The Price of a Pot Permit

Of the thousands of cannabis farmers in Mendocino County, 716 have applied this year for a medical cultivation permit under Chapter 10A.17 of the county code. The ordinance went into effect May 4.

The county Department of Agriculture reported Sept. 12 that the county has issued 15 permits and denied 16. One applicant has been shut down by California Department of Fish and Wildlife. Several other farmers still in the county application process have voluntarily eradicated their plants and may relocate or replant.

Is getting a permit worth it?

Without a county permit, cultivators won't be eligible for a state permit in 2018.

But has Mendocino County provided a promising pathway to the future for cannabis farmers? Their crops, after all, bring in an estimated $1.5 billion annually, more than all other Mendocino County economic activities combined.

Or do the new regulations amount to “extortion,” as Grace, a grower who has opted not to apply for a permit this year, describes the county’s ever-changing, often conflicting morass of rules, codes and fees.

Johanna Mortz, 30, and Micah Flause, 29, have taken the leap. They’re waiting to hear if the county has accepted their application to cultivate a 2,500-square-foot garden on their five-acre property off Black Bart Road in the southern outskirts of Willits.

A “roller coaster ride” is how Johanna describes the permit application process. Micah, her husband, says it feels like “jumping off a building.”

Mortz and Flause, idealistic organic gardeners committed to low-impact, environmentally sound farming methods, moved to Mendocino County three years ago.

Flause grew up on a now-defunct New Hampshire farm dating back to the 1700s. A prep school soccer and lacrosse star, he left college in Rhode Island after three years, moving to South Lake Tahoe, where he snow boarded and made friends in the cannabis industry. After a stint building greenhouses and managing a large cannabis farm in Sonoma County, he bought land in Butte County, which is where he met his wife.

Johanna’s childhood home was San Pedro, a suburb of Los Angeles. A hairstylist in Manhattan Beach, she had worked in two cannabis dispensaries when she headed north five years ago to help her cousin on his weed farm in Butte County.

“I have always considered cannabis as a medicine,” Mortz says. “Because of my job picking out medicine for patients that came in.”

When Johanna met Micah in Butte County, they decided they wanted to be life partners as well as cultivation partners, got married and began looking for land of their own in a community of supportive organic cultivators closer to the Bay Area than the remote parcels they’d been farming. They chose Mendocino County.

“We picked Mendocino because they were thinking logically about regulations,” Flause reflects. Humboldt at the time, he says, had more of “an outlaw mentality and was not as committed to smaller scale, organic farms.” He liked the idea that farmers in Mendocino weren’t “going for broke all the time and trying to produce as much material as possible as opposed to the highest quality as possible.”

In 2014, the couple bought a permitted home on five acres zoned rural residential, or RR-5. They wanted a place to grow vegetables and cannabis and would retain its resale value if they decided to move.

Johanna and Micah created Polykulture farms, combining organic food farming with cannabis growing, using their permitted well to irrigate their garden.

For had always wanted to be legal farmers, and in 2016, they enrolled in the the county’s Sheriff-run 9.31 program.

The hurdles they’ve had to jump to qualify for a permit have been challenging. So have the costs.

Over the past two years the couple has spent more than $15,000 on legal fees, inspections, tax advice and application fees related to getting a permit for their 2,500-square-foot garden of 40 plants. They doubt they’ll break even this year.

The county fees add up quickly. The basic application fee for a farm of their size is $1,240. The county’s annual permit and compliance inspection fee is $675. The Mendocino Sustainably Grown certificate, which the couple was eager to have, was $970. The fee for Track and Trace, a computerized tracking system that allows the county to follow every plant through its life cycle to final sale, is $90 per month, but that program is not yet up and running. Planning and Building Department charged $230 for property profile and records management because they applied before July 1. After July 1 they would have paid $555. For Live Scan fingerprinting, required of all applicants, the Sheriff’s Dept. charges $79 per person.

