Recreational cannabis sales have only just begun in California, but there are already concerns over a supply crisis that could be on the horizon.
As the novelty of purchasing recreational cannabis wears off, consumers could be turned off to tax rates ranging from 30 to 40 percent in some instances. Sure, cannabis users and industry members embraced paying their fair share in taxes to help fund state programs, but being charged up to four times the rate of other consumer products in sales taxes seems to be a bit excessive. Medical cannabis sales are taxed at a far lower rate typically around 15 percent.
The steep taxes and fees are giving the black market an opportunity to stick around even as the legal market was expected to all but vanquish illegal sales.
High fees are not the only factor that could lead to a supply shortage. California cannabis farmers go through a slow and rigorous process when applying for a state cultivation license. As a result, many cultivators who operated under the previous medical only system have not been able to legally stay in business.
“I would say in general, the manufacturers are very impacted, and the amount of farmers that don’t have licenses is a big change,” said Kenny Morrison, president of the California Cannabis Manufacturers Association and CEO of VCC Brands.
Plugging in different growers does not necessarily solve all of the problems for dispensaries. Operators often had relationships with suppliers for years. Now they often have to start new partnerships from scratch and this can drastically impact how a shop functions.
“We have lost people that we have literally worked with for years,” Don Davies, manager at Canna Care, a Sacramento based medical cannabis dispensary said. “They are now off the list because they are no longer state-certified.”
A shortage of cannabis may not equal barren dispensary shelves, but it could impact consumer choices. Particular products and brands could be limited or not available at all.
“It is still easy to fill up a big store with products,” Chris Francy, operator of the Bud and Bloom and OC3 retail stores in Santa Ana said. “But it is just that not all of the brand names have been able to move forward yet” into the regulated era.
As many industry analysts feared, larger cultivators who can sustain the early challenges of the industry could derail the boutique cannabis movement. In recent years, both cultivators and consumers have increasingly gravitated toward small batch production where quality control is far easier to maintain.
“We’re definitely in flux. Some of our brands haven’t been able to jump the gap with licensing or strike a deal with distributors,” Fancy said. “Certain brands have gone offline.”