The casualties of California legalizing pot: Growers who went legal (2022)

A blue state’s taxes and regulation have boosted corporate producers, leading to the near-death of the small cannabis farmer

By Scott Wilson

August 21, 2022 at 12:39 p.m. EDT

The casualties of California legalizing pot: Growers who went legal (1)

PETROLIA, Calif. — The Wild Cat Road skips along a ridge line, a narrow half-paved, half washed-out track that once carried much of the world’s finest marijuana to market.

Even in mists that obscured its treacherous course as it bows toward the Pacific, the road hummed in tune with the family weed farms around it. Now there is little cannabis to carry, nor “trimmigrants” who traveled here to the Mattole River Valley to pick the flower that made Humboldt County shorthand for the best marijuana around.

“I’m not making it,” said Drew Barber, 48, who has grown cannabis here for more than 15 years, watching the price for his product shrink from $1,200 a pound to about a third of that today. “I can’t lose money from one year to the next, and it’s getting to be that time when I have to decide if I can go on.”

The irony, bitter and true, is shared on the front porches of hillside homesteads across this valley where the King Range mountains and the San Andreas Fault meet the sea. The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmers since state voters approved legalization almost six years ago.

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The story of Humboldt’s fate highlights how inconsistently this influential blue state has treated a quintessentially blue-state industry, a product once rogue and now a public tax bonanza. In the first quarter of this year alone, cannabis taxes delivered nearly $300 million in revenue to the state and additional money to the counties that have embraced what they once punished.

Following legalization, state officials made several far-reaching decisions that have effectively driven many small cannabis farmers to the brink of insolvency while consolidating a $5 billion-a-year legal market in the hands of industrial-scale growers, most of them based far from these northern reaches.

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The chosen course concentrated much of the tax and regulatory power at the state level, dominated by Democrats who often decry corporate influence, and left counties and cities, some far more conservative, with broad discretion over whether to even establish a cannabis industry.

The state imposed multiple taxes across the cannabis supply chain, a burden unmatched in other nearby marijuana-legal states. At the same time, the state declined — after initially signaling it would do so — to limit the size of cannabis cultivations or the number of grower licenses it would issue to farmers.

As a result, the state is now awash in tax revenue, much of it from the industrial-scale farmers and retailers, and in marijuana, a market glut that has gutted wholesale prices and left farmers such as Barber unable to break even. The state rules and omissions have also empowered a still-thriving black market for marijuana — once a chief target of state regulators — whose growers sell their product illegally across state borders and still fetch a lucrative price.

Here in the Humboldt hills, the changes resulting from state policy decisions have also precipitated the slow fade of a unique out-there-alone way of life, pioneered by disillusioned migrants who had soured on the post-1960s vibe farther south.

In the renegade days, a farmer could get $4,000 a pound for Humboldt flower, the plant’s coveted bud. Today, not far from Barber’s operation, one farmer recently dumped three pounds of cannabis at the desperation price of $100 a pound. Others are simply walking away from already cultivated plots.

“The government has actually managed to do in just a few years what the war on drugs couldn’t do in decades,” said Natalynne DeLapp, executive director of the Humboldt County Growers Alliance, which represents a few hundred small farmers here. “It has killed the cannabis market.”

The change in the industry since voters passed Proposition 64 in 2016, making it legal to possess and grow a small amount of cannabis for personal use while leaving decisions on larger cultivations and retail sales to local governments, has now spurred Gov. Gavin Newsom (D) and the state bureaucracy to act on behalf of small growers.

Since 2018, when the new legalization rules took effect, the state has taxed marijuana three separate times as it travels from farm to consumer. Many counties and cities impose their own taxes, at varying levels, on top of the state levies. In some regions of the state, one pound of cannabis is subjected to as many as five separate taxes, some based on weight and others on sales.

By contrast, the state of Oregon imposes a single 17 percent sales tax on cannabis, the only product the state imposes a sales tax on at all. Counties there are allowed to impose as high as a 3 percent sales tax on top of that, which still leaves it far lower than California’s tax burden.

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California’s cannabis taxes come on top of licensing fees and regulatory permits, which can cost tens of thousands of dollars annually for growers, burying those who used to work without regulation in red tape and state invoices. The option to become legal, which roughly half of Humboldt’s farmers once accepted, has been a stunningly expensive one.

In his most recent budget, bursting with a record $97 billion surplus, Newsom eliminated the “cultivation tax” on growers, which in the first quarter of this year brought the state $32.7 million. Counties will still be able to impose their own cultivation tax, called the single most burdensome by many in the industry.

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The state government also pledged not to raise the 15 percent excise tax imposed on distributors — the system’s middlemen who also inspect the marijuana before it moves to retailers — for at least three years. The state collected $156.4 million in cannabis excise taxes in the first quarter of the year.

