Legalization: A View From The Ground Floor

There are thousands of smart people in this country poring over the financial facts, straining to accurately predict business trends. Nowhere is that future murkier than in California’s nascent marijuana business, fully legal now in California since passage of Prop 64 and in chaos as cities and counties struggle to set up structures to license cannabis entrepreneurs and collect, account for, and generally cash in on the multi-billion-dollar industry that cannabis officially promises to be. Where will the market go? Who will survive and thrive and who will go the way of the home made bong? An estimated 10,000 growers in Mendocino County either are or soon will be emerging from the shadows to navigate new bureaucracies, with a big chunk of the Mendo economy in the balance.   

Swami Chaitanya and his wife Nikki Lastreto live on their 190-acre Ganja Ma Gardens farm north of Laytonville with their dog and two cats. Swami does have a given American birth name but has gone by Swami since his enlightenment in India’s River Ganges many years ago. He and Nikki met in 1969 and have married each other three times since 1985: the first at San Francisco’s city hall, the second in their home on the city’s Green Street, and most recently in one of the numerous spiritual sites on their property. 

Getting to their farm was definitely not half the fun. The first turn off Bell Springs is easy to miss — if you passed the llamas on the right you’ve gone too far. As I bumped along a rutted dirt road dodging big rocks and soupy mud puddles, I mused that this is how county grows have been for decades ─ down long remote dirt roads flanked by locked steel gates in front of even smaller roads that disappear into the woods. The road eventually opened into a broad meadow dotted with Hindu icons. Tibetan prayer flags flapped in the breeze. 

Settling into their comfortable, book-lined living room, Swami and Nikki launched into their cannabis cultivation practices, their beliefs, and their take on the future cannabis market. They consider themselves purists. They say that their organic cannabis, like their logo says, is “Sun Moon & Star Grown.” It’s sold as “Swami Select” in small, cylindrical, heavy black glass canisters and represents their chosen path to a profitable way forward for themselves and other small growers. “It’s the difference between Two Buck Chuck and a bottle of $100 wine,” Swami said. “It’s like Cuban cigars and Dunhill cigarettes.” He said that large quantities of cannabis from many sources that are commercially grown indoors and mixed after the fact with aromatic terpenes and oils will never have the flavor, scent, and medicinal properties of natural home-grown cannabis like theirs. He says that natural cultivation produces cannabis as superior to mass-grown indoor cannabis as a sun-ripened tomato is to an out-of-season tomato sold at a local supermarket. “That is what gives cannabis its magic,” he said. Nikki added that, “As far as altitude and temperature we also have the best place in the state. We grow the quality.” Swami said he understands that pharmaceutical corporations need to standardize cannabis and make it replicable, and says he believes there is room for that in the dynamic cannabis market. “The top shelf will be hardest hit but it will still exist,” he said. “That’s the only way the small farmer will survive.”

Swami said he frequently attends Mendocino County Board of Supervisors meetings, “where I go over the economics” of the cannabis market’s economic potential. In a county where, according to the state’s most recent poverty report, almost one in five residents lives below the poverty line, he said he tells supervisors that the county needs to pave the way for cannabis cultivation to succeed in the fast-paced emerging legal recreational cannabis market. “They don’t listen, there’s still the stigma,” he said. “They think we’re a bunch of outlaws living out in the mountains.” This stigma has driven the couple into politics and education in their efforts to chip away at and eventually destroy that stigma. “Do I look like a stoner to you?” he asked me. Nikki looked at him, smiled, and added, “He’s smart, he works hard, I wish they would test both of us [for mental acuity].”

There is also a spiritual aspect of their cannabis consumption. Swami points out that cannabis has been ingested in India in one form or another for spiritual purposes for over 2,000 years. Like the tenets of any religion, however, there are Hindus who disagree with the ganja/spirit connection and believe that the truly enlightened never touch drugs of any kind. One lifelong Hindu I know well told me that “the famous ‘yogis’ who smoke charas on the banks of the Ganges River are to religion what Donald Trump is to altruism.”   

So how’s the retail market going? It was time to visit a dispensary, which until this year could only sell medicinal cannabis with a doctor’s prescription. Having never been to a dispensary, I drove to the one closest to home, on Shattuck Avenue in Berkeley. Holy moley! This was no mellow sanctuary. Its corner building was surrounded by scary-looking security guards on two sides of the street, dressed all in black and wearing those mirrored sunglasses so you can’t see their eyes. When you go through a metal detector you pass warnings about bringing in guns or taking photographs. After producing my driver’s license I walked into a lavender room so crowded that the line leading to the many bud masters was one of those back-and-forth maze-like deals. I felt like I was standing in a Southwest Airlines line at the Oakland Airport the day before Thanksgiving. The distinct smell vaguely reminded me of summers I spent playing in my uncle’s hayloft. A sign stating “Grandmothers use Cannabis Cream” was right inside the door. It was hard to hear or be heard above the DJ’s deafening music selections. (Yes, there was a live DJ.) The bud master I eventually spoke with told me they don’t carry Swami Select, but it was hard to imagine more products than were already packed along the walls. Every imaginable cannabis strain, tincture, pill, salve, and edible seemed to be on offer, and they don’t come cheap. The prices I could make out in the din were, to me, shockingly high, like 60 bucks, before tax, for a tiny tin of salve to ease your aching joints. An ocean of cash was pouring in to bud masters along two walls, cash or debit cards accepted. Dispensaries are, of course, just one sliver of the legal expansion of the cannabis market. Mendo has 14 of them. 

