Inside California’s cannabis crisis

It’s a raw December day in the heart of California weed country, and thousands of cannabis growers, purveyors and smokers are gathered at the 18th annual Emerald Cup Harvest Ball in Santa Rosa, California. The blissful funk of a psychedelic soul band wafts from an outdoor stage as a chilly drizzle falls, and chipper corporate promoters hand out branded rain slickers to shoppers. They’re waiting to get into a makeshift dispensary for the popular cannabis brand Cookies, housed in a magnificent geodesic dome packed with display cases full of bud, concentrates, vape cartridges and seeds for sale. In the indoor Puffco Pavilion nearby, buyers are examining jars full of frosty nugs and haggling over cannabis seeds and plant cuttings, some of which are selling for up to $1,000. There’s weed everywhere you look. California’s enormous marijuana market, which reached an estimated $4.4 billion in sales in 2020, has seemingly reached peak cannabis capitalism.

The mood is decidedly different in a neighboring building where mom-and-pop cultivators were just accosted by uniformed agents from the Department of Cannabis Control. Moments before, they’d entered the room clad in olive green jackets and navy caps, going around to each of the booths – which were given to 27 grows for free as part of the Cup’s new Small Farms Initiative – and insisted that they put away any actual marijuana on display. Since the small farms don’t have retail licenses, which cost upwards of $100,000 a year, event organizers had told them they were permitted to show flower samples at their tables, and direct buyers to a nearby dispensary booth for purchases.

They were wrong. The farmers, most of whom had traveled long distances from rural Northern California to show their weed to buyers, were baffled by the agents’ demands. “How are you supposed to sell a product that you can’t display?” asks Nevada County grower Donna Panza. “People want to look at it, they want to smell it. Are we supposed to show them a photograph?”

The scale of the DCC enforcement seemed to be indicative of the bureaucratic overreach that’s sinking small farms around the state. “It’s super frustrating,” says Michael Katz, executive director of the Mendocino Cannabis Alliance, who is heading up the Small Farms Initiative. Eventually, Emerald Cup organizers secured a compromise with the DCC, and paperwork was drawn up to allow them to continue displaying product. But the overwhelming sense amongst the so-called “legacy growers” is that they’re at a breaking point, exhausted by the regulations of the industry that they largely created. “Once again, the small farms get screwed,” Panza says.

The struggle between small farmers and corporate cannabis can be traced back to when California voters approved Proposition 64 in 2016. Since the 1960s, cannabis farming has been the economic lifeblood of many Northern California communities, especially those in the counties of Humboldt, Trinity, and Mendocino, collectively known as the Emerald Triangle. Small farmers were given a measure of protection when the Compassionate Care Act, or Prop. 215, legalized medical marijuana in 1996, giving rise to a robust, entrenched “gray market” that lasted for decades.

Under Prop. 215, farmers came out of the illicit market to grow medical marijuana under relatively modest regulations – for example, each county set a limit to the number of plants a farm could grow. Farmers were required to apply for a license and pay taxes to the state, and some towns implemented local sales taxes. But the law didn’t create a regulatory body to manage the industry, which thrived as medical collectives popped up to serve customers. 

Protecting existing growers was a pillar of Proposition 64, which legalized marijuana for adult use. Worried that the measure would fail without the support of rural farmers, legalization advocates included a provision to encourage legacy growers to join the legal market, promising that no cultivation site would be larger than one acre until 2023. This supposedly meant that small farms wouldn’t face competition from multi-acre ‘mega farms’ for at least five years. “Prop. 64 was built to protect the small farmers so that there wouldn’t be an overabundance of cannabis,” says Emerald Cup founder Tim Blake. “They would have a chance to evolve.” 

“How are we going to compete? Small cannabis farmers are being sucked dry.”

But in Nov. 2017, two months before Prop. 64 was set to go into effect, cannabis industry lobbyists persuaded the California Department of Food and Agriculture to change the provision. The CDFA removed the limit on the number of quarter-acre licenses available to individuals or companies, creating a loophole that opened the door to multi-acre farms through bundling or ‘stacking’ licenses. This meant that a business that could afford to purchase multiple licenses could grow exponentially more cannabis than a small farm. The protective period that would have ostensibly allowed small farms to get a foothold in the legal market before facing off with big agriculture was gone. 