There are state fees on top of county fees. The couple paid the California Water Resources Control Board $750 for their Tier 2-Star water discharge waiver, which was less than the $1,000 they would have paid had they not hired a state-approved, third party inspector — to the tune of $2,500 — who submitted their application himself.

None of the money the couple has spent on administrative costs, fees and consultants can be deducted from their cannabis earnings. The state only allows tax deductions for cannabis cultivation expenses that are directly related to farming, such as fencing, seeds, soil, and fertilizer.

Micah and Johanna’s biggest worry related to their permit began when two different consultants told them that they’d placed their garden too close to a stream on their property, violating the state water board setback requirement that cultivation occur at least 50 feet from creeks.

Fearing they might have to re-engineer their hillside, they hired an engineer who walked their property and discovered that the water was actually a spring that began and ended on their land. Thus, the garden’s proximity to the water did not disqualify them for obtaining a state water discharge waiver.

Another hurdle that the couple still faces, as do hundreds of other permit-bound farmers, is the legality of their drying shed, a Class K structure which was OK with the county last year but does not meet this year’s Mendocino County Planning and Building Department’s requirement that all farm buildings be constructed to commercial codes.

Building and Planning code issues have become such a crucial part of the cultivation permitting process that in August the Board of Supervisors designated Building and Planning, not the Ag Dept., as the “first stop” in the cultivation application process. If Building and Planning deems a property ineligible based on building code violations, the application is not passed on to the Ag Dept.

In August, the Board of Supervisors agreed, in principle, to allow agricultural exemptions for existing drying sheds, at least this year. But can the same sheds be legally used for trimming? And what happens next year?

Most farmers plan to use existing sheds and hope for the best, But the drying and trimming shed issues, as well as many others, are still unresolved.

County officials have assigned to their new “working groups,” the drying shed problem, along with some other changes that would make compliance for a permit more attractive to farmers. But it’s not likely such groups can resolve such complex issues before harvest. Without provisional permits or an immediate county declaration, drying and trimming in buildings that do not meet commercial standards violate county codes.

“We’ve had ups and downs,” Mortz says. "We waver a lot, but because we have other jobs we can continue.”

The couple’s other jobs are with Flow Kana, a statewide cannabis distributor that markets craft, “boutique,” sun-grown cannabis from farmer cooperatives in Mendocino and Southern Humboldt to dispensaries and other legal outlets. The company has recently moved its headquarters from Oakland to the former Fetzer family estate in Redwood Valley.

Mortz and Flause are committed to Flow Kana’s vision and business model, inspired, in part, by South American coffee and flower cooperatives that have helped small farms there compete with large, well-funded corporate agribusinesses.

This fall, Flow Kana will provide trimming services for organic farmers who belong to member co-ops. They’ll add drying next year. Administrative and bookkeeping support are also in the works. If all goes as Flow Kana plans, Mendocino cannabis farmers in participating cooperatives won’t need to build costly commercial grade drying and trimming facilities; they can use Flow Kana’s.

Micah compares Flow Kana to the Bible’s David and Goliath, with Flow Kana the David going up against such large corporate cannabis Goliaths as AbsoluteXtracts and Harborside.

“Flow Kana is committed to helping the small farmer succeed in the newly regulated market,” says Amanda Reiman, Vice President of Community Relations for Flow Kana. “We recognize that there are a lot of expenses associated with running a small business, and by creating a centralized facility, we can provide support services to farmers at a much lower cost. This extends beyond processing, marketing and distribution services to human resources, legal and accounting services.

“Flow Kana aims to create a space for local farmers to come together and scale their operations to compete with the big players, all while maintaining their small, heritage farming practices. Flow Kana does not cultivate, we exist purely to support the system of small farmers in Mendocino County.”

Up in Laytonville, Grace, who is uncomfortable using her real name, is not as sanguine about Flow Kana’s ability to save Mendocino’s small farmers from the competition. After all, she says, Flow Kana only takes product from a few member cooperatives, and those cooperatives don’t have space for all the farmers who’d like to join. What happens to other small farmers? Also, Grace says, Flow Kana did not take all the cannabis their member farmers grew last year, forcing some seek other buyers, often on the black market.

