Marijuana legalization: Strain prices are broken down by sativa, indica or hybrid on a price board at the Outliers Collective in San Diego County, California in October 2016. (Vince Chandler, The Denver Post)

Prop 64: Why so much of California’s cannabis industry isn’t ready for legalization

SAN DIEGO — As entrepreneur Whitney Beatty contemplates the upcoming election, which some say could topple federal marijuana prohibition in one fell swoop, she eventually finds the metaphor that fits the mood here on California’s southernmost edge.

“It’s hard to prepare on some levels, because we just don’t know what’s coming up,” said Beatty. “I kinda feel like we’re the vendors inside the Super Bowl right before the gates open. You can hear the rumble of the people — they’re a comin’. And do we really have all the hot dogs on the grill necessary?”

The rumble of the people is indeed deafening: Nine states in America will vote on recreational and medical cannabis measures on Tuesday. The people are certainly coming: Polling suggests most of the state legalization measures will likely pass.

But are they prepared with enough hot dogs on the grill? In California, where voters will soon decide the fate of the pot-legalizing Proposition 64, much of the existing cannabis industry is not prepared.

Inventory isn’t an issue in California cannabis circles; They have cured marijuana flower coming out of their ears. But the lack of a unified industry and entrepreneurs ready to make the death-defying jump from the state’s mammothly unregulated medical pot economy to a regulated adult-use system is one of the biggest issues facing legalization’s most important warfront.

And nowhere is this more evident than in San Diego, California’s second-most populated city but an oft-forgotten hub in the state’s already normalized cannabis conversation.

When assessing the Golden State’s weed geography, Los Angeles is the overcrowded sesh, Sacramento is the wonky happy hour, San Francisco is the cultured salon and the Emerald Triangle is the historic, if secretive, dinner party with four generations at the table.

But does San Diego even have a seat at the table?

“Three years ago when I lived in Orange County, which is one of the most conservative parts of the country and in particular California, I didn’t see any indication of any sort of marijuana culture there,” said Joshua Stewart, the politics reporter at the San Diego Union-Tribune. “When I moved to Long Beach, home of Snoop Dogg and Sublime, you could literally walk down the street and see people smoking a blunt, and it was no big deal.

“(In San Diego) it’s probably in between — Long Beach was really laid back, and Orange County was kind of uptight. When I lived out here (in San Diego) in the late-’90s, you could go out in parts of Ocean Beach and people were openly selling dimebags, and that’s not the case anymore.”

Like the rest of the state, San Diego has its community of activists, industry and opposition — as well as the regulators who have struggled with the plucky pot businesses operating illegally as others strive for compliance. And because San Diego is the ignored stepchild of the state’s legalization conversation it is perhaps a more honest and unfiltered example of how complicated this issue still is in California — and how much of a shock legalization will likely be to America’s largest cannabis economy.

“We are on the precipice of something huge,” says Beatty, the businesswoman who will soon introduce a high-end pot storage case branded as the Apothecarry. “This will be a great test for what legalization will look like federally.”

On San Diego weed

The city of San Diego is the only municipality in San Diego County that has licensed medical cannabis businesses. While the city is attempting to educate its populace to only purchase pot from licensed dispensaries, the county has enacted and extended a ban on new marijuana businesses until March 2017. In October the county’s Board of Supervisors went one step further by unanimously issuing a resolution opposing Prop 64.

“It’s obvious, extremely obvious, that legalization of marijuana in Colorado has thus far been a disaster, especially for public safety, which has been this board’s priority,” supervisor Dianne Jacob said at the time.

The board’s resolution is little more than a finger wag, but journalist Stewart says the statement could be a glimpse into San Diego County’s future.

“When voters vote on Prop 64, if it passes, it will be up to various levels of government, either the county or city or whatever’s relevant for that particular area, to decide on how they’re going to license it or possibly outright ban dispensaries and cultivation centers,” Stewart said while sitting in the Union-Tribune’s glimmering downtown newsroom. “What that vote says to me is, in unincorporated San Diego County they’re likely to make it very restrictive or prohibited entirely.”

The county’s moratorium “comes from misunderstanding,” said Lincoln Fish, CEO of OutCo Labs and the man behind one of San Diego County’s licensed dispensaries, the Outliers Collective. Sure enough, Jacob’s statement that legal weed has created a public safety disaster in Colorado is unfounded, according to testimonies from multiple Colorado legislators and data from the Denver Police Department and the Colorado State Patrol.

