“How Big Alcohol is About to Get Rich Off California Weed.”
With recreational marijuana on the ballot, some worry that big business will transform the way pot is grown, distributed and sold.
By Sara Solovitch
August 29, 2016
More than 20 years later, Hezekiah Allen remembers the Blackhawk helicopters hovering over his childhood home, the armed soldiers barricading the road to the family’s northern California pot farm, the neighbor who hang-glided to escape from the Feds. More than once, Allen came home from a friend’s house to find his mother and stepfather had been arrested again.
“I don’t think Hezekiah has the political experience to outwit and outplay the people he’s made alliances with – people like the Teamsters and RVR, who are very accomplished political players,” says DeAngelo.
The hostilities between Allen and DeAngelo are a microcosm of the relationship that has festered between pot growers and the dispensaries that have sold their product ever since legalization 20 years ago.
As the 1996 law was written, the only regulated and licensed participants were the dispensaries. They operated in the open while the growers continued to be treated as outlaws; no legal distinction had been made between growers who were supplying dispensaries and those who might be raising high-grade pot for the black market. That gave the dispensaries leverage and led to a common complaint from growers—that the dispensaries often reneged on agreed upon prices and then turned around and commanded top dollar from their customers over the counter.
“Cannabis is the epitome of the free market supply and demand model,” says Stephen Dillon, executive manager of the Humboldt Sun Growers Guild, a CGA member. “We’re going into a stage where the supply is growing and growing. The prices are dropping, dropping, dropping.”
But while the prices to farmers have fallen from about $3,000 to about $1,400 a pound, the dispensaries have continued to realize a profit of 200 to 400 percent, according to Dillon.
“That doesn’t create the best feeling,” he says. “And that’s why the dispensaries are so against the distributors. It’s going to come to light. It’s their hidden nest egg, they’ve had all the power, and that’s going to change.”
Allen doesn’t hesitate to share his personal grievances. Four years ago, he drove the 290 miles from his farm in Humboldt to Harborside in Oakland, a pound of marijuana in his car. The dispensary had promised $2,200 on the phone, but when he presented the product a clerk adjusted the price to $1,100 – take it or leave it – with a lecture on the proper curing method of delicate buds.
It was, says Allen, a humiliating experience. “I’ve been doing this since I was six and you don’t get to make me feel like crap and offer me half of what it’s worth.”
That longstanding grudge would lead to major repercussions down the road. Harborside’s owner, DeAngelo, had not only founded the organization that morphed into CGA; he had a seat on the board. As Allen embraced the new alcohol model, his relationship with DeAngelo grew increasingly strained. The young man spoke openly of “bad blood.” The father of legal cannabis alluded to betrayal. In March 2015 Allen accepted the resignation of DeAngelo from the board of CGA. DeAngelo was replaced by an executive from RVR, the company established by Ted Simpkins, the retired alcohol distribution executive.
What is going on in California has a chance to influence the rest of the country. Voters in eight other states will decide this November whether to legalize the medical or recreational use of marijuana. And the organization behind most of these initiatives is the Marijuana Policy Project.
MPP, the nation’s most prominent cannabis reform organization, has been instrumental in writing many of the initiatives in the 23 states where cannabis has already been approved in one form or another. As a result, they have generally reflected a corporate-friendly libertarian approach, one based on commercial, for-profit goals. MPP is founded and directed by Rob Kampia, who in 2000 ran for Washington, D.C.’s congressional seat as a member of the Libertarian party.
In April, Kampia unnerved health policy experts by his blunt and unapologetic embrace of the alcohol industry. At a national cannabis forum, he described how he successfully sought a buy-in from alcohol distributors in return for lucrative concessions in Nevada. The ballot initiative, known as Regulate Marijuana Like Alcohol, gives preference to 18 alcohol distributors for the first 18 months after it passes. Alcohol distributors committed $200,000 to the initiative, which will appear on the Nevada ballot this November.
“Therefore we wrote them into the initiative,” Kampia tells POLITICO, adding that he’d been reaching out for months to alcohol distributors around the country before he actually got a bite.
“The (alcohol) manufacturers might have a little to lose, they’re the first tier. The second tier – the wholesalers/distributors – should be interested because they already have a distribution system in place. It’s easy enough for them to put marijuana on their trucks.
“The retailers! They should be courting us actually. Because we write the laws. And the retailers are writing themselves out of the game, because they’re not showing us any love.”
Kampia sees no downside. Public health experts suggest otherwise. They say that most state initiatives on cannabis legalization have replicated the same mistakes once made around Big Tobacco – marketing and glamorizing a product that in retrospect demanded government regulation.
