Pot in Petaluma: Marijuana goes mainstream

The "Follow This Story" feature will notify you when any articles related to this story are posted.

When you follow a story, the next time a related article is published — it could be days, weeks or months — you'll receive an email informing you of the update.

If you no longer want to follow a story, click the "Unfollow" link on that story. There's also an "Unfollow" link in every email notification we send you.

This tool is available only to subscribers; please make sure you're logged in if you want to follow a story.

Please note: This feature is available only to subscribers; make sure you're logged in if you want to follow a story.

Subscribe

CALIFORNIA CANNABIS TAX REVENUES

UNREGULATED CBD MARKET A NEW ISSUE

The sale and use of unregulated cannabidiol, or CBD, has become a growing concern local cannabis advocates since President Trump signed the 2018 Farm Bill on Dec. 20, federally legalizing industrial hemp.

Under the bill, hemp-derived CBD products can now be sold, and companies like CVS Pharmacy have begun offering topical products to its customers in eight states, including California.

Several smoke shops and gas stations have also started offering CBD items.

Even though CBD has been celebrated as a effective treatment for several neurological disorders or managing pain, the lack of regulations for hemp-derived alternatives has led to a new wave of concerns about the cheaper, untested products popping up on Petaluma’s shelves.

The founders of Farmhouse Artisan Market, Petaluma’s cannabis delivery retailer, said unregulated CBD products could potentially harm local consumers, depending on how they’re ingested.

“It’s really scary seeing it pop up in smoke shops because people are going to smoke that,” said CEO Claire Firestone. “Those pesticides are really scary when you smoke them. It’s bad enough to put it on your skin or eat it, but if you’re going to light it on fire and inhale it, that is really scary.”

Petaluma Mayor Teresa Barrett said the emergence of unregulated CBD products represents the latest adaptation to avoid the laws that govern the legal marijuana industry.

“This is just another reason why we probably need to revisit this sooner rather than later,” she said. “The law is shifting and we’re in an evolving area. Being too rigid doesn’t serve us well.”


The state levies a cultivation tax on all harvested cannabis that enters the market, a 15 percent excise tax on all cannabis purchases, and all sales are subject to state and local sales taxes. Still, total revenue for the calendar year 2018 was well shy of its $1 billion forecast.

First quarter 2018: $60.9 million ($32 million in excise, $1.6 million in cultivation, $27.3 million in sales tax)

Second quarter: $74.2 million ($43.5 million in excise, $4.5 million in cultivation, $26.2 million in sales tax)

Third quarter: $100.8 million ($53.3 million in excise, $12.6 million in cultivation, $34.9 million in sales tax)

Fourth quarter: $103.3 million ($50.8 million in excise, $16.4 million in cultivation, $36.1 million in sales tax)

Total revenue: $345.2 million

Total sales: $2.5 billion

Sources: California Department of Tax and Fee Administration, BDS Analytics


This story originally appeared on Petaluma360.com, also part of the Sonoma Media Investments news network.

David Drips’ eyes light up when he talks about his Nana, the woman that taught him how to farm, and still holds the title for growing the largest cannabis plant he’s ever seen.

A Petaluma native and navy veteran, Drips spent part of his childhood in Linden, a San Joaquin Valley town where his grandparents raised their own livestock and tilled the earth to provide food for their family, friends and neighbors.

“She was a master grower of everything,” he said. “Just had the greenest thumb you could imagine.”

Drips, 38, is a third-generation cannabis farmer, and his dream is to keep that going when his son comes of age. His partner at Petaluma Hill Farms, Zac Hansen, has that same wish for his daughter.

But making that dream a reality has nearly bankrupted the two founders of a two-acre pot farm in the bucolic hills west of Petaluma.

Since California voters approved the Adult Use of Marijuana Act, or Proposition 64, in 2016, legalizing cannabis has disproportionately impacted cultivators eager to join the mainstream agrarian economy.

With regulations and ordinances constantly changing, expenses for cannabis producers continue to rise while lengthy public battles prolong the permit process, forcing them to cultivate only a fraction of the one acre of land allowed under the county’s ordinance.

As a result, that’s delayed any hopes of making a profit, and Drips said he’s gone almost two years without a paycheck.

