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Pot Farms Shutting Down Across California

Pot Farms Shutting Down Across California

Pot farms across the State are closing due to plummeting prices

Brandon Wheeler has grown pot professionally for 20 years. His parents grew pot before him, and so did his grandparents. Despite these deep roots in the industry, he still felt a weight lift when he pulled his last pot plants out of the ground this July and shut down his legal weed farm in Mendocino County. He was happy to be leaving the family business.

“It was sad and depressing, but it was also a relief because [running pot farms] just had taken a serious toll on my mental and physical health, and the same with my family,” Wheeler recently told SFGATE. “So it was like, why are we putting ourselves through this? It’s not worth it anymore.”

Wheeler’s story is not unique. Pot farms across the state are shutting down as wholesale cannabis prices have crashed by as much as 95% since California voters legalized weed in 2016, according to SFGATE interviews with over a dozen California cannabis farmers, who could get as much as $2,000 for a pound of pot in 2016. Today, they’re lucky to get $400 — and some pot is selling for as little as $100 a pound.

Growers like Wheeler say this drop in revenue has made it almost impossible to make money growing legal pot.

Economists have been predicting that legalization would cause a drop in wholesale pot prices since states first began discussing the pot reform. But cannabis farmers say that California’s government has made the problem worse than it has to be, by enforcing expensive government regulations and allowing the largest pot farms to grow infinitely large.

Northern California’s Emerald Triangle, an iconic growing region that includes Mendocino, Humboldt and Trinity counties, has been hit especially hard with farm failures. Natalynne DeLapp, the executive director of the Humboldt County Growers Alliance, said the loss of farms has been “staggering” in her county, where 60% of farms have closed down since voters legalized cannabis in 2016.

Michael Katz, the executive director of the Mendocino Cannabis Alliance, said 30% of his county’s remaining pot farms have gone out of business in the past year, with pot selling at prices “barely enough to cover even your mortgage.”

Vahan Petrossian, the chief operating officer at the Humboldt Sun Growers Guild, said there’s a hopeless feeling in the industry, with some farmers struggling to even find buyers for their crops.

“We’re in this really tender place where everyone is selling out at a race to the bottom, just to sell their herb,” Petrossian told SFGATE.

Price drops were inevitable
The steep price crash now driving farmers out of business was a long time coming. In 2010, economists at the RAND Institute predicted that the pre-tax price of cannabis would drop by 80% if California legalized the drug. The authors argued that legalization would allow pot to be grown more efficiently and at a much larger scale, making it cheaper to grow and sell.

That prediction has largely come true. Analysts at Cannabis Benchmarks, a cannabis data firm, estimate that the average wholesale price across all cultivators in California is currently $660 a pound, down from nearly $1,400 a pound for both indoor and outdoor cannabis in 2018.

Outdoor cannabis growers with pot farms are facing a steeper drop in prices than indoor and greenhouse cultivators. Wholesale prices for cannabis grown outside have dropped from between $1,200 and $2,000 before legalization, to less than $400 a pound today, according to SFGATE interviews with more than a dozen California cannabis farmers. That amounts to a drop in wholesale prices between 67% and 80%. One outdoor farmer told SFGATE that they had to sell some cannabis for just $100 a pound this year. Others said they haven’t been able to sell their 2022 harvest at all.

Beau Kilmer, one of the authors of the RAND analysis, warned that prices may drop further still if the federal government legalizes cannabis.

“If the really big companies are allowed to enter the market (think alcohol and tobacco companies, big food producers, Amazon, national supermarket chains), they will be able to produce [and] sell at a mass scale that will drive down prices even more,” Kilmer wrote in an email. “We’ve estimated that you could produce all of the cannabis consumed in the US on a few dozen-industrial sized farms — that’s it.”

Pot is already grown in California on a larger scale than intended under Proposition 64, the 2016 voter initiative that legalized cannabis. Prop. 64 required the state to spend the first five years licensing only farms growing an acre or less of pot, which was intended to give smaller farmers a head start.

