North California's cannabis industry weathers a tough summer of new rules, business hiccups
After a summer in which shifting state labeling and testing requirements have led to increased costs and logistical concerns, causing layoffs, shortages, and in extreme instances, business closures, North Bay cannabis cultivators, distributors and manufacturers are starting to see better times.
The state first issued its initial emergency regulations of the emerging cannabis industry on Dec. 7, 2017, and the second version of these regulations on June 4. Those took effect July 1. The changes phased in new testing requirements originally expressed in the January regulations. Permanent regulations introduced on Aug. 27, are expected to take effect in early December.
The major changes from the initial and second drafts of the emergency regulations included:
* More stringent laboratory testing.
* Permission for cannabis products to be delivered from any in-state location to any other in-state location.
* A potency rollback allowing medical cannabis products to have up to 500 milligrams per package. This is an increase from the previous limits of 100 milligrams per package.
* A requirement that each cannabis product be sold in its own child-resistant package followed by the August-proposed regulation that would eliminate the child-resistant packaging requirement. The August-proposed regulation substitutes the child-resistant packaging with a “new exit package” requirement, which states that a bag that a customer exits a cannabis store with be child-resistant, resealable and opaque.
“When you have to pivot, you may not be able to anticipate all of the costs. (Adapting) is toughest for a really big organization, with so many things to move, and a really small organization, which does not have a lot of resources,” said Samantha Miller, CEO of Pure Analytics, a Santa Rosa-based cannabis testing laboratory.
Dispensaries and delivery services felt the pinch
Although customers enjoyed knowing cannabis products were safer and pesticide-free, the more stringent lab-testing regulations led to a shortage in the cannabis supply for July and the first half of August.
“You almost feel like the cannabis family was pulled apart and shaken to see who could hold on,” said Nurit Raphael, founder of ONA.Life, a San Rafael-based cannabis delivery service. Raphael is also the current president and the founder of the Marin County Couriers Association, an association of cannabis delivery businesses in Marin County.
Raphael said that in July, her business went from having 150 stock-keeping units (SKU) to 5 SKUs available.
“We are just coming out of that. We're still not at our full load. By the end of September, the rest of the brands will come back. It has been hard explaining this to the customers. We've had to explain to every patient what was going on. We handled the demand by starting a wait list,” said Raphael.
Brian Bjork, CEO of San Rafael-based Marin Gardens, a medical cannabis collective and delivery-only dispensary, said the new regulations hurt his business “pretty badly.”
“After July 1, we had half as much inventory to choose from. All of our old inventory had to go to waste management. We are still in the process of rebuilding our inventory. The margins are extremely different as well,” said Bjork.
Eli Melrod, CEO of Solful, a recreational cannabis dispensary in Sebastopol, said the dispensary was out of stock of some products in July.
“There were a few weeks in July where we didn't have what we usually do. We still have a wait list for some products. I'd still say we're recovering. Right now the shelves are really well-stocked,” said Melrod.
Melrod said the impact of the emergency regulations changed how he orders products.
“Typically, we ordered two weeks' worth of supplies. Now we're ordering six to eight weeks' worth. This can impact how much cash we have on hand, but the last thing we want is to be out of stock,” said Melrod.
Monica Gray, owner of Nice Guys Delivery, a San Rafael-based cannabis delivery service, said she had to quarantine and destroy at least $40,000 worth of product.
“That cut into our margins. I would say the first two weeks of July were very difficult. Fortunately, now sales are up,” said Gray.
Gray said having consistency in popular items is the key to retail success.
“Our top shelf flowers are now all different from what we had July 1. Yet we've got a very good menu now. We're not struggling,” said Gray.
Gray said she cuts costs by using hybrid vehicles, including the Prius, to make deliveries. Nice Guys Delivery also requires a $50 minimum with no delivery fee, and a $100 to $150 minimum to travel to far-out locations like Bolinas and Stinson Beach.