Pubdate: Wed, 24 Aug 2016
Source: Orange County Register, The (CA)
Copyright: 2016 The Orange County Register
Author: Alicia Wallace


If Californians legalize marijuana under Proposition 64 in November, 
legal cannabis sales in the state likely will climb by $1.6 billion 
within the first year of implementation, according to a report 
released Tuesday.

That would put the state's medical and recreational market on track 
to hit $6.5 billion in revenue by 2020  up from $2.8 billion in 2015, 
industry research firms Arcview Group and New Frontier state in the 
report. And the researchers argue it would serve as a "watershed 
moment" for the industry in and outside the United States.

"We think the activation of the adult-use market in California will 
undoubtedly make California the new epicenter in cannabis," said John 
Kagia, executive vice president of industry analytics for New Frontier.

Sheer size will help the state maintain that status, Kagia said.

Even with a fractured, unregulated medical industry, the report 
states California already accounts for nearly half of all legal 
cannabis sales in the nation.

Lt. Gov. Gavin Newsom, who is campaigning for Prop. 64, cautioned 
against legalizing marijuana merely to pad government coffers with 
new tax revenue or to chase the next great California gold rush.

Still, he acknowledged there's a lot of money to be made, citing 
estimates that the state's gray cultivation market now brings in $9 
billion to $13 billion annually.

California's influence isn't just about dollar signs, Kagia said.

"There's going to be a professionalism of the industry, an emphasis 
on innovation once the market is legal in California that will 
dramatically accelerate the industry in a way that legalization 
(efforts) in Colorado and Washington haven't been able to do."

Silicon Valley should play a leading role, both via capital as well 
as technical and intellectual expertise, Kagia and co-authors say in 
the report.

California also is poised to be a leader in creating rules for social 
pot use, it should become a front-runner in developing organic 
standards, and it likely will become a hub for cannabis research, as 
Prop. 64 calls for 10 percent of sales tax collected to be spent on 
drug abuse research and another 10 percent on cannabis research, 
according to the market study.

The ripple effects could be vast and could affect industries such as 
biomedical research, applied materials and nutraceuticals, among many 
others, Kagia said.

Additionally, if California goes recreational, researchers predict it 
will apply greater pressure on Mexico to legalize.

The authors state: "The legalization debate south of the U.S. border 
has evolved quickly as illustrated by the evolution of Mexico's 
President Enrique Pena Nieto who, in just six years, has transformed 
from one of Latin America's most vocal drug warriors to a proponent 
of medical cannabis use and advocate for decriminalizing possession 
of up to an ounce for all adults. Legalization in California will 
only add fuel to the debate on cannabis law reform in Mexico and in 
other Latin American countries."

California's medical sales should stay relatively flat, according to 
the report. Arcview and New Frontier project the medical market 
should decline to $2.53 billion in 2020 from $2.76 billion in 2015.

California also will face plenty of unique challenges if it were to 
legalize, Kagia said.

The state already has an "outsized scale" of cannabis production and 
is starting to see some land-grabs by pot prospectors. A greater 
supply should mean cheaper costs for consumers but also could pinch 
the producers, the report says.

Legalization also would raise questions about the viability of indoor 
grow houses and whether the energy costs could be prohibitive as more 
greenhouses open, Kagia said.

But perhaps one of the greatest challenges for California is whether 
it can overcome itself.

California's medical market operated for nearly 20 years with very 
limited government regulation.

There was no agency tasked with regulatory oversight or business 
licensing, no requirement for patients to register with the state, 
and essentially no market standards for product safety and quality.

This led to significant problems with diversion of product from the 
legal to the illicit market, exposed early business operators to 
enforcement crackdowns and made it difficult for the state to closely 
monitor the program because of the lack of centralized data and reporting.

Last fall, the state took steps to establish more stringent 
regulations for medical cannabis businesses, and individual 
jurisdictions will likely see further policy adjustments in the coming years.

The stringent regulations came in the form of the Medical Cannabis 
Regulation and Safety Act, a two-year program intended to provide 
oversight for the medical industry, create a commercial license 
program and set consumer and environmental standards, according to the report.

Industry members told Arcview and New Frontier that they're concerned 
about how distribution policies outlined in the act could result in 
higher prices for consumers, whether the costs would be too high for 
the majority of existing dispensaries to continue operating, and how 
local jurisdiction approvals would stymie the industry's potential.

Prop. 64 does have some solutions for those concerns; however, if the 
contested legalization ballot issue does not pass, it's not 
necessarily a death knell for California or the nation's industry as 
a whole, Kagia said, noting that other states have legalization 
measures up for vote.

To some in the industry, the measure's failure would give the state 
the chance to implement MCRSA first and set up an established 
foundation, he said.

"While the failure of the measure in California would be a setback, 
broadly speaking, we do not think it is going to significantly impede 
continued forward progress that we have been seeing in the shifting 
public attitudes (toward legalization)," he said.

Staff writer Brooke Edwards Staggs contributed to this report.
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MAP posted-by: Jay Bergstrom