Newsom signed the specific cannabis measures the last day of June, and the cultivation-tax elimination took immediate effect.

“The question we asked in designing this package was how do we make this simpler,” said Nicole Elliott, director of the state Department of Cannabis Control. “The burden falls most especially on these small farmers. And if we want to have a diverse industry, we have to take care of these small farmers.”

To Barber and his neighbors, the recent tax break is welcome but far from decisive. His cultivation taxes alone ran to roughly $160 a pound, taking an increasingly large chunk of his revenue as wholesale prices fell to an average of $450 a pound. In an emergency step, Humboldt County just cut its cultivation tax by 85 percent.

Barber, freckled from years farming in the sun, said it is his wife’s health consultancy business that is keeping the family, including two kids, afloat for now.

“The car has three flat tires and a blown valve, and the question is what do we fix first,” Barber said of the tax changes. “The car still isn’t going to run if you fix one flat tire. But it will help.”

Cannabis industry veterans say it didn’t have to be this way.

Marijuana long flourished in the state’s far north. A back-to-the-land hippie migration in the early 1970s established a culture accepting of illegal drugs, and an out-of-sight, out-of-mind remoteness discouraged intensive law enforcement.

From that fertile ground, the Emerald Triangle of Humboldt, Trinity and Mendocino counties built a marketable mythology around the marijuana from the region that endures today.

Here, in the Mattole River Valley, the King Range rises thousands of feet high to the south, thickly forested and sheer. The San Andreas begins its state-splitting run south from this wild place of pastures, farms and rain-filled rivers in a rare wet patch of a very dry state.

This is the Lost Coast, about 100 miles of marshy, distant topographic challenges that is the only place in the West to defeat ambitious highway builders. There is no coastal highway here. Nature won.

Like its landscape, Humboldt had a Wild West feel for decades. Big cartels saw opportunities in its canyons and hilltops, planting large plots with little regard for the fate of redwood forests and clear, cold rivers.

Then the industry opened up, at least a crack.

The so-called green rush began in 1996 with the passage of Proposition 215. The measure allowed cannabis dispensaries to sell to customers who could prove they needed the drug for anxiety, pain or other ailments.

It also made it nearly impossible to determine which growers were licensed to supply the dispensaries and which remained outside the law, a line-blurring oversight that brought many into the business and began pushing down prices.

Then two decades later came Proposition 64, expanding legal recreational use to every adult. It passed easily, in part because it placed so much power to regulate the industry in the hands of local governments — the step that would create the patchwork of rules, from taxes to local cultivation caps to retail licenses — across the state.

By the time the proposition took effect in 2018, a grower’s pound of cannabis had dropped in price to $800 from about $1,200 in 2016.

Here in Humboldt, where at least 5,000 growers operated at the time, DeLapp nonetheless persuaded nearly half to sign pledges to become legal despite the costs involved.

But there were gaps between the broadly written proposition and the rules that put the new measure into practice.

Many in the industry and law enforcement favored a proposed statewide one-acre cap on farms as a protection for small growers; by the time the final rules came out, though, there was no statewide cap. There was also no limit on the number of cultivation licenses that could be issued.

“We still have a vibrant black market in Northern California, and we empathize with the small legal growers,” said Humboldt County Sheriff William Honsal, better known as Billy, who was born in the county as the illegal cannabis market boomed.

“By not capping licenses, there has been this flood of supply and I just would have thought our state would have been a little smarter with policies to allow small growers to make it.”

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There were an estimated 69,000 marijuana growers in the state at the time Proposition 64 passed. In the spring of 2018, three months after the regulations took effect, the state had issued 2,000 grower licenses with an expected annual yield of 4.1 million pounds. That translated to at least double California’s legal annual demand.

Now, according to the state Department of Cannabis Control, there are 8,600 licensed marijuana farmers and the amount of cannabis being grown legally in California could be more than quadruple the state demand.

“The oversupply makes it hard to do business legally or illegally at this point,” said Dale Gieringer, state coordinator for the legalization advocacy group NORML.

The lack of state cultivation limits, which was not addressed in Newsom’s recent plan, stands in contrast to some other Democratic-controlled cannabis states, which have experienced market gluts in the past but not nearly to the degree facing California. Colorado, for example, has rules allowing the state to limit — and even shrink — cultivation size to better control supply.

The option of fallowing a cannabis crop for a year to wait for higher prices is also impossible in California; a grower who allows a license to lapse for a year must start the arduous and expensive process of applying for a new license as if they never held one. Cannabis, unlike wine grapes, is not classified as an agriculture product here and so farmers are denied state benefits that accrue to other crops.

