California pot rules open way for potentially larger fields

By MICHAEL R. BLOOD Markets Associated Press

California released long-awaited rules Thursday that will govern the state's emerging legal marijuana industry, while potentially opening the way for larger-scale cultivation that some fear could strangle small-farm growers.

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The thicket of emergency regulations will allow the state to begin issuing temporary licenses for growers, distributors and sellers on Jan. 1, when recreational sales become legal.

They provide a regulatory roadmap for business operations, from licensing fees to establishing guidelines for testing, growing and distribution of marijuana in what is projected to be a $7 billion economy, the nation's largest.

As for infused munchies, "edible products cannot be shaped like a human, animal, insect, or fruit," according to a summary of the rules.

And if you are thinking about alternative transportation for that pot, don't: It's prohibited to use "aircraft, watercraft, drone, rail, human-powered vehicle and unmanned vehicle."

The regulations have been in development for months and in some cases covered familiar ground: At first, the state will issue only temporary licenses to growers and retailers, provided they have a local permit to open for business.

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Other changes appeared significant.

The state has been trying to determine what should be the appropriate size limit on cannabis farms, a debate that has echoed fights over corporate-scale farming in the Midwest.

At one time 4 acres (1.6-hectare) was under consideration, but preliminary information from the state earlier this week indicated a maximum 1-acre (0.4-hectare) cap would be set on most cultivators.

But the regulations issued Thursday did not include that language, instead placing limits on only certain medium-sized growers' licenses. Beyond those "there is no limitation for the other categories of licenses," Steve Lyle of the state Department of Food and Agriculture said in an email.

Hezekiah Allen, executive director of the California Growers Association, an industry group, said the rules appeared to allow large businesses to obtain "as many licenses as they could afford," opening the way for vast cannabis grows that could threaten the viability of small farms, long the backbone of the state industry.

California "could have just opened the door for well-capitalized interests ... to really jeopardize the success of the marketplace," he said.

With the state already saturated with marijuana, it could "make an oversupply problem into an oversupply crisis," he added.

According to the regulations, annual fees for cultivation licenses could be nearly $80,000, or as little as $1,200, based on production. In issuing growers' licenses, the state must also ensure it doesn't violate any local rules.

Voters last year legalized the recreational use of marijuana beginning in 2018, a watershed decision that will unite that new market with the state's long-running medical marijuana industry.

Within several years, the state expects to collect up to $1 billion in new taxes.

The rules were issued just 45 days before legal sales can kick off, and at a time of widespread confusion and anxiety for many in the industry.

Some predict high taxes — in some places, as high as 45 percent — will drive consumers to the black market. Most banks won't do business with cannabis companies. And Los Angeles and San Francisco are among many cities without local rules in place.

Meanwhile, big gaps loom in the system intended to move cannabis from the field to distribution centers, then to testing labs and eventually retail shops.

In general, California will treat cannabis like alcohol, allowing people 21 and older to legally possess up to an ounce and grow six marijuana plants at home.