“I sometimes wonder if I made a mistake — if I should have gotten myself 5 or 10 acres in Lake County and still been black market,” Drips said. “I’ve got a son, so I didn’t make that choice. I’ve got a family I want to be here for, so I don’t want to go to jail. I’m trying to do it right and do what the law tells David he’s authorized to do.

“But it takes follow-through on the county level, and it’s really disheartening and disillusioning in my government the way this entire thing has been handled the last couple years.”

The county has issued 45 permits to various types of cannabis businesses operating in unincorporated areas. Five have Petaluma addresses and are mostly designated for cultivation, but almost all of them have been administratively approved through the Agriculture/Weights and Measures Department, limited to a maximum grow of 10,000 square feet.

So far, the only conditional use permit granted by a public body belongs to Sam Magruder, COO of Petaluma Hills Farm (not to be mistaken with Drips’ similarly-named operation). Magruder did not immediately return messages seeking comment.

Earlier this month, the county Board of Zoning Adjustments approved his proposal to cultivate a one-acre parcel selected for outdoor growing. But that decision was appealed, and will now go before the Board of Supervisors later this year, a delay that will once again limit his harvest and impact any prospect of generating revenue he had been expecting, Drips said of his peer.

Sonoma County Supervisor David Rabbitt, whose district encompasses many of the farm sites entangled in the pending disputes, acknowledged the shortcomings in how the county has dealt with outdoor grow-ops.

He said he would have rather placed a moratorium on permitting so officials could’ve better crafted the ordinance, and not performed the patchwork revisions that have flummoxed every party involved.

CALIFORNIA CANNABIS TAX REVENUES

UNREGULATED CBD MARKET A NEW ISSUE

The sale and use of unregulated cannabidiol, or CBD, has become a growing concern local cannabis advocates since President Trump signed the 2018 Farm Bill on Dec. 20, federally legalizing industrial hemp.

Under the bill, hemp-derived CBD products can now be sold, and companies like CVS Pharmacy have begun offering topical products to its customers in eight states, including California.

Several smoke shops and gas stations have also started offering CBD items.

Even though CBD has been celebrated as a effective treatment for several neurological disorders or managing pain, the lack of regulations for hemp-derived alternatives has led to a new wave of concerns about the cheaper, untested products popping up on Petaluma’s shelves.

The founders of Farmhouse Artisan Market, Petaluma’s cannabis delivery retailer, said unregulated CBD products could potentially harm local consumers, depending on how they’re ingested.

“It’s really scary seeing it pop up in smoke shops because people are going to smoke that,” said CEO Claire Firestone. “Those pesticides are really scary when you smoke them. It’s bad enough to put it on your skin or eat it, but if you’re going to light it on fire and inhale it, that is really scary.”

Petaluma Mayor Teresa Barrett said the emergence of unregulated CBD products represents the latest adaptation to avoid the laws that govern the legal marijuana industry.

“This is just another reason why we probably need to revisit this sooner rather than later,” she said. “The law is shifting and we’re in an evolving area. Being too rigid doesn’t serve us well.”


The state levies a cultivation tax on all harvested cannabis that enters the market, a 15 percent excise tax on all cannabis purchases, and all sales are subject to state and local sales taxes. Still, total revenue for the calendar year 2018 was well shy of its $1 billion forecast.

First quarter 2018: $60.9 million ($32 million in excise, $1.6 million in cultivation, $27.3 million in sales tax)

Second quarter: $74.2 million ($43.5 million in excise, $4.5 million in cultivation, $26.2 million in sales tax)

Third quarter: $100.8 million ($53.3 million in excise, $12.6 million in cultivation, $34.9 million in sales tax)

Fourth quarter: $103.3 million ($50.8 million in excise, $16.4 million in cultivation, $36.1 million in sales tax)

Total revenue: $345.2 million

Total sales: $2.5 billion

Sources: California Department of Tax and Fee Administration, BDS Analytics


This story originally appeared on Petaluma360.com, also part of the Sonoma Media Investments news network.

“We need to figure out what is it that we want as a county with cannabis, what do we think is going to unfold, and how do we change our regulations to ensure that happens,” Rabbitt said.