“Everything about the regulations have been written as if cannabis farming were a criminal enterprise,” said Dylan Mattole, who farms a quarter-acre in Honeydew, a town in the river valley his family is named for. “And also with the assumption that this business is so profitable they can squeeze and squeeze and squeeze.”

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Mattole’s family moved to this valley from San Francisco in the early 1970s, part of the post-Summer of Love exodus. His father, Walter Sharp III, renamed himself Mattole, just Mattole, for the river he moved next to. He did give his son two names; Dylan got his from the renowned singer-songwriter his dad once saw at San Francisco’s famous Fillmore theater.

But the roughly one-acre farm is shriveling. Last month he laid off his last two farmworkers. He pays more than $35,000 in annual cultivation, transfer and processing licenses, in addition to his cannabis taxes. His revenue is declining at the same time.

A pound of his marijuana, branded Mattole Valley Sungrown, is supposedly selling for about $300 a pound these days. Yet last month, he sold three pounds for $100 each. There were no buyers on the horizon and the weed was growing old.

“At one point did being honest hurt us?” asked Mattole, a 48-year-old father of three.

One major industry challenge is that California is not an entirely legal state, at least not for growers and retailers. A majority of California’s 58 counties still prohibit any cannabis business, according to the state, limiting in particular the number of retail outlets where legal marijuana can be purchased.

“Most people say the problem is oversupply,” said Graham Farrar, founder and president of Glass House Farms, a major grower and retailer based in Southern California. “I say it’s under-demand.”

His business began with state-of-the-art indoor crops in former cut-flower greenhouses in Carpinteria, along Santa Barbara County’s south coast. He has added retail licenses and now holds more than half a dozen, including one here in Humboldt County. But it is the size of his company’s cultivation that is astonishing.

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Earlier this year, Farrar opened a 5.5 million-square-foot greenhouse, roughly 126 acres, in the Ventura County city of Camarillo where agriculture has long been a prominent industry. By comparison, 90 percent of Humboldt cannabis farms are smaller than one acre.

Farrar and other big cannabis businesses are preparing for federal legalization or at least more modest interstate commerce between cannabis-legal states, a measure now under consideration in the California legislature.

“In a state like California it’s hard to change policy in a rapid way,” said Elliott, the cannabis department director. “There is still a lot of reform that needs to happen.”

Ross Gordon, policy director of the Humboldt County Growers Alliance and policy chair at the Origins Council, which represents about 900 growers in six state regions, said big cannabis producers have the capital to ride out the low prices and wait for federal and interstate trade laws to change.

“Glass House and others like it represent the massive upward transfer of wealth that is taking place within California’s cannabis industry,” Gordon said. “There is policy trying to get at some of these issue of disparity. But not nearly to the depth needed to fix an industry that is structurally broken.”

Humboldt growers say a couple of initiatives that saved small vintners in Napa County when they faced extinction from giant wine corporations could help rescue small-scale cannabis farming in California.

The first is a strict “appellation” regimen that would distinguish Humboldt-grown marijuana on dispensary shelves from the mass-produced cannabis from the south. Humboldt, after all, still has mystique.

“Humboldt County produces more redwood fencing than any place in the world,” said Rex Bohn, a county supervisor. “But nobody I run into outside of this county asks me about the redwood fencing.”

The second is the ability to mail their product anywhere. That could depend on the federal government making cannabis legal, and several U.S. senators, including Majority Leader Charles E. Schumer (D-N.Y.), introduced a bill earlier this year to do so.

But industry experts say national legalization, like relaxing interstate commerce, is years off, time farmers here do not have.

“I would expect to see at least half of our businesses fail in the next year,” said Genine Coleman, executive director of the Origins Council. “If I’m being quite frank, I think we need a new proposition. So much wrong is baked into this system that we are just not going to be able to move ahead without one.”

FAQs

How has the legalization of pot affected the economy? ›

The legalization of cannabis has significant implications for state economies, as well as the national economy. In 2018, the U.S. cannabis industry made $46.2 billion, with California alone raking in $345.2 million in tax revenue from legal cannabis in the same year.

How many legal growers are in California? ›

Now, according to the state Department of Cannabis Control, there are 8,600 licensed marijuana farmers and the amount of cannabis being grown legally in California could be more than quadruple the state demand.

Why was Prop 64 passed? ›

Proposition 64 was a voter-led initiative in 2016 that sought to legalize cannabis in the state of California. Its full name is the Control, Regulate, and Tax Adult Use of Marijuana Act.

What are the pros and cons of edibles? ›

Thinking About Cannabis Edibles? Weigh the Pros and Cons Before You Purchase!
  • The Pros.
  • #1 Variety.
  • #2 Better for people who can't smoke.
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  • The Cons.
  • #1 Takes longer to feel the effects.
  • #2 Hard to regulate dosage.
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12 Apr 2017

What are the pros and cons of legalizing drugs? ›

PROs: Eliminate the criminal activity and increase associated industry jobs and tax revenues. CONs: Likely to substantially increase drug sales and consumption, as well as public health and safety harms in the population as more people use it.

