Pubdate: Fri, 27 May 2016
Source: Los Angeles Times (CA)
Copyright: 2016 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: Joe Mozingo

POT GROWERS LEERY OF BIG ALCOHOL TAKEOVER

North Coast Cannabis Cultivators Fear the Moneyed Establishment 
Shouldering into Their Scruffy Livelihood

REDCREST, Calif. - For the Humboldt farmers, Sonoma County's 
subterranean tasting rooms and Tuscan affectations offered a glimpse 
into a rarefied realm of legal intoxicants.

The marijuana growers had driven south from redwood country to the 
oak and grass hills to take part in an event called "The Women of 
Wine & Cannabis," a chance to visit boutique wineries and learn about 
appellations and branding in the $200-billion retail alcohol market.

But as they sipped wine on a vine-covered terrace of the Mayacama 
Golf Club that evening, some of them began to see an insidious 
subtext to the affair: The moneyed establishment was shouldering into 
the marijuana game, legislating the system to its favor, and the 
small growers who had built the industry had better accept the new 
model or get bulldozed by it.

Ted Simpkins - a retired executive from the nation's biggest liquor 
and wine distributor, Southern Wine & Spirits - stood up to welcome 
the growers and proceeded to give what they characterized as a gruff 
lecture about who were going to be the "winners and losers" when new 
medical marijuana regulations take effect in the next two years.

Accompanied by Assemblyman Jim Wood (D-Healdsburg), one of the 
authors of the new cannabis legislation, Simpkins explained that they 
would not be able to sell their weed directly to retailers; they 
would sell to distributors.

And Simpkins happened to own a distribution company that was lobbying 
heavily in Sacramento to craft the law the way he wanted.

Some of the women liked his pitch, heartened that such a big shot was 
interested in their businesses. But others suddenly saw that someone 
with this much money posed a new threat to their scruffy livelihoods.

To them, the elderly man - gravel-voiced, sporting a prep-school blue 
blazer and horse bit loafers - was sending a clear message: Sign up 
now and hand over a cut of your sales or get pushed out of the market 
by the new Southern Wine & Spirits of weed.

"We had the sudden feeling we were in the belly of the beast," 
Sunshine Johnston, a grower in Redcrest, said of that warm evening in 
August. Two of the women grew so upset they left the party, trudging 
two miles down a rural road.

Since voters first legalized medical marijuana with Proposition 215 
in 1996, competing interests have tried to take control of the chaotic market.

Bills or citizen initiatives that would clarify the rules of the 
business or make recreational use legal have been stymied, partly 
because the divided industry never came together to endorse any one of them.

Growers have long complained that dispensary owners held all the 
power because they could get licenses and operate openly, while the 
cultivators who grew the product and drove it to market were widely 
seen as outlaws.

As late as July 2014, the seven-member board of the main growers 
association in the state consisted of four retail operators and only 
one full-time grower. No one wanted to publicly state he or she grew 
pot for a living.

"The growers association was run by dispensaries," said Hezekiah 
Allen, executive director of the group, now called the California 
Growers Assn. and under grower control. "We were sharecroppers. So, 
yes, there is a lot of bad blood."

While Colorado built its regulated industry largely from scratch, 
California - the cradle of the marijuana movement - is struggling to 
redesign a makeshift system that people have been cobbling together, 
mostly underground, for half a century.

For some veteran growers in the North Coast, the requirement to sell 
to distributors looked like the corporate seed to their destruction. 
They would operate like the alcohol industry, where Budweiser and 
Miller have ruled since Prohibition, where beer, bourbon or wine 
makers can mostly sell their products only through state-licensed 
brokers, who then sell to stores.

While prices for marijuana have sunk to all-time lows, new players 
would be taking a bite out of increasingly thin margins.

To many farmers in Humboldt and Mendocino counties, this was not just 
an attack on profits, but on the backwoods hamlets that have long 
operated like autonomous states - where marijuana growers and their 
money build local schools, volunteer fire stations, community 
centers, even a regional radio station.

Some, like Johnston, 43, who grew up in the Mattole Valley in 
Southern Humboldt and went to a potfunded school, have decided to 
fight to survive in the industry by working to brand their fabled terroir.

"I want to get my brand in early and get the shelf space," she said. 
"The next few years are going to be rough-and-tumble."

Other cultivators see hope in the new model, and some have signed up 
with Simpkins' company, River Wellness, hoping it will give them more 
power to set prices with dispensaries, which are known for retail 
markups well above 100%.

Patrick Murphy, a Willow Creek grower who signed on with River, said 
it is common for North Coast growers to agree on a price point with a 
Los Angeles dispensary, then drive 10-plus hours only to be told the 
number had dropped. "It's a typical bait-and-switch. What am I going 
to do? Stay in a hotel and look for other dispensaries?"

