North Coast cannabis sector bright economic spot in pandemic, poised for strong 2021

While most local businesses struggled last year amid the coronavirus pandemic, the North Coast’s legal cannabis industry grew.

Consumers clamored for cannabis-infused gummies and sparkling water, along with an array of smokable buds and pre-rolled joints, to help them cope with the infectious disease that has claimed the lives of more than 400,000 Americans. In addition, there’s the stress caused by the related economic repercussions of unemployment levels not seen since the Great Depression.

The Solful dispensary in Sebastopol had a revenue increase of almost 20% last year, with its digital business expanding to represent about a third of sales as more customers preferred online consultations, delivery service and the new curbside pickup.

“What it really showed is that people really rely on cannabis when they need it the most,” said Eli Melrod, co-founder and chief executive officer.

His store recently did a survey of customers’ needs in the era of the coronavirus.

“People overwhelmingly said ’I can't imagine this whole year without the products,’ whether it's getting the sleep or unwinding at the end of the day doing cannabis beverages,” Melrod said. “It plays a meaningful role in people's lives.”

Marijuana also is playing a vital financial role throughout the state since the sector was buoyed by its designation as an “essential business” in March by Gov. Gavin Newsom, allowing the industry to operate during the pandemic.

In return, California vastly benefited, with the expected tally to show $1 billion in overall state excise, cultivation and sales taxes in 2020, said Nicole Elliot, Newsom’s adviser on cannabis issues.

That number is certain to turn heads in Sacramento, as state lawmakers try to rebuild a battered economy and see an industry on the upswing with vast potential.

Growers and retail operators in the sector think they are poised to write a new chapter for the plant. It’s increasingly shedding its Cheech & Chong stoner vibe and becoming a key part of the Golden State’s agricultural landscape. They contend 2021 should add to landmark moments such as state ballot passage in 1996 of medical marijuana consumption and a similar effort in 2016 that legalized recreational use.

“I sort of feel like we're kind of coming out of our awkward adolescence. We are transforming into a mature legal cannabis space and there's going to be continued growing pains,” said Lindsay Robinson, executive director of the California Cannabis Industry Association. “I think there’s reasons to be optimistic.”

Such optimism is enhanced by the possibility of action with the new Biden administration and a Democratic-controlled Congress that appears poised to provide some relief with marijuana still classified as an illegal drug under federal law. In fact, some lawmakers are pushing to include a long-sought measure in a pandemic relief package that would repeal civil and criminal liabilities for financial institutions. That would enable banks to provide a range of commercial banking services to cannabis businesses, giving them a reliable stream of capital and eliminating the need to resort to cash.

Even passage of a narrow banking bill could make a tremendous difference, said Jim Hourigan, chief executive officer of CannaCraft, a Santa Rosa manufacturer of cannabis products that include a hop seltzer produced in conjunction with Lagunitas Brewing Co. of Petaluma, as well as a wide variety of vape cartridges and chocolates among other items.

CannaCraft has become part of the business establishment in Sonoma County, especially after three years ago hiring Bill Silver, the former Sonoma State University business school dean. It now has about 300 employees and is hiring amid high unemployment in the county.

“The amount of cash we have to deal with is still stunning,” said Hourigan, who had a local bank close his personal account after discovering his employment with CannaCraft. “We've got cash where we have to provide security for. We've got counters. It's difficult. At an entry level every dispensary has to have an ATM on site. And it's just not efficient, and it adds unnecessary costs to the industry.”

Even with obstacles such as the federal ban on interstate cannabis commerce, CannaCraft is bullish on the future in California. It acquired a 4-acre plot last year in Lake County to grow its own cannabis to ensure a more efficient supply chain.

“Having control of that was important to us to be able to grow and scale the business,” Hourigan said.

That bright outlook even applies to smaller pot growers such as Doug Gardner, who recently got approval from Sonoma County to start to cultivate up to 1-acre of cannabis on his land in the Mount Veeder area after a three-year quest and spending about $50,000 throughout the whole process.

“I think there are definitely some great opportunities out there in terms of a business,” said Gardner, who got into cannabis to help himself with effects from epilepsy.

He thinks the permitting system in the county is getting better and could allow for more local cultivation. In 2020, total taxes from cannabis cultivation was about $2 million in Sonoma County, said Erick Roeser, the Sonoma County tax collector. Last year, the county had 117 licensed growers cultivating cannabis on almost 20 acres.

“If you read the rules and you play by the rules, it's not too complicated of a process,” said Gardner, who is ramping up hiring for his business.

The major problem, cannabis operators say, is there are still too many in the business not playing by the rules. The state Bureau of Cannabis Control last year estimated Calfornia was expected to generate $3.1 billion in licensed cannabis sales, a figure still dwarfed by the estimated $8.7 billion generated in the illegal market.

“The reality is that there's so many illegal (players), and people who aren't paying those taxes. That will then drive down the price for people like me who are paying the taxes,” Gardner said.

Cannabis business owners think the priority should be on curbing that illicit market by reducing state taxes, especially on growers, and forcing certain recalcitrant counties and cities to make it easier for licensed retailers to operate. Melrod of Solful said that he has many customers from Marin and Napa counties, two areas that have not been welcoming to the industry, especially pot retailers.

“Until we see more jurisdictions opening up the cannabis retail, I think it's going to be almost impossible to see that reduction in the illicit market,” Melrod said.

Michael Steinmetz, chief executive officer and co-founder of Flow Cannabis Co., said the $1 billion in state taxes from cannabis “is a powerful statement and a testament of how big this industry can be.“

He also said the true value of the illegal market is much higher, and noted his biggest competitors are there operating in the black market as opposed to rivals like CannaCraft.

There are about 720 licensed pot retailers statewide, but based on demand and other factors, Steinmetz said there would be enough business for about 5,000 merchants.

His company operates the Flow Cannabis Institute, which is housed in a new 200,000-square-foot manufacturing center at the former site of the old Fetzer winery in Redwood Valley in Mendocino County. It has now become the county’s second-largest private employer producing its flagship Flow Kana brand and other pre-rolled joints and concentrates.

He also anticipates as the coronavirus recedes the region can generate more interest for cannabis tourism, which was at a nascent level before the pandemic began last March. Flow Cannabis two years ago acquired the Solar Living Center in Hopland right off Highway 101 as visitors enter into Mendocino County and its famed Emerald Triangle growing region.

“It received a lot of tourism in the past and we want to develop it exactly for that reason as an education center and experience center to learn about the Emerald Triangle and to learn about cannabis and learn about this history,” Steinmetz said.

“I think Mendocino is perfectly poised to become the new kind of Napa Valley of cannabis.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.