Farmers and small operators who built the legacy cannabis industry in the Emerald triangle (Mendocino, Humboldt, Trinity) for the last 50–60 years are being wiped out by over taxation, bad regulation and over saturation of cannabis in the marketplace. In this article, Chiah Rodriques, Operations Director at Mendocino Generations sheds some light on the trials and tribulations of OGs from the most reputed cannabis terroir in the world. At Strainly, we care deeply about the legacy farms who put so much love into their production. Their know-how is invaluable and it’s sickening to see the very people who paved the way to legalization being crushed by Chads looking to make a quick buck with the support from the Government.
Strainly started with craft legacy producers in mind. We are big believers in a vibrant industry made of small family farms, producing the highest quality buds, welcoming visitors to tour their farms, like you can go visit vineyards and even taste produce on site. Unfortunately, this is not happening as we would dream of for the cannabis farms of Northern California. So when the news of the drama that happened at the 2021 Emerald Cup came to our ears, we reached out to Chiah from Mendocino Generations to learn more and to contribute to bring these issues to light (with our humble means).
You should definitely watch the documentary Lady Buds to learn more about the history and traditions of the Emerald Triangle’s farms. The prohibition years, the community bonds and the deep love for the plant that people have in this region. Growing cannabis is a lifestyle, it’s all people ever had for several generations. Today, with prop 64, which legalized recreational cannabis in California, these families and their farms are being decimated.
Prop 64 betrayed small farmers
First, because municipalities can still ban dispensaries/retailers from their territories, and because 70% of municipalities did so in California, access to consumers is very limited. Consumers are on average, 60 miles away from a dispensary. The dispensaries that are allowed to operate have limited shelf space, and getting on shelves requires marketing and PR resources, which smaller farms don’t have.
Second, the state of California issued way too many licenses, including to large cultivators. Prop 64 was initially limiting farms to 1 acre. But due to intense lobbying from big money investors, this 1-acre cap is being worked around through prop 64, by removing the limitation on the number of licenses any one entity can own. The result is the stacking of licenses so that some businesses now have multi acre grow sites over many different properties, flooding the market with lower-grade buds. As a consequence of the bottleneck on retails and over-production of low grade flowers, market prices collapsed. While counties such as Mendocino enforce a limit of 10,000 sq ft of canopy per cannabis farms, other counties allow cannabis factories to grow acres upon acres, in some cases, with no cap in size. “We have a severe disadvantage in the nature of the size and scale of the farms who are legacy cultivators. Often on steep hills and without municipal services like power and water… bringing the cost of goods way up” says Chiah. Meanwhile, deep pocket cannabis factories can afford to lose money for years and flood the market with lower quality produce to uninformed consumers.
Many in the industry acknowledge today that prop 64 defeated farmers and even legacy retailers, by putting huge barriers to entry. In 2021, cannabis sales have consistently declined, likely due to the limited access to retail stores for 68% of consumers in California combined with tax-inflated prices.
The tax burden is the nail in the coffin
Small farmers cannot survive due to exorbitant fees and taxes. At around the same time the Emerald Cup was taking place, the impending collapse of California’s cannabis industry was making headlines. There are various agencies in the chain of the licensing at the local and state levels. Each one has a fee. “We are also forced to pay local taxes on gross income which includes the tax total. So we are paying a tax on a tax” Chiah explains. There’s a tax on cultivation, an excise tax, a sales tax… up to 30% of retail cannabis prices is made of taxes.
California’s current law requires that cannabis be taxed four times before being consumed: the cultivation tax, paid by cultivators, state & local excise tax paid by retailers and a sales tax paid by the consumer. In 2020, cannabis generated over 1 billion dollars in tax revenue for the state of California, 140 million of which were collected on cultivators. Despite declining sales, 2021 in on track to generate more tax revenue than the previous year. The state is simply taking too much space and confiscating revenue from the cultivators.
“The cultivation tax was initially pegged at $9.25 per ounce of flowers ($148 a pound). This rate is adjusted yearly for inflation, just as the alcohol tax is adjusted. In 2021 the rate was $9.65 per pound. However, as the wholesale price of cannabis flowers dropped from $1200 per pound to less than $500 a pound, simultaneously there was a 7% inflation in the US. Thus the cultivation tax was raised to $161.50 per pound while it costs about $120 per pound for trimming services. Then each county and city adds its own tax burden, and there are testing fees, transport fees, distribution fees, all paid by the farmer. The farmers must still pay workers and packaging costs. There is no profit, not even a break even” explains Swami.
