Pubdate: Sun, 19 Apr 2020
Source: Washington Post (DC)
Copyright: 2020 The Washington Post Company
Contact:  http://www.washingtonpost.com/
Details: http://www.mapinc.org/media/491
Author: Reed Albergotti

MANY CALIFORNIA POT BUSINESSES RISK FAILURE

SAN FRANCISCO - As the novel coronavirus rages on, few industries have
experienced quite as many highs and lows as California's cannabis industr=
y.

Just a month ago, it looked like California's weed trade was headed
for a shutdown, which would have landed a devastating blow to many
businesses that are already struggling. Then, state officials deemed
pot "essential," and many stores reported the biggest days of sales
since recreational marijuana became legal. Now, a more sobering
reality is setting in: The marijuana industry is unable to tap into a
federal stimulus package or bank loans.

"There's no money that's going to be coming into the sector," says
Nicholas Kovacevich, CEO of KushCo Holdings, a major distributor to
marijuana dispensaries. "All of these companies, including us, need to
get profitable really quickly or risk running out of money."

For industries like California's pot business that were already on the
brink, the coronavirus crisis represents a make-or-break moment. Many
retailers and restaurants have shut in the past month for the
stay-at-home order, unsure whether they'll reopen when it's over. Like
grocers, the marijuana industry's ability to operate during the
pandemic offers a much-needed source of revenue. But for the pot
business, the lack of a safety net, access to banking or the ability
to tap into federal stimulus dollars means the tiniest misstep could
lead to bankruptcy.

"We saw the potential to lose everything and then have the state or
federal government not have our backs at all. It was very scary," said
Dave Wingard, who owns Flora Terra, a marijuana cultivator and
dispensary in Santa Rosa, Calif., with his wife, Alicia. They had
finally gotten their business up and running last fall after a year
and a half of cutting through red tape.

On March 16, when many Americans were still trying to figure out
whether the coronavirus was a big deal, six counties in the San
Francisco Bay area ordered residents to "shelter in place,"
effectively shutting down the economy that is home to Silicon Valley,
including the cannabis industry.

For many Californians who rely on marijuana for everything from stress
relief to treating post-traumatic stress disorder and cancer, the
decision to bar marijuana businesses from operating was a blunder. The
backlash was swift and deafening. Matt Haney, a San Francisco
supervisor, voiced support on Twitter. "They shouldn't be told to
close. They obviously serve as pharmacies for a lot of people," he
said.

The next day, the San Francisco Department of Public Health reversed
the decision, calling marijuana an "essential service." Other states
like Vermont, Illinois, Michigan and Colorado followed suit, allowing
marijuana businesses to stay open during shutdowns.

"The fact that yesterday's vice is considered today's essential
service suggests that we got the potential costs and benefits of
marijuana use radically wrong," said Joseph E. Kennedy, a law
professor at the University of North Carolina. "It's evidence of the
schizoid attitude our society has toward drugs in general and toward
marijuana in particular."

The designation by Bay Area governments was a major milestone for an
industry that was ravaged by a war on drugs and survived years of
turmoil since legalization. California was the first U.S. state to
legalize medicinal marijuana in 1996, but the industry was marred by
periodic crackdowns by federal law enforcement. In 2016, following
Colorado and other states, voters approved recreational sales,
prompting an investment boom. Many predicted that it would bring it
out from the shadows, turning the once underground drug into an
over-the-counter commodity.

The opposite happened. The state began heavily taxing the product, and
local municipalities tacked on their own taxes and fees, which boosted
prices. Many towns opted to block marijuana dispensaries from opening
up nearby, choking the ability of legal operators to distribute their
goods.

A history of marijuana laws in the united states

Tom Adler, owner of Wonder Extracts, which had been selling medicinal
marijuana since the '90s, says his business margins over the past two
years were cut by 75 percent in part because of increased costs
associated with regulation and high taxes - far from his "huge"
expectations for the business when it was legalized four years ago.

