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CANNABIS CALIFORNIA - trouble in paradise

… cannabis delivery services - high-level illegal profiteering.

When California voters said “yes” to legal cannabis, the Bureau of Cannabis Control (the “BCS”), California’s cannabis regulator, was charged with establishing an orderly transition for illegal to legal. Legal cultivators and retailer appear to be functioning within the regulations. Yet, the linking mechanism of delivering the crop to retailers has failed. Since the beginning of the year, the BCS has issued 142 licenses for cannabis delivery. However, some local jurisdictions have banned their services. Cities and counties want more revenue sharing and are looking for excuses to stall the program. Apparently, it backfired, and the problems are worse than the local jurisdictions imagined. At issue is the distribution schemes that stepped in to fill the void between local legislators, retailer and consumer. The BCS rules allow deliveries to any municipality throughout the state. Cities and counties want to stop legal cannabis delivery at their borders. This controversy has obfuscated a solution.

At the moment, recreational and medical cannabis distributions are encumbered with double-dealing and weak enforcement. Meanwhile, the public is confused and frustrated. Licensed recreational, medical cannabis deliverers, unlicensed medical peddlers, and a booming black market are functioning exclusively on their self-interests, underhanded dealing to upset regulated commerce. The chaos created a flourishing delivery industry that is unregulated and not taxed, while the cultivators and the retailer are accused of supplying inferior products.

Unlicensed delivery services have until January 1, 2019, to either obtain a state and local license or stop commercial operations. The BCS’ order underscores the high-level illegal profiteering that has occurred and lack the means to immediately correct it.

Licensed recreational and medical cannabis deliveries competing with unlicensed shippers are at a disadvantage. The wide-open illicit delivery market is dooming. No one, even the legal couriers are following the rules. What they are hauling, in some cases have not been tested. Illicit market couriers are reaping millions of dollars while cultivators and retailers are operating at losses or low-profit margins. Police reports show that legal couriers are being robbed, and the products they sell have not been tested for pesticides or mold.

To support the ban on recreational cannabis delivery in California, city governments, police chiefs, and the United Food and Commercial Workers Union, have started a campaign. Launched on August 31, 2018, the initiative has partly succeeded. The New York Times has written a series of articles on the California delivery issues and started a petition called Stop Wandering Weed. From our perspective, the idea failed.

At the moment, the untaxed and unregulated marijuana deliveries have placed in question the entire process. The state has even contemplating a ban on all shipments until a new program can be established. A rumor claimed that the National Guard will be ordered to keep the peace and deliver the marijuana. Adding to the anarchy, licensed delivery services are having a difficult understanding and adhering to the rules and regulations of the statutes. The law is not adequately designed to work in the marketplace effectively. What BSC has done created an excuse for non-compliance.

The cannabis delivery system in California, its implementation and ensuing chaos is a prime example of the emerging legal cannabis industry. Delivery systems are only a small part of the business equation that operators in the business must face and understand to make a profit. The cost of functioning in such an environment makes it a time consuming, a money-losing proposition. The excessive tax base, and the margin to remain viable in the business is tenuous.

The second wave of entrepreneurs will have a better window of opportunity to function in, which is not available today. Since a definitive commercial model is still years away because of the federal tax policies and restrictions, businesses are unable to compete on a national level. Any capital applied in the cannabis industry for cultivators and brick and mortar retailers must be considered high risk.

Ask for Folder 1121ARZ for free comprehensive, 24 page report, entitled "California Cannabis Delivery Problems."

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