Cannabis in Petaluma

After Prop. 64 passed, cannabis rules were largely left up to local jurisdictions.

In Petaluma, the city council adopted an ordinance that allowed for two delivery retail services, increased personal cultivation to six plants, but upheld the ban on brick-and-mortar dispensaries. Commercial grow operations are not allowed within city limits.

The ordinance was viewed as a compromise that would allow the city to revisit and, if necessary, reshape its laws as the impacts of legalization played out.

So far only two businesses have been permitted, but more than 30 have expressed interest, said Economic Development Manager Ingrid Alverde.

“We’ve been getting calls for the last two years since the election,” she said, adding that the city has since established a separate webpage specifically for cannabis business inquiries.

Farmhouse Artisan Market became Petaluma’s first marijuana delivery retailer. Mountjoy Sparkling, which makes CBD-based sparkling water, is the other permitted business. Attempts to reach Mountjoy representatives for an interview were unsuccessful.

When the current rules were adopted, many residents voiced concerns about the emanating odor from residential cultivation, and possible upticks in criminal activity. Some of those concerns were underscored by a string of home invasions in March 2018 by would-be robbers hoping to steal from a former grow house in the northwestern outskirts of the city.

That element remains as the biggest issue for the Petaluma Police Department, said Lt. Ed Crosby. Otherwise, marijuana impacts have been insignificant, he added, and having a higher bar for prosecuting cannabis-related crimes has reduced the incentive for county and state law enforcement officials to pursue them.

“In terms of drugs, our time and attention is being taken up with opiates over anything else,” Crosby said.

Forced to city fringes

As Petaluma’s ban on cannabis storefronts endures within city limits, plans for a dispensary on the periphery appears to be moving forward.

Two years ago, Sonoma County officials issued a permit to Jamie Reagan of Down Under Industries, a 678-square-foot space in an existing shop at 50 Ely Rd.

The dispensary is bound by several conditions, including a 36-person daily limit but will allow deliveries for customers offsite, according to Permit Sonoma communications manager Maggie Fleming.

Attempts to reach Reagan were unsuccessful. At the moment, there’s no projected opening date, Fleming said.

Cultivating the retail market

Since a soft launch in November, Farmhouse Artisan Market has been carefully navigating the uncharted legal economy in Sonoma County’s second-largest city.

City officials selected FAM last summer after a thorough vetting process to uncover two delivery services qualified enough to kick start a regulated market for selling marijuana. Several business proposals were submitted – some connected to established retailers from other North Coast municipalities – but the city only picked one.

Over the last six months, Farmhouse has accumulated an estimated 2,000 customers with a high rate of retention, said CEO Claire Firestone. About half have been 45 or older.

“I think we’re getting a pretty good cross section of what the Petaluma demographics look like,” she said, refuting the notion that most cannabis customers are younger, or resemble stoner stereotypes.

Despite the company’s array of manufactured goods, the overwhelming majority of product sold has been flower, Firestone said, although tourists staying in hotels have been the most consistent purchasers of edibles.

“Most of the people who don’t reorder are staying in hotels,” she said. “But even a lot of those people, when they’re back in town they order with us again.”

FAM touts itself as a value-oriented retailer that acquires product from heritage producers with environmentally conscious practices, and prioritizes the consumer experience, according to their website. They deliver throughout Sonoma and Marin counties, and recently hired two part-time drivers, with two more potentially on the way.

So far, the hurdles for the startup have mostly been operational. Firestone and her partner, COO James Clark, struggled to find a willing landlord in the city’s approved business zones.

Even if they did another RFP for a delivery (retailer), they’d be hard-pressed to find space. No one wants to rent to cannabis, and that’s the problem.” — Farmhouse Artisan Market COO James Clark

“Even if they did another RFP for a delivery (retailer), they’d be hard-pressed to find space,” Clark said. “No one wants to rent to cannabis, and that’s the problem.”

Petaluma’s ordinance also established strict hours to help curb public safety concerns. Retailers have to be closed at 8 p.m., and can deliver in Petaluma until 7:45 p.m.