Add the limited access to banking services and the reliance on cash due to Federal regulations, and unexpected loss of income coming as a consequence, it makes you wonder why jumping through hoops to become a legal producer was a good idea in the first place…
How can legacy farmers bounce back and thrive
It is crucial that consumers educate themselves and stop looking at THC% when buying cannabis. As we said before, we at Strainly, believe that the relationship between cannabis and consumers should start in the field, at the farm and not in the jar, at the retail store. Indeed, city dwellers will not always drive up to the farm to buy buds, but it is important that consumers do the trip once a year, like you drive the wine road and visit vineyards to bring back a few bottles you enjoy over diner with friends. It changes completely the relationship with the product you consume when you can relate to the people who produce it, who make a living from your purchase, who shared their know-how with you when you visited them. The appreciation for the cannabis you consume is on a completely different level when your relation with it starts at the farm. It is obvious to us that regulators should allow farms to make on-site sales. Farmers markets are also key for direct sales and community building which allows small farmers to survive and potentially thrive.
The number of retailers should increase thanks to friendly regulations. The state should prevent municipalities from banning legal businesses on their territories, in order to remove that unsustainable bottleneck, until 80% of the territory is covered. In the same vain, more direct-to-consumer marketplaces should be permitted. Whether physical or digital. The regulations to enable such marketplaces should favor more local ones and avoid concentration a la Amazon. Having to deal with huge global marketplaces will not play well for small family farms, as the negotiation power is asymmetric.
The state of California should remove the Cultivation tax while local minimum tax should also be removed. There’s a high enough cultivation risk (e.g. climate, wild fires, market prices fluctuations…) on farmers and such taxes are unbearable burdens only helping the illicit or traditional market. The state and local license fees should also be cancelled for some period of time.
Tools and mechanisms to empower small farmers
While there are geographic indicators for agricultural production in the US, there is no such thing as an appellations system in America. For instance, the system of American Viticultural Area (AVA) is used to designate the origins of wines. Geographic indicators such as AVA are only a designation of the local origin, explains Swami Chaitanya from the Origins Council. The system of appellations was created in France and later expanded across Europe. It applies to cheese, wines and other agricultural produces. Regarding cannabis, appellations of origins will define the cultivars that have to be used, the land (or terroir) on which the cultivar needs to be grown, the farming practices to follow as well as the production process. In Europe, appellations’ requirements are made by the producers and the government enforces the appellations. Appellations for cannabis, an idea proposed by the Origins Council, would be unique in America, the first appellations system ever created in the US, and unique to cannabis!
The Origins Council is a state-wide Californian organization, composed of two representatives each from Cannabis trade organizations from the seven heritage growing areas in the state, forming a Regional Council. Under the leadership of Genine Coleman, who’s been working on the appellations project for over 4 years and with the help of Richard Mendelson a lawyer who specializes in the establishment of American wine appellations, the Council also helps farmers to pass the environmental review.
The Council currently has a pilot project near the coast in Humboldt county, involving 7 farmers, collecting scientific data (climate, first frost, fog, temperature, geography report and geology reports) to define the terroir. Then farmers need to agree on the definition of the practices and standards (e.g. plants have to be in the ground, water needs to come from the property, you have to be organic or even regenerative, there’s a maximum size of the farm…). This pilot project will help validate the regulatory framework with the state and finalize the review process.
“An appellations system provides a legally defensible causal link between what is grown, where it’s grown and how it’s grown” says Swami. The Origins Council is pionneering the appellations system in America, with cannabis, which couldn’t be more inspiring!
At Strainly, we believe that farmers should join their local trade association as well as support the Origins Council in order to defend their terroir and farming practices, thus increasing product recognition in the market, through quality standards that aren’t predatory nor patent-based.
We also indeed believe that farmers should create a safe haven for their genetics through open-source licensing. Plant patents eventually contribute to the concentration of production into mega-farms powered by Big Ag industry (e.g. Bayer, Syngenta, Dow Dupont…). It’s been observed countless times for other crops and is already happening for cannabis. Fortunately, an independent non-profit from Oregon is working on operationalizing such an open-source breeding license based on some work we’ve done over the past few years.
Finally, we believe that farmers should increasingly get familiar with people’s money: bitcoin. When the financial industry despise you during decades and leaves you using government’s money while denying your rights to do business in a legal industry you built, it’s time to consider a more sovereign avenue. Plus, bitcoin preserves biodiversity by countering the predatory patent-driven model.
Originally published at https://blog.strainly.io on January 15, 2022.