Mendocino Medicinals CEO, long-time Gualala resident Del Potter, is betting on a very different future demand for cannabis outside of dispensaries — by Big Pharma. He says he has an investor (which he says he can’t reveal yet), a business plan, and a passion for innovation to build a state-of-the art cannabis extractor in Lake County, close to Highway 101 so that supplies and equipment, including biomass, can move safely and efficiently to and from the plant, which he says is close to being licensed in an industrial park. He said he disagrees with Mendo’s rural zoning philosophy and believes that extractors, which are essentially small industrial plants, should be sited in areas zoned for industry. “Our process uses ethanol to extract distillant (highly concentrated oil) and crystalline powder, which is even more refined,” Potter said, adding that safe, regulated extractors “are a pathway to deterring dangerous illegal labs. These are widely recognized processes. If I were starting a lavender oil facility it would sail through.” 

Like Swami, Potter fights the cannabis stigma. “Less harm is associated with cannabis than alcohol. Let’s make a compliant industry that we can regulate,” he said. He also says, like Swami, that he’s frustrated with “rural opposition, the slow pace, and the unwillingness to take a look at what the cannabis market actually is” and will be. He also said he fears that the dynamic cannabis market will leave poor bureaucratic counties like Lake and Mendo in the dust. Local cannabis prices are falling, and supply is much greater than demand. One need look no further than a local supermarket’s produce department to see the stark reality of consumer prices for easy-to-grow plants like cannabis. 

“Those who fill the shelves early have an advantage,” Potter said. “Canada is producing on a scale that dwarfs California.” Potter also said that his proposed facility would create 25-30 jobs paying between $18 and $50 an hour, and that those jobs will run the gamut from security to skilled lab professionals, to employees knowledgeable about processes and organic chemistry. ”Like other farmers who centralize their processing,” he said, “growers will have a legal path to sell their product. Manufacturing supports local cultivation.” 

A slow and cumbersome licensing process is costing both the State of California and Mendocino County eagerly anticipated tax money, a major selling point made for passage of Prop 64 in 2016’s general election. Last week the California Department of Tax and Fee Administration released cannabis tax revenues for the first full quarter following recreational legalization. According to its news release the state collected $60.9 million from cultivation, excise, and sales tax, far short of projections. This total does not include local taxes collected by cities and counties.  

Mendocino County does not have an equivalent comparison since the county began phasing in a cannabis tax beginning on January 1 of last year, according to Mendocino County Treasurer-Tax Collector Shari Schapmire. “We’ve collected $79,868 since July 2017. That’s how much the county keeps and does not include what goes to the state.” About licensing, she said, “The counties and the cities are really doing all the work,” adding that local growers, who won’t be able to legally move their product without a permit, are struggling to get those permits processed (first by the county and then by the state) ahead of the county’s June 30 deadline. “This first group of trailblazers is jumping through hoops, they’re really trying hard to be in compliance,” she said. Those hoops include, among others, air quality and other environmental compliance. Schapmire said that the county has more than 800 applications, and has issued 7 for distribution facilities and 2 for manufacturing Level 1 (non-volatile) permits. She added that more could be pending.

Growers also face daunting county and state taxes. “The county tax is 5% of gross receipts for Mendo’s 14 dispensaries, and 2.5% of gross receipts for cultivators, processors and distributors,” she said. “There’s also a flat tax of $2,500 a year.” On top of that the state collects a 15 percent tax on consumer purchases of cannabis and cannabis products and a separate tax from cultivators. Efforts are underway in Sacramento to lower that tax so cannabis entrepreneurs can be more competitive in the new market.

This discussion inevitably leads to a comparison with other intoxicants; California has one of the nation’s lowest tax rates on beer, wine, and distilled spirits. It’s the same story for Mendo. “There’s no alcohol or beverage tax in this county,” Schapmire said, “vineyards are taxed just like everyone else.” She theorizes this could be because cannabis is a controlled substance coming out of the ground while grapes are not. “It takes a whole process to turn grapes into alcohol,” she said. Another issue, of course, is that cannabis remains illegal under federal law. “I’m optimistic that five years from now the federal government will declassify it,” she said. “If it’s declassified, states will be at the forefront.” 

And there’s still that lingering social stigma that getting blotto on alcohol is preferable to doing the same on recreational cannabis, whatever its source or form.