Recreational Cannabis in California: Week 1

California legalizes recreational cannabis

The highly anticipated launch of recreational sales in California brought all of the hoopla the world expected, and then some, thanks to Attorney General Jeff Sessions’ conveniently timed decision to reverse the Obama Administration’s lenient stance on state-legal cannabis operations.

A Difficult Journey to January

California voters chose to legalize cannabis for recreational use on the November 2016 ballot, an act that didn’t really surprise anyone.  Cannabis has been legal for medicinal use in the state since 1996. Since then, the Golden State has developed a green reputation. While the ultimate decision to legalize wasn’t shocking, the state found itself facing several curveballs.

The most devastating surprise was one thrown by nature. While wildfires are common in California’s forests, they normally don’t strike until the winter months.  In 2017, they hit California hard in October, claiming at least 43 lives and forcing tens of thousands of people to evacuate their homes. California Wildfires Affected Cannabis FarmsCannabis growers faced massive losses as well.  Some farmers lost their entire harvest, homes, and savings. Since many insurance companies consider businesses that grow cannabis to be major liabilities given the plant’s Schedule I status, most of those farmers had no recourse to regain their assets without starting from scratch.

On top of that, most California counties seemed to struggle with the will of the voters, choosing to ban one or more of the cultivation, manufacturing, or retail fields in the industry. One of the more surprising counties to ban all cannabis retail was Los Angeles, the most populous county in the country. Los Angeles and other counties like it are hesitant to allow cannabis businesses within their lines, expressing concerns about black market growers hiding in plain sight, underage consumption, and a decline in real estate value. As of January, many of those counties (including Los Angeles) have approved at least the retail of cannabis.

Sales Hit a Homerun


When January 1 arrived, it officially became legal for adults aged 21 and over to use, carry, and purchase cannabis for personal use and to grow up to six plants at home. The law prohibits the sale of cannabis between 10 PM and 6 AM, but Californians were ready to begin the celebrations as early as 3 in the morning. Dispensaries opening at 6 had lines stretching for blocks at that early hour filled with customers hoping to make history as the first in the state to legally purchase cannabis for recreational use.

Early estimates report that the first day of sales generated about $5.2 million from the approximately 69,300 excited customers who formed those lines. Recreational cannabis bringing in revenue for CaliforniaThe wildest part of that number is that it only includes the handful of cities that were prepared for sales. Many counties are still pending licenses as they try to navigate choppy regulatory waters.

The launch of recreational cannabis sales in the Golden State coincided with an impressive boom in cannabis finances in North America.  Cannastocks went up by double digits. Even Canadian cannabis stocks saw huge gains – likely because the rush to dispensaries in California foreshadows what the Canadian market will look like come July 2018 when the Maple Leaf launches federally legal recreational sales.

The high only got higher when ArcView Market Research Group, a cannabis analytics firm, released their predictions of the industry’s worth by 2021. In 2016, ArcView predicted that the cannabis industry would generate almost $22 billion by 2021. That number has changed to an astounding $40 billion by 2021. Regarding California, the report estimated that legal cannabis would produce 99,000 jobs within the cannabis industry and 146,000 jobs overall when considering ancillary businesses as well.

Jeff Sessions Plays Hardball

The numbers don’t lie.  Legal cannabis is a big win for California, as it has been for Washington, Colorado, Nevada, and Alaska – states that launched their recreational sales before California did. Jeff Sessions rescinds Cole MemoLegalization leads to job creation, revenue generation, medical access, and reduced cannabis-related arrests and convictions, crimes that cost each state almost $3 billion a year.
Despite that, and despite the data showing that the support for legal cannabis is at an all-time high (including with Republicans), Attorney General Jeff Sessions went ahead and did what everyone thought he was going to do but really hoped he wouldn’t.

On January 4, Sessions reversed Obama-era guidance that discouraged federal prosecutors from enforcing federal cannabis law on operations in compliance with their states’ regulations. This guidance frequently referred to as the “Cole Memo,” mandated that the DOJ use its resources on cannabis only when targeting drug cartels or those selling to underage consumers.

California Stands Its Ground

The implications of Sessions’ reversal are unclear. All it really means is that federal prosecutors are at liberty to pursue state-legalized cannabis businesses. However, in the ultra-liberal state of California, it’s hard to imagine that this would suddenly become the modus operandi.

Californians aren’t new to opposition, especially from the Trump administration. Though stocks took a dip after Sessions’ announcement, business at dispensaries carried on. The official statement released in response to Sessions’ action by California’s Bureau of Cannabis Control made it clear that the industry wasn’t about to shrivel in fear.

“The administration is conferring with the California Attorney General and other states in response to this action. We expect the federal government to respect the rights of states and the votes of millions of people across America and if they won’t, Congress should act. Regardless, we’ll continue to move forward with the state’s regulatory processes covering both medicinal and adult-use cannabis consistent with the will of California’s voters, while defending our state’s laws to the fullest extent.”

Looking Ahead

If the rescission of the Cole memo proves to be more symbolic than pragmatic, it may simply slow innovation a bit and steer risk-averse investors in another direction. However, the state will need to strategize new plays as sales move forward. For one, retailers and growers will have to adjust to the market’s demand. Since it’s harder for growers to obtain approval than it is for retailers, it’s likely that dispensaries will struggle to keep their shelves stocked with legally tracked product for the first six months to a year of business. That means that black market cannabis will probably find its way into the legal market. This will likely correct itself as the industry figures adapt to the environment. More importantly, as “legally” becomes the normalized way to purchase cannabis, the black market will lose some of its power and hopefully dissipate.

If Jeff Sessions decides to barrel ahead with the enforcement of federal cannabis prohibition, it could cost California billions of dollars and millions of lives lost to the prison system. The best way to stop his prohibitionist agenda is to change federal law. Right now, Democratic Senator Corey Booker’s Marijuana Justice Act, a law that would remove cannabis from the drug schedule, is sitting on Capitol Hill. Do what you can to make sure your representatives vote for its passage.

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