He said he's happy to leave distribution to the professionals.

"Look, there's a fair amount of paranoia out here, and that paranoia 
is well-earned. It's a leap of faith for farmers to enter into a 
system that has treated them unfairly in the past .... You're talking 
about 50 years of sacrifice, of loss of life, families being 
separated by incarceration, financial ruin."

But he says he does not fear that a small number of distributors will 
come to monopolize the entire market. "I get about 10 emails a day 
from new distribution companies opening up."

Under the new law, California will start issuing licenses for 
distributors, growers, retailers, testing facilities and others in 
2018. The distributor would be required to have the marijuana or 
infused product analyzed at a laboratory for potency and 
contaminants, such as mold and pesticides.

River had been working since early 2015, lobbying key legislators and 
regulators in Sacramento, to push this model through to the governor's desk.

It hired the high-powered firm of Mercury Public Affairs, led by 
former Assembly Speaker Fabian Nunez, paying $82,500 over nine 
months, according to state records.

It also hired lobbyist Jason Bryant, a friend of Assemblyman Wood's 
from when they both worked for the California Dental Assn., paying 
him $52,000 by the end of March, the records show. (That was nearly 
$10,000 more than Bryant earned from his only other client - the 
California Growers Assn.)

Simpkins and his company contributed $6,000 to Wood's campaign, and 
more than $5,000 to the campaign of Fiona Ma, a commissioner on the 
Bureau of Equalization.

Simpkins, 75, started his career at Southern Wine & Spirits in 1971 
and took over the lucrative California division of the company in 
1983. Over the next 27 years, he took annual sales from $100 million 
to over $2.5 billion, according to his company bio.

In the last five years with Southern, he earned more than $39 
million, court records show. He jumped to a competitor in 2010, 
serving as executive vice president and general manager of Young's 
Market Co. until his retirement in 2014.

"When I retired, someone asked me if I should distribute cannabis," 
Simpkins said. "I didn't know anything about the industry. I began to 
look into it. I thought [Proposition] 215 was one of the worst laws I 
ever read."

Simpkins said there was no legal way to transport the pot. 
"Dispensaries were doing good, but growers were going to jail."

In February 2015, Simpkins attended a meeting in Sacramento with 
Allen, of the growers association, and members of the Board of 
Equalization, to talk about a distribution model. Simpkins tried to 
convince Allen that having a tier of independent distributors 
inserted into the supply chain would empower growers by forcing 
retailers to negotiate better pricing and shelf placement.

Allen said he initially didn't buy it.

"Here you got essentially big business, everything we didn't want in 
this industry, telling us, 'Hey, it's going to be great.' "

In the northern marijuana belt, known as the Emerald Triangle, the 
specter of a Big Alcohol or Big Tobacco swooping in to take over 
hangs like a distant fog off the coast. To conspiracists, Simpkins' 
career at Southern Wine blew it to shore in a cold gust of reality.

He said he pushed for the alcohol distribution model with Ma, the 
commissioner at the Board of Equalization, which was grappling with 
the best ways to collect taxes from the industry. "The wine model, I 
certainly brought it up to Fiona at the BOE: 'Why don't you follow 
the wine model?' "

The Board of Equalization supported the model, arguing that it would 
create a manageable "choke point" in the supply chain, with a smaller 
number of entities to perform audits and collect taxes.

The language was added to Assembly Bill 266, one of three measures 
that would create the new rules, at the end of June, three months 
before Gov. Jerry Brown signed it into law.

Nate Bradley, executive director of the California Cannabis Industry 
Assn., a group formed with the stated purpose of uniting the 
industry, said most of the industry did not learn of the rule until 
after it was added, and he fears only large-scale growers and 
manufacturers will be able to make a living after big distributors 
takes their cut.

The state has not worked out how many distribution licenses will be 
issued, or what the requirements will be to get one. In February, 
Brown appointed Lori Ajax, an official from the department of 
Alcoholic Beverage Control, to be the first chief of the new Bureau 
of Medical Marijuana Regulation.

Ajax has until 2018 to flesh out all the rules not explicitly spelled 
out in the legislation. Adding a potential layer of chaos is a 
well-funded ballot initiative to legalize recreational use of 
marijuana, which does not require independent distributors.

And on the North Coast, where many growers illegally graded roads and 
diverted streams for water, they are facing new rules that could 
individually cost tens of thousands of dollars in improvements to 
grow sites, and up to $10,000 a year in permits.

"There is no way the cottage industry can pay these fees," said 
Michael McLaren, a grower in Trinidad. "Now we got distributors 
coming in. They want 30%. The little guys are going to get mowed."
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MAP posted-by: Jay Bergstrom