What are the benefits of legalizing drugs? ›

Drug legalization would benefit the United States in several ways: save Federal, State, and local governments billions of dollars a year; lead to reduced crime and safer neighborhoods; and enhance public health.

How would the legalization of drugs affect the economy? ›

Drug legalization may increase the number of drug addicts by 25 percent, but the current dollar volume of the drug trade is estimated at approximately $100 billion a year and reducing the economic profit of drug dealing is necessary. Arguments against drug legalization are noted and countered.

Why should Marijuanas be legalized for medical purposes? ›

Why Should Medical Marijuana be Legal? Reduces the use of prescription drugs - Studies have shown that medical cannabis has fewer side effects in comparison to painkillers and patients who used marijuana for medical purposes felt better overall.

How much does a cultivation license cost in California? ›

Fees by license type
Cultivation license typeApplication feeLicense fee
Small outdoor$535$4,820
Small indoor$3,935$35,410
Small mixed-light tier 1$1,310$11,800
Small mixed-light tier 2$2,250$20,235
14 more rows

Does Prop 64 restore gun rights? ›

Can I have my gun rights restored under Prop 64? Yes, if the court grants a request to redesignate a felony offense as a misdemeanor or infraction, thereafter the crime will be treated as a misdemeanor or infraction for all purposes.

What Prop 64 means? ›

Effective November 9, 2016, Proposition 64 legalizes specified personal use and cultivation of marijuana for adults 21 years of age or older; reduces criminal penalties for specified marijuana-related offenses for adults and juveniles; and authorizes resentencing or dismissal and sealing of prior, eligible marijuana- ...

Who funded Prop 64? ›

The organization was sponsored by the California Public Safety Institute, a grassroots lobbying group that deals with proposed California criminal statutes. No on Prop 64 also received major funding from Smart Approaches to Marijuana Action and law enforcement PACs and organizations.

Can edibles affect the liver? ›

So while digestive discomfort may occur while using cannabis edibles, any chance of experiencing real liver damage or acute health risks is highly unlikely.

What's the downside to edibles? ›

Some of the more adverse effects associated with the consumption of edibles include: Drowsiness. Confusion. Vomiting.

What's better vape or gummies? ›

Edibles take longer to kick in, but also last longer and tend to hit harder than smoking or vaping. The main advantage of edibles is that they're discrete and don't carry the same level of risk as smoking does. Vaping and smoking kick in much faster but don't tend to last as long as edibles.

Why should drugs not be legalized? ›

These arguments against drug legalization emphasize addiction, dependency, and treatment issues. If drugs such as heroin are legalized, their price will be reduced significantly, hypodermic needles will be readily available at the neighborhood drug store, and drugs can be purchased anywhere.

Would legalizing drugs make them safer? ›

Legalizing drugs can help make our drugs cleaner and safer, but it will also kill those with the addictive gene, because they won't be able to stop consuming the drug. Legalization of drugs would clean the gene pool. Addiction – whether environmental or genetic – runs in families.

What is the problem with legalizing drugs? ›

Opponents argue that legalization would result in an increase in the number of drug users, destroy families, increase crime, and adverse physical effects among drug users. According to drug experts, marijuana is the most popular illegal drug.

What are the benefits of legalizing drugs? ›

Drug legalization would benefit the United States in several ways: save Federal, State, and local governments billions of dollars a year; lead to reduced crime and safer neighborhoods; and enhance public health.

How would legalizing drugs help the economy? ›

Legalization would reduce state and federal deficits by eliminating expenditure on prohibition enforcement — arrests, prosecutions, and incarceration — and by allowing governments to collect tax revenue on legalized sales.

Why Marijuanas should not be legalized? ›

Contrary to what many people think, it can be addictive. Inhaling the smoke can cause lung problems. New research shows that marijuana use during adolescence and young adulthood, when the brain is going through many important changes, can lead to permanent problems with memory, learning and thinking.

What is a disadvantage of drug legalization? ›

Opponents argue that legalization would result in an increase in the number of drug users, destroy families, increase crime, and adverse physical effects among drug users. According to drug experts, marijuana is the most popular illegal drug.

Does legalizing drugs reduce crime? ›

Drug-related crimes may decrease with legalization but other crimes, especially violent crimes, may increase. In addition, many experts believe a black market for drugs will persist even with legalization.

Would legalizing drugs make them safer? ›

Legalizing drugs can help make our drugs cleaner and safer, but it will also kill those with the addictive gene, because they won't be able to stop consuming the drug. Legalization of drugs would clean the gene pool. Addiction – whether environmental or genetic – runs in families.

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