More than a month after California’s regulation of marijuana began, only a small number of the tens of thousands of cannabis businesses have joined the system – threatening the state’s shift to a regulated market and the promise of a billion-dollar tax windfall.

Less than 1 percent of the state’s 68,120 cannabis growers have been licensed, according to a report published Monday by the California Growers Association, the state’s largest association of cannabis businesses.

Growers can’t meet the cost of complying with regulations, or are prohibited from growing because of local land-use policies, the report says.

“Without broad participation, legalization will look a lot like prohibition,” with many illicit growers, the report concludes. “The current system will not achieve its goals without fundamental and structural changes that allow small and independent businesses to enter into compliance.”

Cannabis is primarily grown by small farmers on 2,500 square feet in cultivation, or 1/20 of an acre. These small growers face the toughest hurdles in complying with regulations, according to the report.

Monterey County, for example, is issuing licenses to high-tech greenhouse growers, mostly owned by well-funded outsiders, on the edge of urban Salinas – but is rebuffing small traditional farmers on parcels in the more remote reaches of the county such as Big Sur and Carmel Valley.

As of Feb. 7, merely 534 of the state’s growers, or 0.78 percent, are licensed, according to the new report.

“It’s all about access to capital,” said Kaiya Bercow of Santa Cruz County’s Utopia Cannabis, which has received licenses for cultivation and manufacturing. “If you are a cannabis operator, you have limited bank access. And you are in a business that is least likely to get external funding, because of risk,” he said. “Investors are hesitant to take legal risk and financial risks.”

Utopia Farms has invested hundreds of thousands of dollars over 18 months to comply with local and state license requirements, he said.

“It’s what you’d expect when applying to be a business in California,” Bercow said. “However, cannabis has not developed with that process. Most, if not all, cannabis producers in California started without having to apply. They never built a team; they don’t have those internal skills. So they must either hire new employees, learn that new skill set or pay costly consultants.”

Only 13 of California’s 58 counties have passed ordinances to allow and regulate commercial cannabis activity as of February. An additional six counties are likely to pass ordinances in the near future and 14 counties are studying the issue with the intent to decide this year. The survey found that 25 counties ban commercial cannabis activity.

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