One large-scale cultivator, FLRish, spent more than $300,000 to lobby lawmakers through a political consulting firm called California Strategies, according to a report from the cannabis website Leafly. At the time, FLRish was under the leadership of Steve DeAngelo; he was also executive director of Harborside, one of the first licensed dispensaries. (DeAngelo also co-founded the country’s first cannabis testing lab Steep Hill, the cannabis investment firm Arcview, and the nonprofit Last Prisoner Project.) He is a highly visible, somewhat controversial individual – a charismatic activist who’s known as “the father of legal cannabis” and bills himself as a champion of marijuana accessibility and safety, while also making a healthy profit. As one activist describes it, he has the ability to “piss off lots of cannabis subgroups simultaneously.”

In a 2017 essay for Leafly, DeAngelo called for “healthy competition” amongst cannabis growers to keep marijuana affordable for patients, writing, “Propping up California’s small-scale cannabis farmers with regulations that forbid efficient-scale cultivation hurts consumers.” He also said there was “a heavily exaggerated narrative of safeguarding mom-and-pop cannabis growers from big corporate cannabis interests.”

Many of the growers who spoke with Rolling Stone brought up DeAngelo, saying they felt betrayed when he sided with big weed over small farms. Donna Panza’s 10,000 square foot farm in Nevada County was one of many small suppliers for Harborside under Prop. 215; she and her husband say they were nervous about what Prop. 64 would mean for their business. They’d been supplying Harborside since 2011, but when the new law passed, their contract wasn’t renewed after the 2017 harvest. “DeAngelo really pushed for legalization, for Prop. 64 to go through,” Panza says. “We appreciated that he gave us an opportunity – but in the end he really screwed us.”

When asked for comment, DeAngelo said through a representative that he stands by his push for legalization that prioritized affordability for the consumer over protections for small farms: “My primary allegiance has always been to the people who use and need cannabis, which means the product must be safe and tested as well as affordable – a primary objective of Prop 64.” He also says that Harborside never made a decision to stop buying from small growers. “When adult-use regulations went into effect, only 10 of the 500 small farmers who had been supplying Harborside had been able to get licensed, and we continued to do business with all of them. In fact, in the weeks prior to Jan. 1, 2018, we stocked up on hundreds of pounds of weed so our small growers could get their cannabis into the system before the deadline.”

At this point, there are seemingly endless elements contributing to what many in the industry call an extinction-level event for small businesses: a thriving illicit market diverting customers; exorbitant licensing and permitting fees; a lack of access to banking; navigating red tape with county and state agencies like the CDFA. But Genine Coleman, founder and executive director of the nonprofit cannabis advocacy organization Origins Council, says the main factor behind the market collapse is the lifting of the one-acre licensing cap. “The results completely undermined the stated intention of the people’s voter proposition,” she says. “The overproduction issue that we are currently facing, and the market collapse of the wholesale price, is directly because of those actions.” 

Tim Blake also pinpoints the regulatory switcheroo as the fundamental issue behind the current crisis. He says he foresaw the death of the legacy cannabis industry when the change was announced: “How are we going to compete? Small cannabis farmers are being sucked dry trying to make their farms legal, while giant farms are building their infrastructure.” 

In January 2018, the California Growers Association filed a lawsuit against the state, claiming that the CDFA loophole “eviscerate[d] the statutory five-year prohibition overwhelmingly approved by California voters.” That spring, State Senator Mike McGuire and Assembly Member Jim Wood held a joint senate hearing that was packed with hundreds of small farmers. Sonoma County agricultural commissioner Tony Linegar told the assembly, “If the overall goal of this program was to create a regulatory scheme to favor corporate, big-dollar industry, we’ve succeeded. If the goal was to create a regulatory pathway for existing cultivators to become legal, I think we’ve failed.”

Jacob Lawrence is an activist who grew up on a legacy farm in Lake County. A large, voluble man in his thirties who goes by the name Big Jake, he now runs a nonprofit called MedVets that supplies military veterans with medical cannabis. “I was born into it,” Jake says. He isn’t a veteran himself, but he’s passionate about supplying free medicine to those in need, and is disdainful of corporate interests. When he was growing up, Jake says, the NorCal cannabis community was entirely made up of small farms and families who lived off-grid. For decades, those farmers put their income back into the local economy, buying clothes and home goods, shopping at the hardware store, and eating in local restaurants. “Without regulation, we started schools, we started fire departments,” Jake says. “We started things and gave back without anyone telling us to.” 

