The California Pot Industry Isn’t Afraid Of The US Attorney General

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A week after Attorney General Jeff Sessions revoked what’s known as the “Cole Memo,” an Obama-era policy that gave legal cannabis in America a semblance of cover, Khader “Al” Shawa stood in front of his medical marijuana dispensary, Shambhala Medical Cannabis Collective, holding an outsized pair of scissors.

His store in San Francisco’s Mission District, one of the roughly 1,100 businesses that held a sales permit to sell medical marijuana in California last year, was marking its first day open for business to all customers aged 21 and up. The beginning of the state’s recreational marijuana era ballooned their potential customer base from the 1.5 million state residents with a doctor’s note to anyone eligible to buy a drink.

But California hasn’t been totally oblivious to the ominous rumblings from Washington. As Shawa snipped the ribbon strung across his store’s door and smiled, across town, a bigger and angrier crowd had assembled outside the US attorney’s office. Military vets, newly minted lawyers, and a candidate for mayor formerly employed at a marijuana dispensary held signs testifying to marijuana’s value as a medicine and barked choice words into a bullhorn. Their messages were aimed at Sessions.

Agitated and protesting cannabis activists would have been an anachronism less than a year ago; now they are back in the mild panic that marked daily life in the Bush and Obama years. “Party’s over,” blared a headline in High Times. The counterculture brand itself has changed, gone mainstream enough that it was recently acquired by a group of investors that included Wall Street veterans.

For some, revoking the Cole Memo is the clearest sign yet that Sessions is serious about halting the country’s legal marijuana industry, even as cannabis is legal for adults in eight states and available for medical use in 20 more. But only some — because so far, most of the marijuana industry is greeting Sessions’ latest salvo like they would a speed limit sign along a deserted highway: a quick glance, a shrug, and more pressure on the accelerator.

The memo hasn’t led to altered business plans or inked deals being ripped up, at least according to interviews The Verge conducted with a dozen marijuana industry figures. A few out-of-state investors have had second thoughts, and some entrepreneurs still fishing for startup money are being greeted with slightly harsher terms, but other than that, it’s almost as if Sessions didn’t exist. To date, California’s new Bureau of Cannabis Control has issued 745 licenses to sell, grow, manufacture, or distribute cannabis, with 239 of those sent out after January 4th.

The only indication Sessions mattered at all was the chorus of voices from all over the country, including many conservatives, calling for Sessions to give it up.

Massive marijuana greenhouses in the Salinas Valley in Monterey County received approval a few days later. In Fresno County, in California’s conservative central valley, the city of Hanford is marching forward with plans to become a hub for cannabis production.

“It doesn’t change anything for us,” said Mike Ray, CEO of Bloom Farms, a manufacturer of increasingly popular cartridges for vaporizer pens sold all over the state. Bloom Farms has state-licensed distribution and manufacturing operations in Oakland and Sacramento, and for Ray, the protection offered by the state is enough to carry on as usual.

“At the local level, the attorney general’s position has had zero impact politically,” said Gavin Kogan, co-founder and manager of Grupo Flor, a self-described “cannabis ecosystem” that leases over 2.6 million square feet of marijuana cultivation, manufacturing, and distribution facilities in Monterey County.

“At the state level, I’m aware of very aggressive reaction by state legislators, including demanding explanation from each of the U.S. attorneys,” he said. “I have to say, as an operator, I don’t feel hung out to dry. I feel like the state of California has my back.”

The fear of a boogeyman wearing a DEA jacket seems to be less serious than the fear of being left behind in a fast-paced market. To understand California’s mixture of nonchalance and smug defiance, it’s worthwhile to remember what the Cole Memo actually was and what it did.

The memo, an August 2013 directive from then-Deputy Attorney General James Cole, directed federal prosecutors to only pursue cases against marijuana operations committing a thin list of crimes above and beyond violating the federal Controlled Substances Act. Among them: shipping weed out of state, providing cannabis to kids, or violating state law. But legally, it did nothing — it was a nonbinding policy document, and several prosecutions continued.

For the cannabis industry, it was a vital morale boost. Released less than a year after voters in Colorado and Washington voted to legalize marijuana, and three months before the beginning of retail sales, the memo was interpreted as a signal that the Obama administration would leave the legal cannabis industry alone. That cover, thin as it was, was enough to usher in a flood of investment.

