California’s Weed Czar on Legalizing the Cannabis Supply Chain

February 13, 2018 by Craig Guillot, @cguillot

Transporting weed is a risky business. It’s a high-profile commodity and is considered illegal under federal law.

It’s also a lucrative business. California’s legal recreational marijuana market opened Jan. 1, and sales are expected to reach $3.7 billion in 2018, according to a report by BDS Analytics.

The Bureau of Cannabis Control is responsible for regulating all commercial cannabis activities in the state, including cultivation, distribution and transportation.

The bureau has already received 207 recreational distributor applications and 48 distributor-transport-only applications. Temporary licenses have only been issued to 63 recreational distributors and six transport-only applicants.

Lori Ajax

Lori Ajax

Because weed — or “cannabis” as it’s referred to by those in the industry — remains illegal under federal law, DOT-regulated companies cannot participate in the market. Most transporters in California — and other states where it’s legal — are using small vans and armored vehicles to transport product and cash. recently spoke with the Lori Ajax, the bureau’s chief, about distribution in the state’s cannabis market. Here is an edited version of that conversation.

Who can transport cannabis in California, and what kind of license do they need?

The statutes require anyone transporting cannabis goods to have a distributor license from the bureau. [The state] currently is issuing temporary licenses. Counties and cities all have their own regulations.

Transportation means transporting cannabis between licensees, and that’s different than delivering to consumers. For the annual license, you’ll need a background check, fingerprinting, financial information; it’s a more extensive application.

What is the difference between transporting and distributing?

Distribution of cannabis is also a little different than other products because distributors are also responsible for quality control. They have to ensure the product is tested. They have to check the labeling and make sure it’s in compliance before it goes to the retailer. And they have to collect taxes.

A lot of distributors didn’t want to do that, so we created a new license type in our regulations that allows for transport only, and that’s just moving it. This could be for something like a cultivator that just wants to transport to a manufacturer to be processed.

The cannabis has to be in a lockbox or container. It can’t be visible from the outside. [The transporter has] to be an employee of the licensed company, 21 or older, and they must show proof of ownership of the vehicle.

What kind of companies are seeking distribution licenses?

There are some big distributors that have come from other industries [such as security, agriculture and retail], but we’ve also seen some smaller players. There are veterans getting involved, ex-alcohol industry people. We haven’t looked at each and every one to break it down yet, but once we start getting the annual licenses, I think we’ll get a better look at who the players are. It will be interesting to see how the market shapes up.

Has distribution been sufficient and are dispensaries receiving the product they need?

We’re only in week two, but we haven’t had any complaints from retailers that they can’t get product. The biggest thing facing us now is that in order to be licensed by the state, you have to have local authorization, and that can vary by jurisdiction. And we still have some counties and cities that do not authorize commercial cannabis. However, that’s starting to change. San Francisco just started allowing adult use. I think a lot of people knew the first month or so might be tough and had plenty of inventory on hand. By next month we’ll have a better idea of whether or not our supply chain is working efficiently.

Where is most of the cannabis grown in the state, and where is the biggest demand for product?

There’s a lot grown in the Emerald Triangle up in the north coast. [This includes Mendocino County, Humboldt County and Trinity County]. And we’re seeing a lot of indoor growth down south. One of the challenges is we’re such a big state, and that’s why it was so important that we had distributors in the supply chain when we started issuing licenses. It’s great to have retailers and manufacturers, but if you have no way to get that product to the retailer, it puts a hamper on your cultivators.

How do you track product throughout the supply chain?

All of our licensees are required to participate in the state track-and-trace system. We have contracted Metrc who currently does track and trace for Washington and Oregon. The cultivator is required to tag every plant with a unique identifier that follows the product throughout the supply chain. So even if it gets to a manufactured product, to a distributor, retailer, we can track that batch throughout the supply chain. We’ll also be doing premise visits and making sure that product is in there and not being diverted.

Because cannabis remains illegal under federal law, many banks won’t participate in the market, forcing much of the industry to operate in cash. How big of a problem is this?

It’s a big concern. Distributors are also required to collect taxes on behalf of the retailer and to submit those excise taxes. They’re handling a lot of cash at the retailer and distributor level. Even for us, we know that there are going to be some people that are going to have to pay in cash for their licensing fees. There are going to be people traveling around the state with a lot of money, and we’re looking into how we can solve this problem. There’s a cannabis banking working group trying to come up with a solution, and I’m hoping over the next few months more banks feel comfortable to enter the industry.

How do you prevent black market growers from sending harvest cannabis outside of the state?

We’ve attempted to put together regulations that make sense, are comprehensive and give a path for people in the illegal market to become regulated. But we know not everyone is going to do it. For us right now, our focus is ensuring people who are applying are meeting the requirements, and we’re focusing on education and letting people know how to go through the process.

Attorney General Jeff Sessions recently rescinded the Obama-era Cole memo that directed the Department of Justice to take a lax stance on marijuana in legal states. How will this impact the market in California?

At the bureau we’re just going to continue regulating the industry as we have planned since day one. We’ll continue to issue licenses, answer people’s questions. Our job here is just to regulate California’s cannabis market.

Should the federal government ever change its position, could we see interstate commerce?

Certainly. Most of us here in California would like to see it opened up nationally and not be federally illegal. It would make the state’s job easier if we were in partnership with the federal government and working together on this. I think that would be a great thing for the cannabis industry and the states that are currently regulating cannabis.

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