To comply, Farmhouse currently closes at 7 p.m., which Clark said puts a ceiling on their daily sales. According to a study by Headset, a Seattle-based firm that analyzes marijuana retail trends, nearly a third of transactions occur after 7 p.m.

“We’re missing the most prominent window of the day to some extent,” Clark said. “I think because of that our customer base is unique.”

Room to grow

Local policymakers will likely take a comprehensive look at Petaluma’s cannabis laws later this year. City officials had hoped to submit the second request for business proposals from prospective cannabis delivery retailers by the end of last year, but constant friction between state and local laws has made future-minded action hard to come by.

A landmark legal fight is also taking shape, and could hollow Petaluma’s delivery-only retail ordinance.

About two dozen California cities filed a lawsuit against the Bureau of Cannabis Control earlier this month, pushing back against a rule adopted by the state agency in January that allegedly circumvented the local authority provided under Prop. 64, and allowed deliveries statewide – regardless of local bans.

Until the retail environment is more defined, Petaluma is holding off on the search for a second delivery company, Alverde said.

Much has been made about the potential revenue from a regulated marijuana industry, but in the first year of recreational sales, state tax revenues came almost two-thirds shy of their $1 billion projection.

Industry analysts pointed to the disorganized regulatory atmosphere, local bans and the growing black market that has become a cheaper alternative for consumers, costing about 77% less. Medicinal cannabis users are exempt from the various sales taxes, but are subject to the 15% state excise tax.

Local jurisdictions have also received returns well shy of their revenue projections.

In Santa Rosa, the city collected about $468,000 in the first year after voters in 2017 passed an 8% tax on gross receipts, and was on pace to match that by the end of the current fiscal year. Officials, however, have projected those figures will eventually rise closer to the $2.5 million annual forecast with 12 dispensaries operating or approved, and numerous more being considered.

With only two permitted businesses, using legal cannabis as a revenue stream for Petaluma’s cash-strapped coffers would require a more diverse economy, officials say.

Mayor Teresa Barrett, a longtime proponent of marijuana dispensaries, wants the city council discuss the issue “sooner rather than later,” she said. With laws continuously being redefined, she believes the city will steadily lose the control it wants to have by employing such a sluggish approach.

“We need to relook at how we roll this out,” Barrett said. “One of the reasons we were doing it was for revenue. The other was we wanted to be in accordance with the voting electorate. If people want more access, we want to make sure we’re giving them the access.”

When the city next revisits its cannabis ordinances, officials might also consider changes to the approved business zones that proved almost impossible for Farmhouse to navigate, Alverde said.

Still taboo

Farmhouse is slowly ramping up its marketing efforts in the coming weeks to better assert itself in the mainstream business community.

Perhaps the company’s most noticeable advertising will take place Saturday during the Butter & Egg Days parade when they setup a booth and offer educational materials, printed with images of cannabis, to curious Petalumans.

Firestone still feels like marijuana is taboo in southern Sonoma County, but is hopeful that the company’s upcoming educational courses will help demystify a product that was illegal for almost a century.

“We’re still polling the public to find out what people want to hear and learn about,” Firestone said. “But that’s our next move.”

For Drips, finding a place in the community is still a challenge. His eight-man operation promotes sustainable practices he views as vital to helping shape the future for his children. Once finances stabilize, he’s hoping to install small wind turbines and harness the powerful gusts that have posed a unique challenge to developing cannabis on the 6,000 square feet he’s been allowed to farm.

Still, a few properties down the road, signs opposing commercial growers litter the street.

Despite attending Petaluma High School, and calling the community home for much of his life, the tension surrounding his life’s work has made it hard to be optimistic.

To establish retail before production is baffling, Drips said, and as his public hearing for a conditional use permit slowly comes forward, he’s wary of the battles that lie ahead.

“It breaks my heart that I’m being disillusioned by my elected officials that I as a citizen have enough faith in that I went into the military,” Drips said. “That’s how much I believe in my government. That’s my faith in America. Now, America is just disappointing me – because of fears. Being afraid doesn’t accomplish a thing.”

(Contact News Editor Yousef Baig at yousef.baig@arguscourier.com or 776-8461, and on Twitter @YousefBaig.)

Show Comment

Our Network

Santa Rosa Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Emerald Report
Spirited Magazine