The New Year brought a new wave of retail cannabis for adult use, but industry veterans dread the sound of helicopters. Those fears intensified on Jan. 4 when Attorney General Jeff Sessions rescinded guidance of U.S. attorneys on cannabis, including a 2013 memo from Deputy Attorney General James Cole that suggested deferring to state law on cannabis prosecution except for large-scale criminal enterprise.
Federal agencies have “not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for personal use on private property,” the Cole memo said. Now that guidance is gone.
Fear of arrest plagues cultivators, distributors, transporters, processors and retail sellers at the dispensary level of the fast-growing legalized industry.
Renewed dread rippled through the cannabis trade after Tyler Ogden, a California Highway Patrol officer, on Dec. 22 pulled over a truck from Ukiah-based Old Kai Distribution that was transporting about 1,875 pounds of product. Two workers from the company were detained on suspicion of illegal transportation of cannabis, according to Lucas Seymour, co-founder of Old Kai. The company has permits needed to transport cannabis, he said.
The truck and large quantity of product were seized by police and are still being held, Seymour said in an interview with North Bay Business Journal. Old Kai employs 33 people.
“We have no idea where it’s being held,” Seymour said of the truck and product. “We don’t know if the product still exists or has been destroyed.”
He has worked in the cannabis industry for 15 years. Old Kai started in idea form about two years ago.
“We saw a lack of professionalism between cultivators, manufacturers and retail partners,” Seymour said. The company transports pot to more than 150 dispensaries statewide, including 11 in Sonoma and Marin counties, 10 in Solano County, nine in Mendocino and Lake counties, and 21 in San Francisco.
Old Kai sends cannabis for testing, “quality assurance and quality control,” he said, “making sure we bring clean, safe material to manufacturers or retail establishments. We take many samples,” Seymour said. The company sends about 250 samples a week to laboratories such as CW Analytical in Oakland.
“We take all different grades of material,” Seymour said. “Until we grade it and lab-test it, we don’t actually know the value. A majority of what was in that vehicle was trim.”
Trim prices vary widely. Leaves trimmed from cannabis plants can bring $250 to $400 a pound. Trim is used to extract THC to make concentrates such as shatter and wax for vape cartridges, as well as cannabidiols for medicine.
Flower buds grown indoors sell for $800 to $5,800 a pound, depending on quality, with average wholesale prices at about $1,600 in 2018, according to New Leaf Data Services, based in Connecticut. Outdoor cannabis buds sell for $400 to $2,200 a pound, averaging $1,000. The average deal size is about 12 pounds. Nearly half is grown indoors.
At $250 a pound, a truck with 1,875 pounds of trim could carry roughly $500,000 worth of product. “We want it back,” Seymour said. Liability for confiscation of product will likely be shared with the grower, he said, if police do not return it to the company.
The drivers were detained on misdemeanor charges of transporting cannabis, Seymour said. “They were cited and released without being arrested,” he said. “They have a court date.”
Chad Ramsey, an officer with the CHP’s Mendocino office, indicated on Dec. 29 that “Major (Crimes) Task Force (administered by the Mendocino County sheriff) probably took that case over. The truck is at the CHP office in Ukiah,” he said. “The product, I have no idea. It’s way too much to store here.”
The Mendocino Major Crimes Task Force is part of the county’s sheriff’s department. The County of Mendocino Marijuana Eradication Team is supervised by Sergeant Bruce Smith in Ukiah.
“There’s a lot of confusion about what compliant is,” Seymour said, noting the changing laws and regulations at federal, state and local levels.
With the Jan. 4 shift in federal priorities regarding cannabis prosecution, business owners now have heightened fear. Attorney General Jeff Sessions had previously expressed disapproval of legal cannabis, especially for recreational purposes, but the formal policy shift added weight to that disapproval.
“There’s always that worry, fear that something will change, that enforcement will step up,” Seymour said, “regardless of who is in the federal government.” Cannabis prosecution also occurred under the Obama administration.
Those in the industry hope that it has grown so large and powerful that the federal government will back off prosecution and welcome the influx of tax revenue. But the Sessions statement indicates otherwise.
“Few industries in the country are expanding and growing like the one we’re in,” Seymour said. “Why would you want to chop the head off an industry that’s growing? Multiple states have legalized recreational use,” Seymour said. “There’s a lot of money and power in the industry.”
He sought to convince others that with Prop. 64’s passage, “this is the time to play by the rules and get permitted, get licensed,” Seymour said. “Because of this incident,” he doesn’t know if that policy of compliance was sound.
“I don’t believe we’re committing any sort of crime whatsoever,” Seymour said. “I’m very wary. I feel for our employees. It’s a hard position to be in — they’re endangered. Even before this happened, the entire industry has been under tremendous pressure to roll out adult-use” cannabis in legalized form. “The entire industry right now is freaking out. Everyone is wondering if they’re making the right decisions,” both in terms of risk of criminal prosecution and business positioning.
He expressed hope that law enforcement in the industry would shift with the Prop. 64 legalization of cannabis sale for recreational use on Jan. 1. “We don’t know if this is over,” Seymour said. “Are they going to show up at our warehouse? I have no idea.”
Meanwhile, medical dispensaries adapt to the influx of customers seeking recreational pot. Inside one Santa Rosa dispensary that will sell recreational cannabis in the New Year, signs on the wall indicate a wild profusion of edible products that contain pot.
