California Studies Regulation Ahead Of Implementing Largest American State Market

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As legal marijuana markets go, even if still “only” a state, California’s new status as a place where recreational marijuana is legal for consenting adults is being watched globally.

Not only is it already the nation’s largest legal medical market with sales that still challenge fully legal states, but it is on the edges of becoming the country’s largest marijuana market overall, thanks to the results of the November 2016 elections. California’s state market will continue to challenge even national country medical markets around the world because of its sheer size and regulatory impact.

According to some estimates, within a few years, the entire state market in California could easily be worth between 4 and 5 billion dollars – or more than the entire U.S. legal market as of last year.

Income from Cannabis

That said, the devil, as always in the details, and California has a few to work out – starting with the regulations required to make the new bifurcated market function in the first place.

Rec Sales Are Still (At least) A Year Off

The new state law must now be enshrined into state regulation – and that is where the coming battles will not be easy – think more Washington State circa 2014 than Colorado. The state has a long history of taking its time with regulation (think recreational use in the first place), primarily because of raucous and heavy politicking on this issue in the state capitol. For this reason, rec sales are unlikely to begin for at least another 12 to 18 months.

In addition to new regulations for the recreational side of the business, however, the state is also in the process of revamping its medical regulations, which have been in place, albeit in patchwork form since 1996 and implemented even less consistently. On this front, the California market will be more Oregon or Colorado. There will, at this juncture, clearly be a place for both kinds of consumers and entities who serve them in the market.

Cannabis use signage

New Licenses and New Opportunity

As a result, the state will be opening opportunities for direct licensing on both the medical and recreational front for a host of verticals, starting with but not limited to businesses that touch the plant directly. This means growers, sellers, and processors. It also is likely to spark a whole new level of opportunity for other significant parts of the industry already – namely edibles and cuisine but also weed tech. There are at present 17 different types of licenses available – although all are being limited on one level or another as a way to generate new business licensing revenue for the state itself.

That said, the state is also trying to re-regulate an existing and sprawling industry that grew up in the shadows of the entire legalization debate over the last 20 years. For that reason, no new recreational licenses are likely to be issued before 2018.

Vaporizing cannabis

Strong Recreational and Medical Opportunity

It is precisely because of the long history of the medical industry in the state that the regulatory conversation is likely to look more like the one developed in Colorado and Oregon, rather than a retread of what happened in Washington State. Namely, it is unlikely that the medical industry will become subsumed under the same set of regulations if not taxation structures that are created for the recreational industry. That is very good news, particularly for patients, and even more particularly because this is still the group of cannabis consumers, as a whole, that has tended to be sidelined in such discussions in other legalizing states.

California’s Impact on National Regulation

No matter the delays, California’s regulatory environment on the cannabis front is likely to carry a lot of weight across the rest of the U.S. in particular, just because of the size of the market.

Cannabis growing

There are several places in particular where this outsized influence is likely to show up and fast.

The first is the matter of medical use and employment. California’s Unruh Act is, in fact, stronger than the federal Americans with Disabilities Act. The ADA still (sadly) allows employees to be discriminated against on the basis of disability if they use cannabis. To date, this issue has been unsuccessfully litigated in several other states and lies unanswered at the federal level because of the delay on rescheduling the drug. California state law, as a result, is likely to see multiple challenges on this front alone.

The other place California is likely to have an impact on the medical discussion is on insurance. It could be that the state becomes the first in the country to require insurance companies to cover medical costs. That, in turn, would place greater pressure on the federal government to change the scheduling of the drug.

US on Cannabis

The third place California is more than likely to have an outsized effect on at least national regulations is in the area of banking. With an industry of the size that it already is, plus state-wide law covering the industry, it is highly unlikely that at least state-based credit unions will continue the standoffish relationship with the industry they have maintained since 2014.

That too will have national implications – and for every business, in every state, no matter their clientele – that is way overdue.

That said, with uncertainty about the direction of the new Justice Department in DC, and a long history of federal interference with California’s marijuana market, not all is clear sailing. However, with more and more states standing up to the federal government and on a host of issues – this being just one of them, the coming several years will be fascinating to watch.

What are your thoughts as all eyes are on California being the largest U.S. state to implement recreational marijuana?

Share your views with our community in the comments section below.

Marguerite Arnold

Marguerite Arnold

Marguerite is an American expat. She has worked in digitalization of two industries (film and finance) for over 25 years as well as a professional journalist and writer. She lives in Frankfurt where she is also just finishing her Executive MBA at the Frankfurt School of Finance and Management, working as a freelancer and writing a medical marijuana/FinTech business plan. She published her first ebook on the pace of marijuana reform last year.

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