“The licensing sheriff who does our work first told us, ‘I thought this was a big scam,’ and now he has a different impression,” said Fish, while sitting in a second-story conference room that includes a large window into one of Outliers’ brightly lit cannabis grows. “He recognizes that we do everything we can to follow the rules and that our patients are who they say they are. The more time (regulators) spend with us the more they realize that, ‘As long as there are legitimate, licensed players and we support them, then we’re not going to have the problems that everyone’s so terrified of in the space.’ ”

Fish says he is voting for Prop 64, and his facilities suggest that he welcomes and expects the exacting regulatory environment, including seed-to-sale tracking and more, that would accompany the implementation of recreational legalization; Outliers’ cultivation and retail operations already mimic Colorado standards even though California’s regulatory system is still years away from such maturity.

But there are more illegal marijuana businesses in San Diego County, and California in general, than legal, permitted pot companies — and it’s this black-market heritage that has many in the state’s industry campaigning against legalization and ignoring a regulated future that is inevitable, whether Prop 64 passes or not.

“The people who are in the industry today, who have been in the industry for a long time, are very anti-establishment,” said Fish. “That’s been their culture, that’s what’s been required. There haven’t been a lot of rules to play by; There have been the medical rules to play by for 20 years but they’ve all been loose.”

California voters in 1996 became the first in the U.S. to legalize medical marijuana via Proposition 215. The state’s sprawling, first-of-its-kind MMJ system went largely unregulated until Gov. Jerry Brown signed the Medical Cannabis Regulation and Safety Act (MCRSA) in 2015, but those regulations have yet to be implemented. Voters will decide on their future with recreational cannabis via Proposition 64, a.k.a. the Adult Use of Marijuana Act (AUMA), well before MCRSA’s regulations take root.

What unregulated pot looks like

When Jack Scatizzi talks about his first San Diego dispensary visit, his face scrunches up as he recalls banging on a steel door and being ushered into a shabby storefront where the budtender was recording the day’s transactions on a loose-leaf piece of paper.

“It wasn’t fully legal, and my friend told me they ended up getting shut down a couple months after we went there,” said Scatizzi, now managing director at cannabis incubator Canopy San Diego. “It was a completely different experience than what I had in Boulder.”

Scatizzi’s face relaxes when he talks about his first visit to a Colorado pot shop, what with its “farm-to-table feel” and “well-lit” ambiance and the “incredibly professional” budtenders.

“I felt like I was at an Apple store,” said Scatizzi, who was in Colorado visiting the inspiration for his accelerator, CanopyBoulder. “And I remember thinking what a huge opportunity there is to bring that retail experience to California dispensaries.”

Canopy San Diego gives a 16-week boot camp to budding, cannabis-adjacent companies, including Beatty’s Apothecarry, a member of the incubator’s first and current class. Canopy San Diego CEO Eric Gomez says the accelerator is taking advantage of the region’s new reputation as “a start-up hub and innovation hub” — and prepping for the state’s inevitable transition into a hyper-regulated environment.

“In Southern California and California in general,” Scatizzi added, “all we’re doing is cleaning up some of the messy collective laws that have been on the books and putting in an infrastructure so everyone can enjoy responsibly.”

Those messy laws and regulatory voids have emboldened communities that are opposed to legalization — and they’ve given them plenty of reasons to be wary of marijuana businesses.

Dana Stevens is the executive director at Community Action Service & Advocacy, a nonprofit previously known as Communities Against Substance Abuse, and the San Diego representative of national anti-legalization group Project Sam. Stevens and her CASA colleagues have advised multiple cities in San Diego County on their local medical marijuana regulations, and many of those cities’ bans on medical marijuana businesses have been ignored as illegal dispensaries have defiantly popped up within city limits.

“These cities, with the way their code enforcement is set up, they can’t fine places very much money,” Stevens said, sitting in CASA’s conference room in El Cajon. “So even if they fine $1,000 to a marijuana dispensary, they made that before noon — they don’t even care.

“(The cannabis businesses) said, ‘Just give us regulations.’ And the cities did, but they’ve never lived by the regulations … If I had seen them behave in a more responsible way, I wouldn’t be as fearful for Nov. 9 as I am.”

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Growing pains in a transitioning market

Many medical marijuana advocates and legalization activists understand Stevens’ issues with the cannabis businesses operating illegally, flying a pot leaf flag in the face of local municipalities’ laws.

“They’re hurting us,” said medical marijuana patient Cara Luhring, sitting outside an Encinitas coffee shop. “They’re hurting our image. They’re really just doing us a huge disservice in regards to providing society with a face as to what we really look like.”

As the founder of cannabis sorority Femme Nuri, Luhring says she looks forward to the day when California’s gaping gray area is replaced by black-and-white laws and regulations.

“I understand that their hands are tied in a lot of these situations and they’re not ideal, but to go about things in a manner in which a lot of these people have done — unethical practices — that’s not helping any of us,” she said.

But Luhring, who has “family that has been breeding seeds and growing (in the Emerald Triangle) for many, many years,” is one of the many pro-cannabis Californians who will be voting against Prop 64 this week.