Sessions’ animus for marijuana is well-known. This is the guy who scotched his chance at a federal judgeship in the mid-1980s by declaring the Ku Klux Klan were “okay, until I found out that they smoked pot.” While in the Senate, Sessions told a committee hearing that marijuana use is a moral failing. More recently, in the middle of a public health crisis fueled by opiate overdoses, he deemed weed only “slightly less awful” than heroin.

The timing of Sessions’ latest diatribe — three days after recreational retail sales began in California — suggests he was attempting a signal of his own. Canceling the memo may have been solely political, an attempt to strike enough fear and uncertainty into the industry for it to pare itself back, without the Justice Department having to do any actual work. If that was the case, “it’s backfiring,” said Zeta Ceti, CEO of Green Rush Consulting, an Oakland-based consultancy firm with clients all over the United States.

When asked to name any clients or friends of clients that have had plans scuttled because of Sessions, Ceti could name just one: a dispensary that had a term sheet rescinded from an out-of-state investor, based in a state where marijuana is not legal. Even that situation might present a prime business opportunity for those investors willing to step in, assume the greater risk, and thus higher ROI. And there are plenty of investors lining up for the new market.

“The investors I’m actively dealing with now who have wanted to be in cannabis but were waiting for January 1st to arrive are moving full steam ahead,” said Matt Kumin, a San Francisco-based attorney. “I have many clients investing now.”

There are also serious doubts that Sessions has the ability to follow through with any countrywide cannabis crackdown.

In five states, adults can now walk into a store and buy marijuana as they would a pack of cigarettes or a bottle of wine. Visitors from all over the world are strolling into 24-hour cannabis dispensaries on the Las Vegas Strip. Lawmakers in Vermont and New Hampshire recently voted to legalize marijuana, and New Jersey Governor Phil Murphy used his inauguration speech on January 16th to verify that his campaign promise to legalize cannabis “within 100 days” of taking office was in earnest.

Merely slowing that down would require a herculean effort, and help from state and local law enforcement. But state and local law enforcement have their hands full, observers say, with confronting and shutting down those marijuana operations violating state law. If and when the feds decide to make an example of this dispensary or that grow operation, the conventional wisdom goes, the result will be someone thumbing their nose at every authority, not just the feds.

“I would imagine that would be where they’d start,” said Dennis Hunter, co-founder of CannaCraft, a vertically integrated and diversified brand that makes edible marijuana products, oil cartridges, tinctures, and a host of other products based in Santa Rosa, California.

Hunter has seen his business slow down significantly since January 1st, the first day California’s new marijuana regulations went into effect, but that was due to the fact that “only 10 or 15 percent of the accounts we normally sell to had their licenses.”

Indeed, the only causes for slowdown and concern have been local.

Retailers openly fret about the sticker shock awaiting new customers, when the novelty of buying legal marijuana wears off and they discover how expensive it is. New state taxes have jacked the price of cannabis up to 40 percent. Eighths once priced at $50 now go out the door for $70, plus sales tax.

In Monterey County, Kogan’s Grupo Flor is competing for the title of “California’s biggest marijuana operation” with FLRish, another firm buying up dilapidated greenhouses once used to grow flowers. Cannabis could revive John Steinbeck’s moribund Salinas Valley, but at a price: the local tax on cannabis cultivators is $15 per square foot.

That’s a rate “calculated on a sale price per pound of $3,500 per pound,” Kogan said. Or, put another way, a fantasy pegged to the black-market days. “The last round we did, we sold for $900 per pound.”

“Everybody’s suffering right now,” he said. “The only people who are killing it right now are the ones shipping stuff to New York.”

Back at Shambhala, Al Shawa found himself emotional and struggling for words. He’d entered the marijuana business solely for the money after his clothing store went belly-up and a partnership soured with a former friend — who now runs a competing marijuana store up the street. Shawa became a believer in marijuana’s healing power and then a freedom fighter by accident.

Less than a year into his business, Obama’s feds came to shut him down. He spent years (and six figures) in court. “I never thought I would be… I didn’t think I would make it to this day,” he said, still emotional, struggling for words. Did he think he’d beat the feds? “Not really,” he admitted. “I went back and forth every day.”

But there was reason to crack a satisfied smile, at least for now: the store up the street was still medical-only.

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