Sunday, April 9, 2017

Humboldt County is at a crossroads as locals anxiously anticipate the activation of Prop. 64

In November's election, California voters overwhelmingly opted to approve Proposition 64, signing the Adult Use of Marijuana Act into California law. The law allows the sale and cultivation of recreational marijuana. It also lays the groundwork for a sophisticated regulatory structure to collect taxes, grant licenses to cannabis businesses, and protect the environment. Drug reform advocates hailed the measure as a step in the right direction. However, in Humboldt County, one of the longest running cannabis cultivation areas in the country and part of the famed "Emerald Triangle," many growers and other stakeholders in the illegal industry were opposed. Humboldt originally became a nexus of cannabis cultivation precisely because of its remoteness and isolation from the bustle of the larger cities to the south. Long term growers in the area are now worried that the ruralness that protected them from law enforcement and allowed them to develop a culture of impunity will work against them in competing against growers able to produce cannabis close to consumers. Many small family operations are worried their business model will collapse with the addition of licensure, regulatory compliance, and competition from corporate interests. The clock is ticking toward January 2018, when the law goes into effect. What will become of Humboldt's biggest industry, and with it, the fortune of the county?

The answer is not simple: County government is working full-speed to set up the regulatory structure necessary to administer the newly-legal industry, but the high-stakes process is very contentious, and the repercussions of any given move are hard to foresee. A coalition of long-term growers in the area recently threatened the county with litigation over the re-opening of a pre-existing grow permit application period, arguing that it was contrary to the plain meaning of the (very new) statute. The litigation is the latest round in the conflict between legacy growers (those with pre-existing medically sanctioned farms) and new growers.

Cannabis regulation and the headaches it engenders place a heavy burden on county officials. Humboldt County received 2,337 applications for 2017's medical marijuana business permits alone- this includes grows, dispensaries, processing facilities, and testing labs. These applications go through a relatively well-refined process that was created after Proposition 215 legalized medical marijuana in 1996. The process for granting recreational-use licenses goes through three separate state-level agencies, and is brand new. Among those expressing concern about the difficulty of setting up a regulatory structure for a high-stakes new industry is State Senator Mike McGuire, who foresees enormous difficulty in implementing these regulations consistently and predictably in such a short time.

For Humboldt growers who are already worried about their future in an industry they fear may be dominated by out-of-town venture capitalists, the difficulty of complying with a complex set of untested regulations compounds their fears. A regulatory scheme shifts risk to the smaller pool of 'outlaw' growers who can't or won't comply. Outsiders are sanguine about the prospect:
“Candidly, the future for many current growers isn’t bright,” said Joe Rogoway, a Santa Rosa attorney specializing in cannabis issues. “The new marketplace requires a degree of capitalization and sophistication that inevitably will leave people behind. It’s capitalism. There will be winners and losers.”
The question is: Will Humboldt County lose? On the one hand, there is little incentive for business-savvy investors to make their play to enter the industry in the area, now that the remoteness of the area is no longer an asset in avoiding law enforcement. Shipping cannabis products from Humboldt is likely to be expensive and difficult compared to situating a cannabis business more centrally in the state. The much-vaunted excellence of the area's climate for cultivation is largely puffery, as cannabis is a robust weed that has been heavily altered through selective breeding to be tolerant to a wide range of climates, and is often cultivated indoors. Many local growers are (understandably) unequipped to become experts in this complex web of regulatory compliance. The transaction costs of the industry are about to skyrocket. With widespread cultivation and the application of sophisticated economies of scale, the Humboldt cash crop may see the bottom fall out, squeezing out local farmers.

On the other hand, the culture of Humboldt is tolerant of widespread marijuana cultivation. Local government is responsive to growers as stakeholders in county governance. Growers are a large local constituency who wield serious clout, and have significant institutional knowledge. A core of committed long term locals appear willing to get compliant. The county is also levying a local cultivation tax on growers, expected to yield approximately $7.3 million to be kept solely for county services. Provided the industry can survive the likely price effects of legalization, local services could be seriously bolstered by taxation. It does seem likely that a reduced cohort of the savviest local growers could weather the storm and ultimately thrive in the legal market.

Perhaps effects like the revenue expected to be collected by new taxes are the best reason to be optimistic. Humboldt County, despite its reliance on marijuana, is not populated solely by marijuana growers. The deleterious effects of illegal grows have taken a long toll on Humboldt. Migrant workers on illegal grows have been abused and exploited. Predatory growers, emboldened by a climate of outlaw impunity, sexually abuse their seasonal workers. Watersheds that comprise the runs of endangered steelhead salmon are drained and polluted. At the same time, the porous boundary between the illegal industry and the drug culture has produced a mental health crisis in the county that underfunded local services are struggling to keep up with.

Prop. 64 includes new protections for workers and for the environment. New streams of both local and state taxes are earmarked for improving drug rehabilitation services and other vital services. Bringing a wholly unregulated industry into the daylight is the move Humboldt County needed-- provided the bottom doesn't fall out on the commodity propping the whole project up. The next few years will likely produce huge upheaval in Humboldt-- only time will tell whether the county is relegated to a backwater as cannabis moves to more populous areas, or whether it can capitalize on its history and use tax revenues to improve county services.

Full disclosure: I worked for the Drug Policy Alliance during the 2016 push to get Prop. 64 passed.


Lisa R. Pruitt said...

With this post, Willie, you scooped the New York Times, which reports on this phenomenon today from the Salinas Valley.

Anne Badasci said...

This was an awesome post, very well-framed and (like Professor Pruitt says) innovative! The Prop 64 issue is something that I've tried to follow since the vote, because I too am really curious how it will play out over the next year or so. I think I sruggle a bit with conflicting feelings of the righteousness of anti-drug laws and a strange sense of rooting for the "underdog" who in this case were violating those (perhaps un-righteous) drug laws. I was thinking a bit when reading this about the parallel notion of "reliance" in the law; ordinarily, laws or ballot measures that change an industry's ability to function or make the same profit build in some time or flexibility for the industry, in the interest of protecting business's reliance on the law as it previously existed. (I'm thinking about the plastic bag ban, and the phase-in period that was built in to help smooth the transition). But, because weed growing operations were illegal before Prop 64, there was of course no legislative interest in building in a "phase-in period" for those growers to join the mainstream. It's really kind of an adapt or die situation, and I'll certainly be keeping an eye out for developments in this realm!