“To me, the strongest argument against legalization has never been the cannabis plant,” says Keith Humphreys, a Stanford University drug policy expert and co-chairman of California’s Commission on Marijuana Policy. “It’s our experience with tobacco and alcohol, and our inability to regulate those industries well. I’ve worked to regulate these companies all over the world and they usually win. The question is how can you do this without corporate takeover? Buying legislators flat out? Throwing money around?”
The corporate takeover is already underway. Dillon, of the Humboldt Growers Guild, ran into it head on at a 2014 national cannabis convention in Las Vegas.
“I looked around and saw 3,000 to 4,000 people and they were almost all hedge fund managers, stockbrokers and venture capitalists, all trying to figure out a way into this business. They had no soul, no spark in their eyes. They care about the bottom line. For us, cannabis is about more than that.”
Rob Kampia, executive director and co-founder of the Marijuana Policy Project. | Gregory Rec/Portland Press Herald
The big money investors concede that small growers like Dillon should be alarmed. California already produces 10 times more marijuana than it can consume, according to the state Board of Equalization. The corporate transplants – MBAs from Goldman Sachs and Ernst & Young – are flooding the market, hiring government policy experts, land use teams, and community relations wizards. And the future is no longer in 10,000-square-foot lots; it’s in farms that are eight times as large. Growers who’ve staked their claims on steep land with little access to roads and water will find it difficult if not impossible to be compliant with the state’s new regulations, as corporate analysts are quick to point out.
“The ones who are not evolving are the ones who lose,” warns Leslie Bocskor, who has been called “the Warren Buffett” of the cannabis industry. As CEO of New York-based Electrum Partners, Bocskor is developing a $25-million hedge fund to meet the anticipated demand for cannabis investment on a state-by-state basis.
The real money, “the on-ramp” to the cannabis industry, is in distribution. That’s where he’s telling his clients to invest.
“Evolve or die. If you don’t make the transition, you won’t find yourself participating,” he says. “I can easily see a Bureau of Alcohol, Tobacco, Firearms and Cannabis.”
It’s a warm July night in Oakland when Hezekiah Allen arrives at the meeting of Supernova Women, “a space for women of color in cannabis,” as the group describes itself. The advocacy group was founded by several women, including Tsion (“Sunshine”) Lencho, a Stanford Law graduate who left one of the nation’s top legal firms to start a practice focused on marijuana. Lencho is determined to bring minority and marginalized women into an emerging industry that has up to now resulted in mass incarceration. The regulatory process is complex and Lencho’s organization is focused on creating access for minority women in the areas of cultivation, delivery services, and the manufacturing of tinctures and edibles. This meeting is part of her mission—to provide free community education about legal permitting, city statutes and the ins and outs of good business practice.
Standing at the back of a windowless, cinderblock basement, awaiting his turn to talk, Allen suddenly remembers the thrift store jacket stuffed inside his vinyl laptop bag. It’s crumpled but he slips it on over his T-shirt for a more professional look. This is just one of seven informational meetings he would attend that week, traveling by Amtrak up and down the state to explain the new laws and drum up membership for the CGA, which has expanded beyond growers to include retailers, processors, distributors and labs.
There are 150 people in the room and many of them— Allen acknowledges—are among those most impacted by America’s Drug War. “It’s an inspiration,” he begins. “This,” he gestures at the crowd, “the center of all the injustice…”
He briefly alludes to the new distribution model and says he is happy to talk about it “if anyone wants to know.” But then he quickly moves on to the good news: the fact that there are no caps on the number of cultivation licenses. “When I moved to Sacramento in 2014, the leading proposal was 30 cultivation licenses statewide. I bet you there’s more than 30 people in this room.” The crowd whoops in agreement.
“If there were a limit on 30 cultivation licenses it would have been a pretty serious impact on our communities,” Allen continues. “And so we started in a pretty deep hole at the end of 2014, trying to dig ourselves out of that.”
“We want to be sure there’s the lowest possible barrier going forward,” he tells them. “Before too long we’re going to be business owners and not criminals.”
Allen speaks easily, like an actor who doesn’t need a microphone to project to the back of the room. Politics, he tells them, is “all about being at the table. If you’re not at the table, you’re on the menu.”
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Sara Solovitch, a former staff writer at the Philadelphia Inquirer and columnist for the San Jose Mercury News, is a California-based freelance writer. She is the author of Playing Scared, a memoir and history of stage fright, being published in June by Bloomsbury Press.
Read more: http://www.politico.com/magazine/story/2016/08/marijuana-legalization-big-business-alcohol-214198#ixzz4JUucf3BS
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