“I feel the legislation is built around the business, when it should be built around the plant,” she said, noting that she’d ideally like to see what the next recreational legislation bill looks like.

Others in California’s burgeoning pot industry are voting against Prop 64 because they want to give the medical cannabis regulations within MCRSA a chance to unfold before implementing recreational system AUMA.

“People say I’m a prohibitionist,” said Darryl Cotton, president of grow-light and aquaponics company Inda-Gro, “but clearly that’s not the case. I want more of these gardens, not less. I want neighborhoods to have these, and I want them to be regulated at a local level, too.”

Cotton has crafted a 10,000-word analysis of AUMA that he posted on the website for his food-and-cannabis farming organization 151 Farmers. He thinks California is better off with its existing medical program and the regulatory framework that will be implemented in the years to come, and he’s urging voters to just say no to Prop 64.

“We should not be forced with the carrot-and-stick approach to take what should be done morally anyway — sentence reductions, the expungements of those convicted and things that should be done regardless of whether or not AUMA passes,” Cotton said. “The end of prohibition’s gonna come, it’s just at what cost?”

Activist Roni Stetter says she is voting yes on AUMA/Prop 64 and that she’s ready for recreational cannabis in California. She was actually ready six years ago when she volunteered many hours as a college field director at San Diego State University for Proposition 19 — a.k.a. the last time California attempted to legalize adult-use cannabis.

Prop 19 was defeated with 53.5 percent of voters saying no and only 46.5 percent saying yes. Stetter insists that Prop 64 improves the previous bill’s legislation.

“Prop 64 offers retroactive resentencing and expungement of records for people who have already been convicted of cannabis crimes,” said Stetter, sitting in her Pacific Beach apartment complex’s swanky community room. “That’s something that the previous prop didn’t cover. I will be very upset if we have to wait another six years for recreational cannabis here. That would be ridiculous.”

When friends and colleagues challenge Stetter with Prop 215, California’s original 20-year-old medical cannabis legislation, she relents that the system is working in some of the state’s cities — but not San Diego.

“Oakland is a great place to be a Prop 215 business,” Stetter said. “San Diego isn’t that great of a place, unless you’re one of these eight licensed shops. Nobody is legal under 215. All of us patients are flying under the radar, and the businesses are trying to stay one step ahead of the latest local rule. We really don’t have any protections in that way at all.”

Like California’s expansive cannabis community, the activists and entrepreneurs in San Diego are a divided group. Many who are new to the marijuana business anticipate a hyper-regulated environment similar to those in Colorado and Washington, while many of the industry’s veterans are campaigning against a change that would “end our way of life” – a.k.a. businesses that have long operated illegally or on the fringes of the law.

And oftentimes these veteran leaders and businesses are the most unprepared for the monumental regulatory effort that is already underway in California via MCRSA — and soon, possibly, AUMA.

Perhaps unsurprisingly, money is at the crux of this state-consuming argument. Some California growers sell their harvests to the state’s cannabis dispensaries, but others prefer to illegally ship their product out of state where their pounds can draw significantly higher prices.

“Honestly the price of a gram is going to go down (under Prop 64),” said activist Stetter. “That’s why a lot of cultivators up there are in opposition. Whether or not they retail to dispensaries, they definitely have a little side business going … Depending on the product, it can sell for a lot in a place like Texas. A lot of stuff is getting shipped out over state lines, which nobody wants to hear, but this is the reality and this is what’s been happening.

“And with legitimate regulation, the price of a gram is definitely going down — that’s what’s going to happen.”

As he looks down on hundreds of individually bar-coded marijuana plants, OutCo’s Fish smiles when he considers his many interactions with the longtime growers and sellers who preceded him in this business, especially the ones who are ignoring and wishing-away the state’s pending regulations.

There was the guy whose dispensary was pulling in $300,000 per month who told Fish, “I pay all my taxes.” When Fish asked him how much he paid the previous year, the businessman replied, “$800.”

“But that’s just the franchise tax board fee for the state of California,” Fish said. “I told him, ‘Oh ok. I think you missed something, buddy.’ ”

There were the big growers with massive illegal cultivations who told Fish that they’d considered going legal before realizing the many requirements and limitations.

“Once they realized all that they said, ‘Forget it, we’re just going to ride this for as long as we can and not bother,’ ” Fish said.

“They are just terrified that their black market/gray market businesses are going to suffer,” Fish said. “They’re either terrified that it’s going away because they’ve made a lot of money not doing things by the rules for a long time, or they’re worried about the government coming in and getting involved.

“I know lots of players who don’t pay their taxes and so forth. And they’ve made a lot of money and done very well for themselves and they’re used to it and it hasn’t been that much trouble for them with law enforcement and so forth.

“But rules change everything.”