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In California, Marijuana Is Smelling More Like Big Business

| Apr 12, 2016 | News

by Ian Lovett
NY Times

ADELANTO, Calif. — After decades of thriving in legally hazy backyards and basements, California’s most notorious crop, marijuana, is emerging from the underground into a decidedly capitalist era.
Under a new state law, marijuana businesses will be allowed to turn a profit — which has been forbidden since 1996, when California became the first state to legalize medical cannabis — and limits on the number of plants farmers can grow will be eliminated.
The opening of the marijuana industry here to corporate dollars has caused a mad scramble, with out-of-state investors, cannabis retailers and financially struggling municipalities all racing to grab a piece of what is effectively a new industry in California: legalized, large-scale marijuana farming.
And with voters widely expected to approve recreational marijuana use in November, California, already the world’s largest legal market for marijuana, gleams with the promise of profits far beyond what pot shops and growers have seen in Washington or Colorado, the first states to approve recreational use.

“People are definitely salivating over the California market,” said Troy Dayton, chief executive of the ArcView Group, a research firm in the Bay Area that specializes in marijuana. “It’s huge, and Californians love cannabis so much.”
In search of a tax windfall, cities across the Southern California desert, like Adelanto and Desert Hot Springs, have raced to be first to permit commercial marijuana cultivation. The price of land here tripled almost overnight as entrepreneurs bought up every inch of property where pot-growing was permitted — most of it bare desert dotted with only Joshua trees and tumbleweeds.
And celebrities who for years have supported the open use of marijuana are also seeking a piece of the action: Musicians like Snoop Dogg and one of Bob Marley’s sons, Ky-Mani Marley, have been meeting with officials about licensing marijuana grown here.
Amid the frenzy, though, anxiety is growing in some corners of the state that corporate money will squeeze out not only the small-time growers, but also the hippie values that have been an essential part of marijuana’s place in California culture.
Tommy Chong, of Cheech and Chong fame, has long been synonymous with California’s outlaw stoner culture, growing his own pot and crafting bongs from kombucha bottles at his Los Angeles home. Now he is negotiating with a corporate partner to license his own brand of legal marijuana.
“If conglomerates come in, my answer is: God bless ’em — it saves me the hassle,” Mr. Chong, 77, said in a telephone interview.
“Fashion changes, haircuts change,” Mr. Chong said. “We go through cultural changes.”
But Patrick Murphy, a cannabis farmer in Humboldt County, a lush area on the northwest coast long famed for growing high-quality pot, said he had already seen a “corporate takeover” of the marijuana industry in many other states.
“In California, especially in Humboldt, we have a code of conduct: Respect the land and respect the people,” he said. “I don’t want that culture to be replaced by guys in $5,000 suits.”
Twenty-three states allow some form of legal marijuana, and up to 20 will consider ballot measures this year to further ease restrictions.
California is now making the largest effort in the country’s history to pull marijuana out of the black market. Medical marijuana sales in California hit $2.7 billion last year, accounting for nearly half of all legal marijuana sales in the country, according to ArcView and New Frontier, another cannabis research company. Approval of recreational marijuana use in November could double the market here by 2020, experts said.
The law will take full effect by 2018, when a medical marijuana czar will institute licensing, testing of products and tracking from “seed to sale.” Aside from the all-cash business model — banks are prohibited under federal law from doing business with companies that grow, sell or process marijuana — the entire industry will be out in the open.
“There has been a shadow cast over this industry,” said Rob Bonta, a state assemblyman who co-sponsored the new marijuana regulations, which Gov. Jerry Brown signed into law in October. “This is more and more being seen as a legitimate business, and now we hope businesses can come out of the shadows.”
In Desert Hot Springs, CalCann Holdings, a medical marijuana holding company, is planning to build a high-tech greenhouse, along with a kitchen to produce edible products for its dispensaries in Orange County. The company expects to produce 8,000 pounds of marijuana a year over four or five annual harvests.
By bringing marijuana into a legal framework, said Aaron Herzberg, general counsel for CalCann, companies like his will be able to “bring modern agricultural techniques to the production of cannabis.”
“We’re transitioning out of the complete free-for-all, wild West,” he added. “It will be like alcohol — you can’t just set up a still and produce it in your garage. You have to apply for permits and pay taxes.”
A group of Humboldt County farmers, including Mr. Murphy, have agreed to sell their cannabis under a single banner, Emerald Family Farms, to compete with “mega-grows” like the one CalCann is planning.
“Cannabis started as a counterculture,” said Ryan McIntosh, a cannabis farmer. “I think there are some people who will have no desire to purchase from giant cannabis groups.”
Still, Mr. McIntosh, 42, said he was eager for a new era when he could stop worrying that his children would see him arrested in a raid. “I don’t want to hide anymore,” he said.
Adelanto, a rough-edged community in the high desert northeast of Los Angeles, is hoping to become a very different kind of pot mecca from Humboldt County. Envisioning a row of high-tech grow houses where there is now only a flat expanse of desert, Mayor Richard Kerr said that the growers might need to build solar plants to support all the energy it would take to produce more than 100 tons of marijuana each year.
He estimated that the annual tax revenue from the influx of marijuana growers could top $10 million, nearly the size of the city’s budget last year.
Given the state’s continuing drought, farmers have already begun marketing themselves as environmentally friendly, despite all the electricity required to grow marijuana indoors.
“They all have irrigation systems, where the water goes down into the soil and they can recycle it,” Mr. Kerr said. “We’re trying to stay on the green side of things here.”
As she sold Girl Scout cookies outside a supermarket with her granddaughter, Sherree Harris-Johnson, 57, said she had changed her mind about marijuana after she heard that pot companies would be required to hire half of their workers locally. Unemployment in Adelanto remains above 10 percent, and prisons are the primary employers.
“All I want it to do is bring some jobs,” Ms. Harris-Johnson said.

Correction: April 11, 2016
A previous version of this article incorrectly identified the first two states to approve the recreational use of marijuana. They were Colorado and Washington, not Colorado and Oregon.
A version of this article appears in print on April 12, 2016, on page A1 of the National edition with the headline: Marijuana Profit Is New California Gold Rush.