Pubdate: Tue, 22 Nov 2016
Source: New York Times (NY)
Copyright: 2016 The New York Times Company
Author: Thomas Fuller


SANTA ROSA, Calif. - California's multibillion-dollar marijuana
industry, by far the nation's largest, is crawling out from the
underbrush after voters opted to legalize cannabis in this month's
election. In Sonoma County alone, an estimated 9,000 marijuana
cultivation businesses are operating in a provisional gray market,
with few specific regulations, and are now looking to follow the path
of the wine industry, which emerged from its own prohibition eight
decades ago and rose to the global prominence it enjoys today.

But the bruising ordeals of one of the state's largest cannabis
companies, CannaCraft, have made many in the marijuana industry
fearful, and they suggest a long and bumpy road from marijuana's
approval at the ballot box to the same on-the-ground acceptance
enjoyed by wine and beer businesses.

CannaCraft produces medical marijuana products, which have been legal
in the state for two decades, but operated in a kind of Wild West,
unregulated market. In June, the company's newly opened headquarters
was raided by federal and local law enforcement officers, who said the
process it used to make marijuana products was dangerous and illegal.
The agents seized $5 million in equipment, inventory and cash. This
year, company drivers have twice been stopped by the California
Highway Patrol, and, in one case, 1,600 pounds of marijuana was seized.

The business's troubles may be a sign of things to come after the
drug's broader legalization, as medical cannabis companies like
CannaCraft continue to be whipsawed by the lack of clear state
regulations and the glaring contradiction between a federal ban on
marijuana and still-evolving state laws that should, in theory,
shelter the companies from prosecution. Cannabis enterprises deal
almost exclusively in cash because banks, fearing federal
consequences, will not take their business.

"They are asking people to come out into the open, but there's this
mistrust," said Dennis Hunter, 43, a founder of CannaCraft who has
spent his entire adult life as a marijuana farmer. Mr. Hunter has been
arrested three times, and he was sentenced in 2005 to six and a half
years in federal prison for growing marijuana and fleeing during a

"You are basically hiding for 20 years, and then you swing the doors
wide open. It's a risk," he said. "And there's no clear path."

The national election threatens an informal, fragile truce between
states that have legalized the drug and the federal government.
President-elect Donald J. Trump's proposed choice of Senator Jeff
Sessions of Alabama to serve as attorney general has roiled the
cannabis industry because of comments the Republican senator has made
about the drug. At a Senate hearing in April, Mr. Sessions described
marijuana as a "very real danger."

"We need grown-ups in charge in Washington to say marijuana is not the
kind of thing that ought to be legalized," Mr. Sessions said at the
hearing. Cannabis advocates believe that, during a Trump presidency,
the Drug Enforcement Administration would reinforce its hard-line
stance on marijuana. In August, the federal agency reaffirmed the
status of marijuana as a Schedule 1 drug, the most dangerous class of
drugs, which also includes heroin.

Thousands of cannabis companies in California are now weighing whether
they should register with local governments, pay local taxes and be
regulated like all other businesses, or continue to operate in the
gray market.

The plight of CannaCraft, which despite the June raid has had sales of
$10 million so far this year, has been closely watched by other
companies in the marijuana business here because of the way the
company began openly courting state and local lawmakers and applying
for licenses like any other business.

This year, the company moved into offices in a corporate park in Santa
Rosa that were once occupied by a company that manufactured heart
stents, and it obtained a business tax license as a cannabis company
and permission to operate agricultural processing machinery.

"Their zoning was good. The choice of building location was good,"
said Julie Combs, a member of the Santa Rosa City Council. "They were
certainly using an open-door policy."

In May, the company hosted nearly 50 lawmakers and regulators from
Sacramento, the state capital, to demonstrate the process it uses to
produce the soft-gel capsules and other cannabis-based products that
do not involve smoking. As technicians in white lab coats operated
machines designed to detect impurities in their products, Mr. Hunter
demonstrated to lawmakers the extractors that produce oils from the

"Because cannabis has a stigma around it, we really needed to come out
and change people's image of what a cannabis company looked like," Mr.
Hunter said during a recent interview at the company's headquarters.
"We knew we were going to be one of the first through the gate, so we
wanted to set a good example for the industry that looked professional
and was clean."

But two weeks after the visit by lawmakers, around 100 officers and
agents wearing tactical gear, and representing multiple law
enforcement agencies, raided the company's headquarters and four other
facilities. The officers broke down doors and, according to the
company, seized around $500,000 in cash, 22 machines worth $3 million
and $1.5 million worth of cannabis products.

Mr. Hunter was arrested and held on $5 million bail, which critics of
the raid said was an unusually large amount.

Lt. Michael Lazzarini of the Santa Rosa Police Department's
investigations bureau said the police had acted on the basis of a
"public safety risk" caused by the cannabis manufacturing process,
which he described as "illegal and volatile."

"There's this huge desire to make Santa Rosa a place for this industry
to thrive," Lieutenant Lazzarini said. "But then a lot of these
businesses operate outside of the scope of local, state or federal

The raid prompted lawmakers in Sacramento to enact regulations in
September to clarify that the extraction procedure was legal.
Lieutenant Lazzarini said that he was aware of the change in the law,
but that his department's investigation was continuing.

Mr. Hunter was released two days after the raid, and the bail
requirement was dropped when the district attorney decided not to
press charges against him, according to Lieutenant Lazzarini. But the
company's equipment and cash have not been returned.

The raid has been criticized by some local officials who said it sent
the wrong message to other companies that were seeking to shed their
clandestine past. Ms. Combs, the Santa Rosa City Council member,
described the raid as an overreaction to what amounted to suspicion of
a permit violation.

"If there is an issue with a manufacturing process being unsafe, we
don't normally break down doors and take the payroll," she said. "It's
almost as if law enforcement, at multiple levels, are like the
Japanese soldiers on an island still fighting a war that is over."

Bob Aaronson, the independent auditor of the Santa Rosa Police
Department, described the raid as "something I'm not happy with."

"The guy was trying to comply to the extent he can," Mr. Aaronson
said, referring to Mr. Hunter.

Russ Baer, a spokesman for the Drug Enforcement Administration,
confirmed that agents had taken part in the raid, but would not
comment on the specific reasons for their involvement.

The agency's position is that marijuana has "never been determined to
be medicine," he said.

Rob Bonta, a California state assemblyman, said the clash between
federal and state laws added only one level of confusion. It was
nearly two decades after medical marijuana became legal in California
that state legislators in 2015 passed regulations on licensing,
taxation and pesticide standards. And although that law, the Medical
Cannabis Regulation and Safety Act, is scheduled to take effect in
2018, there are now questions as to how much the medical law will
overlap with recreational marijuana regulations, which have yet to be
drawn up.

"There's an ongoing challenge with clarity," Mr. Bonta said. "There's
not enough certainty that has trickled down to the street level, where
law enforcement has clear direction."

Preparations for full legalization have revealed the massive scale of
the industry, said Terry Garrett, a manager of Sustaining
Technologies, a marketing company.

He calculates annual sales of raw marijuana plants in Sonoma County
alone at around $3 billion, six times more than the total sales of
wine grapes.

"I empathize with all the players, the regulators and the regulated,"
Mr. Garrett said. "I didn't realize the scale of the problem until I
realized how big the industry is."
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