“We’re definitely feeling the pitter-patter,” said Nicole Williams, co-owner, buyer and production manager at Santa Rosa-based Sonoma Patient Group, which has about 5,000 active patients and 23 employees. She has worked at the medical dispensary for 10 years. The founder is John Sugg; there are two other co-owners.
Until July, there will be a “grace period,” Williams said. “Everybody is going to get a temporary permit. We’re not pursuing the 21-and-over right away.”
“We are looking at a huge increase in taxes just for medicinal,” with additional taxes for recreational pot, estimated at 32 percent total. “People are going to turn around and go get their note for medical if they can,” she predicted. “With all the taxation, it’s going to push it onto the black market,” where lab testing is uncommon.
A California state medical cannabis card allows holders to “avoid the 9 percent California sales tax,” Williams said. “We are going through huge growth pains. It’s going to evolve. The day that recreational (pot) passed, our phones didn’t stop ringing,” Williams said. “They still haven’t. I get phone calls every day.”
Some medical cannabis products must be repackaged before they can be sold for recreational use, she said. “They don’t want it to look like kids’ candy.” It has to be clearly marked as cannabis, she said. The company is updating its labels and packaging to comply with new regulations. “As of Jan. 1, I can only purchase products that are in compliance,” she said, though existing inventory can still be sold.
“Cannabis isn’t lethal,” she said, but “an edible can make you very uncomfortable.”
Similar issues apply to liquor. “If you got a bottle of tequila for your birthday,” Williams said, “it’s not the tequila’s fault that you drank the whole thing. Any hangover — you probably wished you had some weed. Always go in moderation. We respect it.”
Especially with dry goods, the company tests for “micro (such as mold), pesticides and chemical residues,” Williams said. “There’s a lot of organic stuff out there,” she said, “but then there’s a lot of nasty stuff.”
Moon chocolate bars with 250 milligrams of THC sell for $12. Pura Vida seeds and granola, also with 250 milligrams, go for $18. Satori blueberries, strawberries and almonds with 140 milligrams are $16. Smokin’ Mike jerky with 100 milligrams sells for $24. Then there’s soda, SensiChew, Yummi Karma chips and popcorn. Honey sticks deliver 100 milligrams for only $8.
Special reserve pot goes for $20 a gram or $228 per half ounce (equivalent to $7,296 a pound). From there prices slide as consumers drop into private reserve for $198, A Grade for $144, B grade for $122 and C grade for $84 a half ounce ($2,688 a pound).
Weed varietals have fanciful names, such as Do-Si-Do, Lemon Banana Sherbet, P’s Gorilla Glue and Sublime Lime.
The cannabis marketplace in some locations, such as Sonoma Patient Group in Santa Rosa, resembles a funky café, with product offerings scrawled in colorful chalk on giant blackboards. On Jan. 2 after sales of recreational pot became legal in California, there was no rush of customers.
Other dispensaries such as OrganiCann, located in a warehouse on East Todd Road in Santa Rosa, look more like trade-show emporiums with stalls that display a huge array of items.
As far as the emerging legal cannabis market goes, Santa Rosa, Sebastopol and Cotati are as business-friendly as it goes. All these cities rushed to issue licenses and pass ordinances to collect taxes and fees.
Many cities in the North Bay still say no to pot, despite legal-cannabis laws passed by voters in November 2016. Even in Rohnert Park, Petaluma, Windsor, Sonoma and Napa, where cannabis business is not welcomed, citizens can still legally grow and possess small amounts for their own use — recreational or medicinal.
Erin Carlstrom, senior counsel at Santa Rosa-based Dickenson Peatman & Fogarty since July, has practiced primarily cannabis-related law for about two years. The firm has 24 attorneys. She advises clients on land use, permitting and compliance.
The firm has agricultural clients, especially in wine and craft-beer. “Many of them are also quietly in cannabis,” Carlstrom said, “looking at ways to invest or diversify. It’s not taboo in the traditional wine” industry. “It’s a way for vineyard owners to maintain jobs for their employees.”
With greenhouse or indoor cultivation, a cannabis cultivator can have multiple harvests annually, spreading employment through the year.
“It’s awful,” Carlstrom said of the Old Kai asset seizure and pending case. “I respect law enforcement,” said Carlstrom, who served a term on Santa Rosa’s city council. “I know how difficult their jobs are. This case strikes me as the CHP wanting to set someone as an example. It’s unfortunate,” she said.
“With Prop. 64, cannabis is affirmatively legal. It’s really frustrating,” Carlstrom said. “The laws say get a permit. They have a permit. Regulations don’t impose a cap on how much you can be transporting. For a business like that, it’s a huge business disruption. There are no charges to file. They would probably never get a conviction” even if charges were filed.
Old Kai has been highly visible in Mendocino County, Carlstrom said, very public about its aims to enable a legitimate industry. “It’s a big blow,” she said, for an industry that struggles to create a normal business pathway. About 30 states have legalized cannabis for medicinal or recreational use.
Fear of prosecution is very real in the industry. “Anyone who underestimates the ability of this administration to make wild, unexpected and erratic moves is a fool,” Carlstrom said. Cracking down on cannabis in California could still happen, she said. “Nobody is in cannabis if they’re risk-intolerant.”
“Everyone in the industry has fears, has PTSD when it comes to the sound of a helicopter,” Seymour said. “One of the reasons for this company (to be in business) is to help alleviate those fears, get people out of the shadows and into the light — feel comfortable that their children won’t be taken away from them, their property won’t be seized. All those fears have come back to us and our partners in the industry — a surge of fear.”
