The Cost of Renewal

[dropcap class=”kp-dropcap”]L[/dropcap]icensed California cannabis operators have been operating under initial and readopted emergency regulations since last year. In their benevolence, the state agencies provided a transition period for licensees that exempted from certain regulations for six months. The purpose of the transition period was to allow cannabis businesses to ease into compliance and to distribute and sell product that was already in inventory. However, that transition period came to an end on July 1, and it has left many businesses encountering new regulatory obstacles.

A few highlights from the emergency regulations stating that as of July 1, 2018:

• A licensee may only sell cannabis goods that have been tested by a licensed testing laboratory and have passed all statutory and regulatory testing requirements.
• Untested cannabis goods cannot be sold by a retailer and must be destroyed.
• Beginning July 1, 2018, all packaging and labeling must be performed prior to cannabis goods being transported to a retailer.
• A retailer shall not accept cannabis goods that are not properly packaged and labeled. A retailer shall not package or label cannabis goods, even if the cannabis goods were in inventory before July 1, 2018.
• Cannabis goods in possession of a retailer that do not meet packaging and labeling requirements must be destroyed.
• All cannabis goods must be in child-resistant packaging prior to delivery to a retailer.
• Beginning July 1, 2018, edible cannabis goods may not exceed 10mg of THC per serving and may not exceed 100mg of THC per package.
• Non-edible cannabis products shall not contain more than 1,000mg of THC per package if intended for sale only in the adult-use market or more than 2,000mg of THC per package if intended for sale only in the medicinal market.

As a result of the end of the transition period, the industry has been left scrambling. The additional level of compliance has added enormous expenses on companies already burdened with high taxes and competition from unpermitted operators. Many retailers were forced to sell non-complaint product in their inventory at deep discounts before the July 1 deadline. It was also widely reported that millions of dollars’ worth of product was destroyed. Many licensees have been preparing and diligently planning for the July 1 date, while others simply did not have the resources or foresight to make such changes.

Dispensaries did everything they could to prepare. “We were very well prepared for the July 1 change as far as getting all products sold before July 1,” said a representative from Torrey Holistics. “We had minimal items that we needed to trash. The big issue we are experiencing is the vendors who promised compliant products by July 1 are way behind schedule—mainly because of testing or packaging. This is causing us to have a limited menu.” Even the most prepared retailers are still facing a serious supply bottleneck issues. The biggest hold up in the supply chain is that the state’s limited licensed testing labs are not fully up and running. Beyond that, many manufacturers and distributors are still struggling to get their packaging and labeling fully compliant.

Another local dispensary, a microbusiness licensee called Outliers Collective, described how the July 1 transition impacted their business. “Until all the brands we are used to carrying have fully compliant packaging and testing results, visitors to our dispensaries will have fewer choices than they are used to,” the company’s representative stated. For its own manufactured product Outliers Collective said it “has been preparing for the new regulations and testing requirements since the first draft came out last November.” When the July 1 testing and packaging requirements took effect, the business took steps to ensure all their wholesale products were compliant.

“Many retailers were forced to sell non-complaint product in their inventory at deep discounts before the July 1 deadline.”

While some San Diego licensees were prepared to navigate the transitions, this has not been the experience elsewhere throughout state. On social media, retailers shared pictures of their empty shelves and customers, though delighted by the June 30 flash sales, expressed concern over access to product. It was apparent that local cannabis businesses were simply not ready to make the shift into compliance, and customers won’t be prepared for the shortage of cannabis that is soon to follow.

The clear message seems like the cannabis businesses with the funds and foresight to proactively prepare for the new regulations will reap the rewards for the near future. Over time, it is likely that the industry will adjust to the new compliance requirements, and it will ultimately be better for the safety of the consumers. What remains to be determined is whether or not the cannabis business can continue to hold on and survive the heavy burdens of complying with the state’s constantly evolving cannabis regulations.