Brave New World Shaping Up for Local Pot Growers

A local marijuana crop. (Photo by Jonathan Gilbert)

A local marijuana crop. (Photo by Jonathan Gilbert)

“People need to start building a business. They need to do everything a real farmer does,” declared Luke Bruner, business manager at Wonderland Nursery, referring to those engaged in the region’s sizeable marijuana industry.

Growers should begin to focus on “getting their businesses in order. The regulatory future is coming quickly,” warned Hezekiah Allen of the California Growers Association (CGA).

“People are whining because they’re so used to not being regulated. They need to put their big boy pants on and follow the rules,” a Southern Humboldt grower said flatly.

Such comments, all made last week, serve to underscore the sea change that’s in the works for Humboldt County marijuana growers — estimated to number between 6,000 to 10,000 individuals. It’s a revolution made more sweeping by the fact that it’s happening on three levels — county, regional and state — more or less all at once.

Out ahead of the curve is the North Coast Regional Water Quality Control Board, which last August adopted a set of state regulations aimed at protecting water quality from the impacts of marijuana cultivation on private lands.

Growers have until next Monday to enroll in the program, the regulations for which are part of a larger “pilot strategy” that water board staff developed in conjunction with the State Water Resources Control Board and the California Department of Fish and Wildlife.

The standards apply solely to the North Coast region — in other words, to the relatively narrow but long swath of land running from Sonoma County to the Oregon border.

The new permitting program places growers in one of three “tiers” based on the size of the operation and the threat posed to water quality. Tier 1 applies to gardens up to 5,000 square feet in size that pose a low risk based on certain physical characteristics, such as steepness and proximity to surface water.

Tier 2 operations are simply those that do not meet Tier 1 requirements, perhaps because they are too large or are located on steep ground or are unduly close to streams.

Because their operations present a higher threat to water quality and water resources, Tier 2 growers will be required to prepare a water resource protection plan that would detail water use, erosion control and practices to stop fertilizer runoff from reaching watercourses.

“It’s a management tier,” explained Matt St. John, executive director of the regional board, in an interview last year. “In addition to meeting basic water quality requirements, [Tier 2 growers] will need to tailor an approach that’s specific to their site.”

As for Tier 3, St. John called it “a cleanup tier [meant for grow operations where] there’s environmental damage that needs to be cleaned up.”

The types of damage that would place a grow operation in Tier 3 include filled watercourses or wetlands and steep-cut slopes and roads that cannot be stabilized to prevent erosion directly into waterways.

St. John said Tier 3 is reserved for properties where things were done “without proper engineering design, so you’ve got roads blowing out or roads crossing streams and putting culverts at risk of plugging up.”

To bring an operation into compliance, growers in Tier 3 need to hire a qualified civil engineer or geologist to prepare a cleanup and restoration plan.

Growers in all three tiers must also pay annual fees. They will be subject to financial penalties if they fail to enroll in the program or fail to adhere to the new requirements.

At the county level, the Board of Supervisors last month approved the first county ordinance in the state regulating the commercial production of medical marijuana. The ordinance, which takes effect at the end of this month, pertains to such matters as cultivation, manufacturing and processing. In particular, it sets performance standards for various levels of permitting.

For new outdoor and mixed light grows on level agricultural parcels of up to five acres, 10,000 square feet of growing area is allowed under basic ministerial permits. The idea is to channel startup grows into areas that are well-suited for crop production.

New grows are prohibited in timberland areas, a provision that will likely spare the ordinance from being targeted for litigation.

Existing grows on appropriately zoned parcels of over five acres will have to conform to multiple performance standards and will be approved under conditional use permits if the grow area exceeds 10,000 square feet. A maximum of one acre of growing area is allowable on agricultural parcels. On agricultural parcels less than an acre, existing grows of up to 2,500 square feet will be allowed under conditional use permits.

Indoor grows of up to 10,000 square feet are also allowed in the ordinance under various size and permit thresholds.

In terms of statewide regulation, the vehicle is the Medical Marijuana Regulation and Safety Act (MMRSA), which was the subject of a public forum held at the Mateel Community Center last month that attracted some 200 people.

While the bill was signed into law last fall and took effect on Jan. 1, the specific rules and regulations guiding the new statewide regulatory and licensing program have yet to be developed.

Nonetheless, it’s clear enough that the regulatory regime will be sweeping, with multiple state agencies charged with enforcing various aspects of the law. As a matter of fact, the law provides for the creation of a new agency altogether, the Bureau of Medical Marijuana Cultivation, which as part of the Department of Consumer Affairs will license distributors, dispensaries and transporters. The Department of Food & Agriculture, meanwhile, will also play a central regulatory role.