He says small farms in Northern California can’t begin to compete with commercial ventures because they don’t have time to stop farming to learn how. “You know how many farmers I know that grow the most amazing cannabis that could not tell you how to put together an actual business plan?” Jake asks. “To create logos, to set up to go cross-platform for mobile operations… they don’t know these things, and they don’t have the money to stop.” Now, he says, many growers are going back to the illicit market as the legal industry crumbles: “They’ve done nothing but create a breeding ground where it’s actually more enticing to remain where we left off in the legacy market.” 

Chiah Rodriques, a second-generation grower and the co-founder of Mendocino’s River Txai Farms with her husband, says that intense regulation is making it near impossible for them to stay afloat as small farmers. “There are so many rules,” she says. “Every time you turn around, there’s something new you have to do, and another agency that wants a piece of the pie, and there’s no more pie left.”

The community that created California’s legendary cannabis scene is being eclipsed by corporate weed.

Excessive taxes are also a huge problem, growers say. A flat cultivation tax based on weight, rather than market price, is levied before the crop even leaves their farms. In 2021, the tax on a pound of cannabis was $154 – as prices nosedived, that meant the tax rocketed from 10 to 20 percent of the price per pound to as much as 80 percent. There are also state and local excise taxes, and a sales tax. Despite a $31 billion surplus in cannabis tax revenue, regulators raised the cultivation tax to $161 per pound on Jan. 1. 

Grower John Casali of Huckleberry Farms, whose family has been growing in Humboldt County since the 1970s, says that he’s barely breaking even with sales for this year’s harvest at $500 a pound: “That includes a $150 trim fee, the cultivation tax, the water board fee, the Fish and Game fee, the county fee and the permitting fee.” Some of his neighbors need $700 a pound to break even, Casali said, so they’re losing $200 a pound, “and that can only happen for a very short period of time before you’re completely out of business.” 

The community that created California’s legendary cannabis scene is being eclipsed by corporate weed. “Over [the last] 50 or 60 years, you had families growing,” explains Fred Marshall, who owns a cannabis tincture company called CBD Mendo. “They’d meet each other in the store and talk about what they learned. Pretty soon you’ve got big advances in technology and understanding how to grow, and also in terms of breeding and varieties. That’s what’s been happening all this time.” 

Marshall, who has been growing since 1999, will likely have to shutter his business because his district chose not to allow cannabis grows under an “opt out” clause instituted by Mendocino County. “I’ve been trying to be legal with everything,” Marshall says. “I spent 30 or 40 thousand dollars on consultants, and all the things the [county and state] require. I’m probably not going to go forward with it.”

Brandy Moulton has been cultivating in Mendocino for 24 years. Under the current licensing structure, she’s set to lose her indoor cultivation business due to a provision known as the “sunset clause,” which was established by county supervisors in 2017 in an effort to push growers out of residential neighborhoods. Moulton unsuccessfully applied to the county planning commission to create a zone to offset the clause; she then tried to relocate her dispensary to the city of Fort Bragg, where she has been repeatedly rejected by the planning commission and city council, despite having support from locals and city staffers. “It’s not looking good,” says Moulton. “We’re likely going to be put out of business by local policy makers whose personal feelings supersede the voters’ will, and even cannabis policy they themselves wrote and passed. They’re playing with peoples livelihoods.”

Frogville Farms was the first Nevada County operation to get a cultivation license under Prop. 64, but Donna Panza and her husband Jon say this could be their last year as farmers. Jon has had to go back to traveling for work, leaving Donna to run the family operation. “I was tenacious because it’s been a passion of mine for years, since back in the days where we used to have to hide from helicopters,” says Jon. “Now I have to leave home for periods of time because our farm isn’t gonna make it. I come back and I take all the money I’ve earned to pay taxes and fees on cannabis, because it’s not even paying for itself, you know? So it’s pretty depressing.” 

For some, it gets a lot worse than losing a farm. During a call with shareholders, George Allen, chairman of the massive cannabis brand Lowell Farms, called the situation facing California cannabis farmers a “modern-day Grapes of Wrath.” He spoke of learning about the death of a Humboldt grower who, Allen said, “jumped to his death from a four-story building. What sorrow. He jumped because he was so in a hole, he saw no way out.” Allen doesn’t have permission from the family to divulge details, but he says he believes the grower’s death is not an isolated situation. “I’ve been on the phone with clients of ours who have grief and despair and pain,” Allen says, “the likes of which I haven’t encountered in my professional career.” 

