California used to be the state in which cannabis cultivators thrived. Now, not one day goes by without the reminder that small-scale cannabis cultivators are going under. Recent data from California’s Department of Cannabis Control reveals that licensed cultivations face the highest number of closures in the state. Despite the mass closure of cultivations, operators are demonstrating their resilience and adaptability as they forge forward with navigating regulatory reforms and seizing opportunities for growth.

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What led to the cultivation crisis?

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During the COVID-19 pandemic, the market showed a rapid increase in sales throughout the state, yet the industry has seen a notable downturn in the past several years. The value of wholesale flower dropped from $1,100 per pound (sometimes higher) to $300 per pound. In addition to the recession cultivators experienced, they were being taxed by the State at $161 per pound of flower. Combining over-taxation and the devastating drop in the value of flower, cultivators saw no hope in sight. This alone closed countless cultivations throughout the State. Between December 2021 and now, we have seen a 36% drop in licensed cultivations, the highest category of cannabis businesses to close.

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Unlike other states, California requires a distribution license to transport product. Cultivators are allowed to apply for a Transport Only distribution license that would allow them to transport their product to manufacturing facilities and other distribution centers only. They are prohibited from delivering to retail facilities and testing labs under a transport-only license. Many find it overburdensome to finance adding additional licenses and are at the mercy of utilizing the services of other operators that have a distribution. By working with other businesses, cultivators found that not all distribution centers pay their growers in a timely manner, if it all, for the products they sold to retail facilities. The drop in value of wholesale flower, over-taxation, and not receiving payments in a timely manner, or not at all, created a financial spiral for many.

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Applications can cost tens of thousands of dollars to complete.

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Throughout California, cannabis businesses are required to enter a review process for the California Environmental Quality Act (CEQA). The purpose of CEQA is to ensure the project in question does not have a negative impact on the environment and demonstrate any mitigation efforts enacted by the operator. Once an operator meets these standards, they are transferred from a provisional license to an annual license. If they cannot pass a CEQA review, their license will not be renewed in 2025. Many counties and cities did not have a CEQA process outlined in their initial cannabis code, leading to the delay in transitioning from a provisional license to an annual one. Cultivations have been hit the hardest in this process as they are not categorically exempt like other license types. Numerous counties have required their cultivations to reapply for a local permit, changing their approval process from an administrative review to land use and now including a CEQA review. Applications can cost tens of thousands of dollars to complete. With the drop in the value of flower, over-taxation, a complicated distribution system, difficulty obtaining payment, and the additional burden of permit fees for a business they were already permitted to operate, many cultivations closed. Mendocino County failed its legacy cultivators who entered the legal market during this process. Countless cultivators were informed of their denial for failure to submit documentation they had already submitted. Others were denied for not being up to date on their county cannabis tax, yet they had proof they had made all payments. This flawed process only added to the vast number of cultivations that closed.

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How are cultivations navigating these challenges?
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Small-scale cultivators are actively fighting to keep their livelihood through innovative and collective methods. Small-scale cultivators have placed a special focus on being the stewards of the California cannabis industry. We’re seeing cultivations leverage the use of sustainable farming practices, not only helping with their CEQA review but demonstrating to all in the industry how we can better our practices to ensure a brighter future for the environment. Small-scale cultivators are forging relationships with regulators and community leaders to work towards solutions to regulatory roadblocks and eliminate the stigma surrounding cannabis. Some cultivators have even formed or are participating in local alliances to further their efforts. One such alliance is the Mendocino Cannabis Alliance (MCA), which actively advocates on behalf of small-scale cultivations.

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Banning together has proven effective for small-scale cultivators in implementing change to the regulations that oversee their operations. In 2022, cultivators saw relief from over-taxation when Governor Newsom eliminated the State’s cultivation cannabis tax. In 2023, Governor Newsom signed SB 833, which will allow cultivations to pause their license for one year and reduce their licensing renewal fees by 80%. This bill will also allow cultivators to reduce the size and license type of their facility as well as change the date on which their renewal is due to better coincide with seasonal income. Pending legislation includes SB 508, which will remove the Department of Cannabis Control’s involvement in CEQA reviews and place it solely in the local jurisdiction in an effort to streamline the review process. Many cultivators and advocacy groups are proponents of SB 508. Yet in areas like Mendocino County, where the state had to step in and take over the local CEQA review process, there is uncertainty as to whether the County will be able to meet such standards when they couldn’t meet them with oversight.

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HOW CAN CONSUMERS HELP?

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As California’s legalized cannabis industry is still in its infancy and the regulatory framework that oversees the industry is continuing to evolve, the ability of craft cannabis cultivators to navigate the challenges laid out before them is crucial to the industry’s long-term sustainability. By advocating for regulatory reform, fostering collaboration instead of competition with other small-scale licensees, and embracing innovative solutions to their challenges, small-scale cultivators are working to build a more resilient and inclusive industry landscape. Consumers can help ensure the survival of this industry and its legacy cultivation operators by buying their products at their local dispensary. If you’re unsure what products are grown by small-scale operators, don’t be afraid to ask your Budtender. Additionally, consumers can advocate for small-scale cultivators by providing public comments on local regulations being discussed at their local city or county council and the state. Support from the community provides regulators with a greater understanding of the importance of matters before them and is invaluable to all cannabis businesses. Through a collective effort, small-scale cultivators and their local community will shape the future of the California cannabis industry.

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