As for the regulations themselves, they will pertain to a number of matters, including licensing, marketing, labeling, taxation, transportation and resale. Just in terms of licensing alone, there will be no less than nine types for cultivation, based on factors such as whether the commercial operation is indoor, outdoor, mixed, light or specialty. There are 17 different license types in all.

Casey O’Neill, a Mendocino County-based member of CGA, said last week that such complexity works in the favor of small growers.

“When you simplify the regulatory framework you tend to increase the size and capitalization of the [participating] businesses. If it’s one size fits all, the big guys [have the advantage]. More structured and tiered is better for small businesses.”

“A key priority for us in working with the State Legislature last year was tiered licensure. It was very important to us to have no cap on the number of smaller licenses,” added O’Neill, who said that regulations would be “promulgated toward each of the different [license types.]

Jan. 1, 2018 is the date when those in the marijuana business will finally be able to become state licensed. The time between now and then amounts to a window of opportunity for regulators and growers alike, Allen said.

“The two-year transition period is meant to give local governments time to develop local permitting programs. It’s also meant to give existing cultivators and businesses time to come into compliance with existing regulations,” Allen explained.

In other words, if you’re diverting water from a stream, you need to obtain a state water rights permit. “And if you’re on TPZ [Timber Production Zone] land, you need to get your three-acre conversion taken care of. You need to get all the licenses and permits that currently apply.”

While some of the work Allen described sounded a bit like drudgery — such as “figuring out taxes and getting businesses in order” — other tasks seemed to offer more rewards from a creative point of view. Like “building a brand and [gaining] market awareness.”

“Gone are the days when you’d work nine months and end up putting your product in a garbage bag in the trunk of someone’s car. Now you can put your stamp and seal on it.”

Allen also foresees a change in terms of the grower-worker relationship, with temporary workers, or trimigrants, supplanted by a more stable, locally-based work force. Which is another way of saying that growers will need to comply with labor laws.

“The workforce will become more professionalized,” Allen predicted.

Regarding the extent to which growers will embrace the new regulatory reality, Allen said it would come down to “policy decisions” regarding basic issues such as the cost of getting licensed.

“If a license costs $250,000, [only a] small handful of folks [will be] well-capitalized enough to participate. If the regulatory marketplace provides market access and the barriers to entry are low enough from a fee or cost perspective so smaller-scale [growers] can participate, you could see really great participation rates.”

“If you’re a more marginal business, it will be harder to absorb new regulatory costs, taxes and fees,” Allen added.

Aside from high fees, Allen said “artificial license caps” would also constitute an “unfortunate barrier” to wide participation. Such caps would also result in a more cutthroat business environment.

“If [the authorities say] we’ll grant licenses, but only to 100 [growers], then businesses will be competing instead of collaborating.”

Bruner, for his part, said that given the looming enrollment deadline for the regional water board regulatory program, cannabis farmers need to pay attention to that first. They should also not ignore the fact that expert help is available to help them as they navigate through the new regulatory terrain in the coming months.

“Farmers should reach out to attorneys, land-use experts and accountants and start building a business,” he advised.

In terms of how many growers will do what’s necessary to comply with the new regulations, Bruner said: “I think people are ready to do the right thing.” But since compliance will be more doable if it’s viewed as affordable, Bruner said growers need to start getting more money for their product.

“People have to stop dumping their pounds for less than they’re worth. Pound prices must go up. Buyers need to pay what [the marijuana] is worth.”

Bruner said that out-of-town elements, “the same people doing public lands trespass grows who’ve wrecked our forests and streams, have sold to Bay Area and Los Angeles dispensaries at rock-bottom prices.”

“They’ve been undercutting us for years. They dump it on the market and they artificially drive prices down. They won’t comply” with the new regulatory regime that’s shaping up, Bruner predicted.

“If you get rid of the trespass environmental grows, pound prices will go way up,” added Bruner, who credited Humboldt County Sheriff Mike Downey with making a dent in the problem.

“Fortunately, Sheriff Downey has started going after bad environmental actors,” Bruner commented.

As for how much growers should be getting for a pound of pot, Bruner recited what is evidently a mantra in cannabis circles these days: “Thirty-five to stay alive, 45 to thrive,” he said, meaning $3,500 a pound versus $4,500 a pound.

When asked, both Allen and O’Neill said that a decade would likely pass before it becomes clear whether the emerging regulatory structure can be judged a success or failure.

“For the next 10 years you’ll find folks who’ll say ‘It’s working’ or ‘It’s not working.’ The reality is that it will work for some and not for others,” Allen commented.

“Having started down this road, there’s no going back,” O’Neill chimed in. “It’ll be 10 years before the dust settles out.”