“I have to leave home for periods of time [to work other jobs] because our farm isn’t gonna make it.”

Cannabis industry leaders warned Governor Gavin Newsom in an open letter last December that “California’s world-renowned craft cannabis farmers are literally killing themselves, trying to find ways to survive on a chess board that you mandated them to join but is rigged for all to fail.” They warned of the imminent collapse of the cannabis market and called for immediate tax reform, writing, “Our global leadership and legacy is at the brink of disappearing forever. The California cannabis system is a nationwide mockery; a public policy lesson in what not to do.” The 30-plus signatories included an assortment of CEOs and business owners, including Steve DeAngelo. 

According to the group, the industry is lucrative for the state – California collected about $817 million in adult-use marijuana tax revenue during the 2020-2021 fiscal year – but not for cannabis business. “I know very few companies in California that are making money,” says Darren Story, founder of a farm management company called Strong Agronomy, noting that he’s had to lay off more than 50 percent of his staff. “There is no way for legal license-compliant cultivators to compete with the illicit market,” Henry’s Original CEO Joshua Keats says. When asked what effect the removal of the one-acre licensing cap had on the industry, Keats says simply that it was “shortsighted” on the state’s part.

Genine Coleman of the Origins Council says her group chose not to sign the letter. When asked why, she is restrained in her reply. “Origins Council is a statewide advocacy organization representing nearly 900 members,” she says. “We’re the largest membership-based advocacy organization in the state.” Despite that, Coleman says she received the letter with no time to vet the group’s demands, so she declined to sign.

Instead, Coleman rallied at the state capitol in Sacramento with social equity cannabis operators and legacy farmers on Jan. 13, urging lawmakers to abolish the cultivation tax. “Our legacy cannabis farmers are pioneers who deserve to be protected and exalted,” Coleman says. “Without the urgent elimination of the cultivation tax, we will see hundreds of these families abandoning their dreams, closing their farms, selling their land and leaving their beloved communities over this next year.”

Activists have made some headway recently. On Feb. 7, a grassroots effort led by the Humboldt County Growers Alliance secured an 85 percent reduction in the county cannabis cultivation tax for 2022. The move by the Humboldt County Board of Supervisors offers a measure of financial relief to Humboldt farmers. It remains to be seen if the Newsom administration will restructure taxes for the rest of the state’s cultivators. After releasing his 2022-23 budget proposal, Newsom simply said, “It is my goal to look at tax policy to stabilize the market.” Details about how he hopes to accomplish that stabilization are unknown.

Fire Flower Farm is at the end of a long and bumpy gravel road in central Mendocino County. The hillside grow is a short walk from the cottage, perched on the spine of a hill, across a small bridge spanning a mossy waterfall. Harvesting was a few weeks ago, so the farm is dormant at the moment, but the scope of the operation is still impressive. Owners Hildi Gerhart and Avery Edmunds handle every aspect of farming on two licensed 10,000 square foot parcels of land, and the only place they can save on operating costs is in labor, so they do it all themselves, from seed to harvest, trimming and curing.

Gerhart and Edmunds are somewhat philosophical when it comes to dealing with regulations, and say they’ve been fortunate in their dealings with county and state supervisors. “They’re doing what is paramount to a nearly impossible task,” says Edmunds. “Trying to regulate an existing multi-billion dollar unregulated industry that’s occurring on this beautiful natural land is such a huge job.”

The red tape involved in reporting to the various agencies overseeing legal cannabis can be overwhelming, but Gerhart says that it’s not necessarily a bad thing: “I report to the water board in four different ways, depending on which water source I’m using and for what. So I’m making logs, I take pictures of all these meters – and then I have all this information that makes me a better cultivator.”

Gerhart and Edmunds insist they are keeping up with the hardships they face as small farmers. “For us, farming is inherently an act of faith,” Edmunds says. “The more that we can keep our margins slim allows us to pay attention, to take action, to change.” They are not depressed, they say – in fact, they’re optimistic in the face of the crisis facing small cannabis farmers. “If we know that we’re trying the best we can, it takes a lot of the fear out of it, and hopefully some of the ego,” Gerhart says. “If we put our best foot forward and it doesn’t work out, it wasn’t because of us.”