But state regulators quickly opened a loophole in the rules, allowing large farms to combine, or “stack,” one medium license, covering 22,0000 square feet — about half an acre — with an unlimited number of small cultivation licenses, each covering 10,000 square feet of land. In the past few years, companies have “stacked” dozens, and even hundreds, of licenses to cover increasingly large commercial operations. One cannabis business in Ventura County has a 1.7 million-square-foot greenhouse facility — 340 times bigger than Wheeler’s 5,000-square-foot family farm, and nearly 40 times the size of the 1-acre farms state regulators were supposed to be prioritizing.

Such large-scale operations are already operating with the benefits of scale that Kilmer warned about, including lower costs per pound to cultivate cannabis, and the ability to get by on smaller profit margins by selling much larger quantities. That makes it extremely difficult for small operations to compete. And as if that weren’t enough, Kilmer pointed out that federal legalization brings the possibility of even stiffer competition from imported pot. Flora Growth, a Canadian firm listed on the NASDAQ, recently told CNN that it only costs the company $0.06 per gram, just over $27 per pound, to grow cannabis at its new production farm in Colombia.

Expensive regulations
Despite all the market pressures, third-generation farmer Wheeler told SFGATE it was his interactions with the local government that ultimately convinced him to shut down his family’s farm.

“The regulations are so extreme and the taxes are so extreme that it was basically impossible to make any money at it,” he said.

Cannabis farms face expensive environmental, security and licensing regulations in California. It can take years for farmers to get permits from counties, and some local governments have been accused of mismanaging the entire regulatory process. Hundreds of farmers in Trinity County, part of the Emerald Triangle, lost their county growing permits last year, when a court ruled the county had violated the law during the permitting process.

Wheeler said the Mendocino County government made running his business a nightmare. He said the county lost his 200-page application in 2020, causing an 11-month delay in getting his county cultivation license. He spent $70,000 applying for a water permit from the California Department of Fish and Wildlife. The permit required approval from his local water board, but after six years, the water board has yet to process his application and now his original CDFW application has expired, along with the $70,000 he spent on the application.

“It was endless harassment and extortion at the local level. I’m just over it. It was just too much stress and nonsense to deal with,” Wheeler said.

Another Mendocino County grower, Ron Edwards opened a pot nursery there in 2016, selling young cannabis plants to surrounding pot farms. Within three years, the price for young plants had dropped from $15 to $7, making it impossible to stay profitable. He sold his property and got out of the business in 2019. Since then, he’s watched many of the business owners he worked with sink into debt to try and save their businesses.

“If this were any other legal business, if the price goes from $2,000 to $300 the government would be in to support those businesses and help prop them up. But because it’s cannabis, there’s nobody saying, ‘Hey we need to save these people,’” he told SFGATE. “A lot of people just kept spending and spending and now they are down and desperate. And now a cord of wood sells for more than a pound of pot.”

A possible solution
Dylan Mattole has seen wholesale prices wreak havoc on Humboldt County’s pot farmers. He used to be able to get $1,200 a pound for his pot, grown on his Mattole Valley Sungrown cannabis farm. But this past year he had to let some of his crop go for $100 pound.

The only way small-scale pot farming can survive in California, Mattole believes, is if the state government gives farmers the right to sell their pot directly to consumers.

“That’s the model that will keep Northern California going,” he told SFGATE.

Currently, a cultivation license does not give pot farmers a right to sell their cannabis to consumers, or even to retailers; instead, they have to sell it to middlemen who take their own cut of the profit. Some of the state’s biggest pot companies bypass the middleman by securing their own distribution licenses, but such licenses can cost hundreds of thousands of dollars, a prohibitive expense for most small farmers.

Craft breweries and wineries, abundant across California, already benefit from direct-to-consumer sales, selling the drugs they produce directly to customers. Farmers markets, too, support small-scale agriculture, allowing farmers to keep profits they would otherwise split with the grocery store.

A direct-to-consumer rescue may be on its way for cannabis growers who can hang on long enough: This year, Assemblyman Jim Wood, D-Santa Rosa, proposed a law that would allow cannabis farms smaller than an acre to apply for temporary permits to sell their products at farmers markets. Mattole said these kinds of programs would allow him to both make more money and connect directly with his customers, similar to how small wineries sell through wine clubs. That would allow him to stay in the business he loves.

“There have been a lot of small farms going under due to these prices, but there’s also a bunch of us who are figuring it out and going to stay in business with the hopes that things will stabilize in the future,” Mattole said.

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