With the drug legalized, underground dealers felt emboldened to expand
their operations, setting up expansive delivery networks, undercutting
the prices of legal pot and depriving the state of marijuana revenue.
California initially expected about $1 billion in new tax revenue in
2018. It took in $342 million. Untaxed and unpoliced, black-market pot
is estimated to be much larger than the legal trade in California.

Hampered by a morass of regulation, local opposition to stores and a
thriving black market, many marijuana businesses have shuttered. The
vaping crisis, which was linked to the marijuana business because the
pens are a popular method for smoking pot, last fall scared away
investors and sent pot stocks plummeting.

Pot firm lands multimillion dollar investment from fund with stakes in
Facebook, Airbnb

When the Bay Area designated dispensaries essential businesses and
customers rushed to stock up, it created one of the few bright spots
in the state's economy.

The owner of Foggy Daze Delivery, who goes by the name Evrett, was so
busy the day after the stay-at-home order that he became a delivery
driver himself. He made 39 deliveries that day, driving all over San
Francisco handing bags full of weed to grateful customers. "We
genuinely believe we're performing an essential service," he said.

"The fact that they're allowed to be open is huge," said Fiona Ma, the
California state treasurer who said she hopes marijuana will help buoy
the state's tax revenue, which is sure to be drastically down this
year. "Obviously, it's going to help," she said. But she cautioned
that the illicit marijuana business is likely also bustling, with even
less enforcement because of stay-at-home orders.

Now, California's cannabis workers have the undesirable distinction of
being front-line workers during a pandemic operating on razor-thin
margins and zero federal support.

Logistical hurdles such as setting up a drive-through operation - a
public health requirement - and protecting employees from the virus
have added costs. Meanwhile, business owners had to pay for extended
sick leave for employees who aren't working during the pandemic
because of new requirements in the Families First Coronavirus Response
Act.

Brandon Levine, owner of Mercy Wellness in Cotati, Calif., said when
he received an alert on his mobile phone that cannabis stores will be
limited to curbside delivery, he and his employees wasted no time
getting to work designing a drive-through store in the parking lot.
They stayed up until 1 a.m. setting it up.

"Our industry, the people in it are resilient and open-minded. We're
talking about cannabis here, so you have to be a little bit
open-minded," he said.

Last week, Rep. Ed Perlmutter of Colorado (D) said he is pushing to
include marijuana businesses in the next federal stimulus package.
Democratic Sens. Ron Wyden and Jeff Merkley, both of Oregon, are also
supporting that change.

The industry has some unusual challenges when it comes to stopping
germs. Unlike most businesses these days, the marijuana trade is
heavily reliant on cash transactions because banks have largely
shunned the sector.

Hard Car, a security company that caters to the marijuana business,
performs a function that sounds arcane in the year 2020: In addition
to distributing cannabis products, it transfers large sums of cash to
the federal reserve for marijuana companies that can't get a bank to
serve them because of federal restrictions.

Todd Kleperis, the company's co-founder, said he anticipated the
coronavirus would be a problem and ordered 3,000 face masks and gloves
for his workers early last month. Once Hard Car's drivers are done
with a delivery, drivers take off their masks and gloves and use hand
sanitizer and clean the vehicles, some of which have air filters that
can stop viruses. Drivers are told to regularly change their masks to
avoid risking infection.

Banks want a hit of the marijuana business

In Santa Rosa, the Wingards' Flora Terra business saw an initial spike
after the industry was deemed essential. Since then, they are seeing
better revenue overall, but not enough.

That burden on small businesses is supposed to be compensated by the
new federal stimulus bill that offers small businesses what is
essentially free money to make up for added costs. But the Wingards
won't be eligible for that aid because the federal government deems
their business illegal.

"I don't know where it's going to go," Dave Wingard said. "It's hard.
It's a tough business. =85 We're going to try our best."