Raised in Sonoma County, Grace, who is 65, suntanned, youthful and petite, moved to Mendocino in 2009 to get away from Bay Area traffic and congestion. She never intended to grow pot on her 10-acre, rural residential parcel near Cahto Creek.

When several women she met told her they grew between six and 25 plants to supplement their income, she planted a cannabis garden with the help of a friend, who continues to work with her. She enjoys the challenge and the economic rewards and is a very good gardener. She sells most of her trimmed buds to dispensaries in San Jose.

“I’ve always wanted to be legal,” Grace says. That’s why, in 2010 and 2011, she enrolled in the county’s original 9.31, 99-plant program, growing 60 plants. After the Federal Drug Enforcement Agency raided one of the participating farms, Northstone Organics in Ukiah, Grace’s documents were among those subpoenaed by the Federal Attorney General’s office. The DEA took no action against her.

Last year, Grace enrolled once again in the county’s 9.31 cultivation program, run by the Mendocino County Sheriff’s Department. She wishes Mendocino had stuck with that more flexible program, at least until the supervisors had worked out the kinks in the new ordinance.

“The rules keep changing, and it’s frustrating.” Grace says. “I can’t trust what they say. I can’t trust the county; I can’t trust the water board; I don’t trust Building and Planning. There is no clear set of regulations.”

Grace says she is one of many older people she knows who is growing cannabis to supplement their Social Security. None of them are tearing down forests or polluting the water or squatting on public lands, a complaint she often hears about cultivators. The farmers she knows are hard-working people who don’t pollute and would love an affordable path to compliance.

“It’s not local people that are going into the forests; it’s not my neighbors that are out there in the forests growing these mega grows. It’s outsiders that come in; they take their money and leave. We spend our money here.”

Although Grace had planned to apply for a permit in 2017, she changed her mind as the potential costs soared.

One of her biggest shocks came last year when North Coast Regional Water Board inspectors told her that she would have to move her hoop houses, in which she grows most of her 40 plants this year, because they are less than 50 feet from the property line. Now, Grace says, the setback has increased to 100 feet.

Grace says she can’t comply with the new 100-foot setback rule because her lot is narrow. Because a seasonal creek runs through her property, for the hoop houses and her farm sheds to be sufficiently far from both the property and creek lines, she’d have no room on her land to grow in the sun.

Another cost from last year’s application that still irks Grace is the $2,500 she paid the state Water Resource Control Board for her Tier II discharge waiver. When state inspectors toured her property, they told her she had to replace a culvert on her road so that it would hold up in a 100-year flood. In fact, she says, the old culvert, which works well and which she has not yet replaced, held up perfectly during last winter’s record rains. Still, she’s stuck with the replacement now that she’s on the Water Board’s radar.

“For $2,500, you get nothing,” Grace says. ”It’s extortion. They didn’t help me. They didn’t do anything. They didn't show me anything in writing that said I had to have an updated culvert to be part of the program. I never even got a copy of the report they supposedly did when they came out and approved the site. I doubt they even did a report for the $2,500 they charged. I still don't know how big the culvert has to be to pass, and I have asked more than once.”

Another new county requirement that bothers Grace is the requirement that cultivators provide Americans With Disabilities Act-compliant bathrooms, even if farmers are in remote locations, are not open to the public and do not have employees. Such facilities could add tens of thousands of dollars to farmers’ costs, which they might never recover.

“The only thing that seems clear is that the rules keep changing, and the cost keeps getting higher and the price dropping,” Grace says. “We had our biggest permitted grow last year and made less than we have all the other years.”

Grace would reconsider applying for a cultivation permit if the Board would create a streamlined, less onerous process for small cottage cultivators growing 25 plants or less. The Board has assigned the development of a scaled-down cottage permit to one of their new working groups. But such a plan could take months to create.

Although the Board of Supervisors has extended the cultivation application deadline to June 30, 2017, Grace is still gun shy.

