California has too many marijuana farms, see the full list on Observer — growing too much product — according to a 2019 cannabis harvest projection.
Vessel Logistics, a San Francisco-based cannabis distribution company, found that more than 1,142 acres of cannabis farms hold state permits. They can produce up to 9 million pounds of crop every year, but the permitted wholesale market can realistically support 1.8 million to 2.2 million pounds.
“Thus, even when a 50 percent cut in production is accounted for, a significant oversupply is unavoidable in 2019,” the report concluded.
California isn’t the only state to grapple with an overproduction of bud. A state audit found that Oregon growers are producing twice as much cannabis as the state market can support, and that there is “more than six year’s worth of supply sitting on shelves and farms,” according to Oregon Public Broadcasting.
“We’ll be in the same boat, but it will be more actual material,” said Daniel D’Ancona, president and founder of Vessel Logistics.
Until now, growers with a temporary license have relied on the black market to sell any product that couldn’t measure up to the state’s pesticide testing program or when there was a better price to be found, D’Ancona said. He said that all goes away as more growers are subject to the state’s Track-and-Trace program.
The program records “the inventory and movement of cannabis and cannabis products through the commercial cannabis supply chain — from cultivation to sale,” according to a state FAQ on the program.
Growers with a provisional or annual license are required to use Track-and-Trace. Temporary permit-holders are not. Instead, they are required to document all sales using paper invoices or shipping manifests.
“As soon as Track-and-Trace goes in place, it’ll be like trying to fit an elephant through a keyhole,” D’Ancona said.
The Vessel Logistics report concluded that because the cannabis industry in California has over-relied on both the black market and out-of-state sales, producers and manufacturers over-estimated the actual wholesale demand in the state.
“The impact will be felt across the entire supply side as permitted companies compete for a wholesale market that is a fraction of its pre-Track-and-Trace size,” the report found.
Over-production is just one of many hurdles that the cannabis industry faces in the Golden State.
Thousands of growers with a temporary license could soon be thrown onto the black market or forced to shut down unless the Legislature passes a law to push back the deadline for an extension application.
California also is a messy patchwork of legal statuses for cannabis cultivation and sales.
“The retail sector has been primarily restrained by city and county governments restricting retail and delivery businesses within their jurisdictions,” the report found.
The report recommends that cannabis cultivators create “strong relationships with processors and distributors,” that farmers partner with teams that have experience with the state’s Track-and-Trace program, and that farmers seek the advice of distributors “to gauge product demand before planting the wrong crop or over-planting.”
Or, as D’Ancona put it, “They need to grow less. …. If they grow like they’re used to growing … the products are going to be selling for less than the cost of production.”
So what do others in the industry think?
Jacqueline McGowan, a cannabis lobbyist with the firm K Street Consulting, says that while she is a self-confessed “doom-and-gloomer” about the cannabis industry in California, she would need more information about the Vessel Logistics report methodology before agreeing with the findings.
“Businesses without a product that consumers demand and without relationships with competent distribution partners will in fact be devastated, but the industry as a whole will be able to offer cheaper products to consumers, which is the best way to compete with the unregulated market,” McGowan said.
She added that other factors that have to be looked at are how much of the over-production will qualify for the licensed market, how much of that would pass the state’s strict pesticide policy and how many growers with temporary licenses (which are free) will go on to get provisional or annual licenses (which are not).
“Will this cause another ‘extinction event?’ Absolutely. But will it cause the industry to collapse? No it will not,” she said.
By Sharon Okada