the street and put it in a federally-insured bank.”

“So,” he asked, “are we money-laundering?”

“If we can do it,” Bradford continues, “these businesses should be allowed to do it.”

State Treasurer Fiona Ma followed up on the subject during the event’s last panel, called “From Survive to Thrive: The Legal California Cannabis Industry in 2019 and Beyond.” The panel also included Ajax and Packer, as well as Governor Gavin Newsom’s senior advisor on cannabis Nicole Elliott.

Ma indicated that “there are about a dozen banks that are legally banking the industry [in California].” However, Ma added, “They are not widely known, nor do they want to be, because they do not have the capacity for everyone knocking on their door.”  

To address this issue, she and state Senator Bob Hertzberg (D- Van Nuys) have co-developed

Senate Bill 51, which would establish limited charter banks and credit unions for the purpose of providing banking services to cannabis-related businesses. At the summit on Friday, Ma informed stakeholders that the bill has made its way through the Senate and now is in the lower house. She then asked the summit participants for assistance to get it across the finish line.

“We need your help,” Ma said. “Please send in support letters. Please testify.”

The treasurer, who has also advocated for providing tax relief to the industry, highlighted another recently defeated bill, which sought to suspend the cultivation tax, as well as to cut the state’s excise tax from 15% to 11% for a period of three years.

“Some of my colleagues in the Legislature didn’t think taxes are too high,” said Ma. “So we really need you to get engaged and tell lawmakers that, yes, the taxes are too high, that the people paying them are sometimes paying up to 40% extra.”

“As for me,” she pledged, “I’m still going to push that until we have a level playing field.”

From left to right: moderator; Lori Ajax, head of the state’s Bureau of Cannabis Control; Nicole Elliott, Governor Gavin Newsom’s senior advisor on cannabis; Cat Packer, executive director of the Los Angeles Department of Cannabis Regulation; and Fiona Ma, State Treasurer. (Image credit: Julia Barajas)

Another issue facing industry members is that the impending expiration of temporary licenses for business owners who have not yet received approval for a full license. Gavin Newsom has included language in his proposed budget that would give these licensees an extension until 2025.

Ajax, the state’s top cannabis regulator, told the crowd, “We have been trying to be very flexible on those timelines because we know it’s very difficult … some retailers have a lot inventory to put in,” referring to the seed-to-sale tracking software used by the state, METRC. “So, I would encourage you, don’t be worried about anything. If you have a question, if you can’t meet our timeline, just communicate that to us.”

And Elliot spoke to the struggles of bringing the state’s unregulated industry, which has thrived for decades, above board, from the perspective of local regulators.

“Local regulators have it rough,” she said. “They’re under-resourced, they’re working on policies that meet the needs of their communities while trying to interpret what the state’s doing.”

This sentiment was shared by Packer, who pointed out that, as executive director of the Los Angeles Department of Cannabis Regulation, she oversees a jurisdiction nearly as populous as Colorado.

When pressed to speak to enforcement against the plethora of unregulated cannabis retailers in the city, Packer underscored that the Department of Cannabis Regulation “does not have any specific enforcement authority.” Nevertheless, she acknowledged that “enforcement is an important conversation to have.”

The city of Los Angeles, Packer said, “has tried to think critically about how we engage in this enforcement conversation because we’re simultaneously having a conversation about equity and how those two conversations can live harmoniously.”

When strategizing, she added, city officials have identified “three categories of folks who can be enforced against: employees, business owners, and property owners.” According to Packer, “it makes sense to treat these entities differently as we try to contextualize what the appropriate enforcement mechanism is.” In an effort to prevent “a Drug War 2.0,” city officials have opted to implement a “progressive enforcement model,” in which those employed by illicit operators will be first be subject to “education, then civil and administrative penalties,” as opposed to traditional criminal proceedings.

(Read Cannabis Wire’s previous coverage of the struggle to crack down on illicit sales in southern California, without echoing the war on drugs.)

Packer also recognized that enforcement against unregulated operators in Los Angeles has been a “whack-a-mole” scenario, “where we find an operator, they shut down, they change their name, then they open up the next day.” Moving forward, city officials have therefore decided to “really target property owners.” Doing so, she said, will serve to protect public health and quell illicit sales, as well to help those who are trying to enter the regulated market, including social equity applicants.

“We have people who are legitimately trying to get property,” said Packer, “and they can’t find property because all of the property is being used by people engaged in illegal activity.”

For Packer, the ultimate goal is to have those who were disproportionately impacted by prohibition to have access to the cannabis industry, and “not just in the short-term.”

“We want to make sure that we have these folks in the industry five, ten, ten years from now,” she said.  “And we’re not there yet.”

Los Angeles’ pressure to succeed is palpable. “We still have a number of pieces to fall into place,” Packer added, “so it’s going to be critically important for us to frame this conversation responsibly because we know what there are people all across the United States who are looking at the City of Los Angeles.”

“I think that we will set the tone for what this conversation will look like,” said Packer. “We’ve started to see other states open up. Equity is starting to be the standard in this conversation, and it always should have been.”

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