“I don’t want to have them out here and get dinged if tomorrow they will change the rules and there will have to be something else.”

Grace sighs. “It’s been how many years we’ve been doing this and the Board are still acting like they don’t know anything. They should know something. What are they doing to get more knowledge? It’s not rocket science.”

Supervisor John McCowen understands why farmers like Grace are upset by the changes in the cultivation ordinance and the slow pace of the process.

“I completely understand the frustration level that people are experiencing, and they’re not alone,” McCowen says. “It’s been, I think, a very frustrating experience for staff and for the Board of Supervisors."

“One thing we all need to understand: This is a completely new dynamic where you have a very robust industry that has been operating almost completely outside of any regulatory system, and now we’re trying to come up with a set of regulations to apply to an industry that already exists. That’s a lot different than setting the rules for some new industry or use where everyone can know in advance — here’s what I’m going to need to do to comply. And in this case, people have already been doing a wide variety of activities for decades using existing buildings without any consideration for the Americans With Disabilities Act or any of the state building codes, so it’s really uncharted territory for everyone.”

McCowen warns ominously that the State of California’s cannabis cultivation regulations, which are still being drafted, will be far more “onerous” than the county’s. He says the proof of the county program works will be the number of farmers who apply for a permit.

County cannabis activists have argued frequently at Board meetings that by making the process easier and cheaper, the program would attract more applicants.

Improvements to the process, they say, would include: allowing “transferability” of parcels in Rangeland, Timber Protected Zones and Forest Land: letting farmers to take a year off without losing their permits; waiving the requirement that all cultivators, including those in remote locations, provide commercial drying and trim spaces as well ADA bathrooms and parking; permitting the use of existing sheds and trimming areas that don’t meet commercial building codes, and postponing the track-and-trace program until next year, when the state will require use of a different contractor.

McCowen and the Board have assigned these issues to working groups, combining county officials with community cannabis leaders. But how quickly can they come up with major policy revisions? Certainly not in time for this harvest season.

Grace blames the board’s “shortsighted” and ambivalent approach to cannabis farming on falling property values in Mendocino County. In Humboldt, she says, where elected officials have been more welcoming, property values are skyrocketing.

She also thinks their “crazy” approach has its roots in long-standing laws that criminalized cannabis famers. Grape growers, she says, are treated very differently.

“A wine grower could buy up all this and they could clear cut everything,” she says. “I was down looking at some new wineries in Sonoma County. They are all on the side of hills. They are all terraced, you know, and they all use pesticides that we don’t even use on our pot, but there’s nothing being said about that. And they’ve got acres and acres and acres. We don’t even have an acre of pot growing, but we’re the demons. Something’s got to go. It’s just so unfair.”

Micah, Johanna and Grace have much in common. They care about the county; they are passionate about what they do; they run small farms; they want to be legal, and they are committed to organic farming that minimizes impacts on the environment.

They share something else in common: They are worried about the plummeting wholesale price of cannabis.

Grace says she made $3,000 per pound on the black market when she started growing nine years ago. Now she can only get $600 to $1,000 per pound on the black market. This year, she’s been able to sell her buds to dispensaries for $1,600 per pound. But next year, without a permit, she’ll have to go underground with her product.

In July, Hezekiah Allen, Executive Director of Emerald Growers Association, noted the glut of cannabis on the market today in a speech to the Sacramento Press Club. He told the group that the state’s cannabis cultivators are producing eight times more cannabis than residents are consuming and suggested growers scale back.

Grace is worried about her future as a small farmer, with or without a permit.

“In 25 years,” she says, “there will probably be 25 families that own every pot thing in the state, and the small farmers and everybody will be gone.”

Micah and Johanna hang on to the dream that their small farm, with the help of Flow Kana, will survive falling prices and rising costs as well competition from neighboring counties and large corporations.

“It’s a gamble,” Johanna says. “We are putting a lot of faith in the county.”

(Jane Futcher, host of The Cannabis Hour on KZYX, lives in Longvale.)