Small North Coast cannabis farms face daunting future
For almost seven years, David Drips has weathered a variety of obstacles to make his Petaluma Hill Farms viable to grow legal cannabis.
There has been licensing red tape from Sonoma County, where he has not received his final permit and can only grow less than a half-acre though he could farm twice that amount.
When he looks over his shoulder, he worries about Big Weed competitors backed by tons of investors’ money so they can play the long game. Meanwhile, he scrapes by with major expenses, such as his annual land lease at $120,000 a year.
There are other costs in the highly regulated pot market that require distribution and product testing, notably the state cultivation tax that was raised last year to $154 per pound of dried flower.
The numbers add up. A co-owner, Drips has been in debt as much as $750,000, which brought on depression and factored in a divorce.
Now, he faces his biggest battle yet, as wholesale marijuana prices for the upcoming fall harvest are expected to drop by as much as half. That scenario has many North Coast farmers fearing for their future and the likelihood that some may not make it.
“It’s been a struggle to keep mental clarity and focus,” said Drips, a 41-year-old Navy veteran and former contractor who smokes weed to help ease his seizures from epilepsy.
“I was hoping that I should be above water this year finally based on projections of normal pricing. I don’t know ... we still might be in debt after this year.”
Small Northern California cannabis growers are uneasy as the anticipated price drop will have significant economic effects throughout the region and may put some of them out of business. It’s another curveball in an industry still in its infancy as the product becomes increasingly mainstream.
The North Coast region produces the most prized and expensive cannabis in the world with the counties of Mendocino, Humboldt and Trinity being part of the famed Emerald Triangle.
Meanwhile, Sonoma County is home to key processing and testing sites to turn the weed into such products as pre-rolled joints, oils and lotions, as well as edibles and drinks.
Through June this year, California generated $2.5 billion in sales of cannabis products sold through licensed dispensaries with more than $52 million coming from Sonoma County, according to the state Department of Tax and Feed Administration.
“This year looks pretty scary with some of the prices that I've been hearing,” said Mike Benziger, owner of GlenTucky Family Farm in the Sonoma Valley.
In past years, he noted, premium marijuana in the region has sold for as much as $2,000 a pound. But such weed may only fetch between $600 to $700 this fall.
“It's pretty disheartening for small growers, because you're starting to get close to the cost of production,” said Benziger, whose family ran Benziger Family Winery until they sold it in 2015. He later transitioned into growing cannabis and specialty fruits and vegetables.
The simple reason for the crash in prices is supply and demand, especially as large growers from less-restrictive areas such as Monterey and Santa Barbara counties have flooded the California legal market with their weed, according to growers and industry officials.
Cannabis farmers first became aware of the issue when there was not the typical uptick in prices in the spring, when there is no fresh marijuana to buy on the market. That problem was compounded in June when some growers brought their fresh weed to the wholesale market that was harvested through a light deprivation technique — known as “light dep” — that triggers the flowering phase much earlier in the cycle.
That weed comes before the fall harvest and typically sets the stage for what to expect later in the year. Current prices are still slumping because of the overall glut.
“It became clear that this was a crisis coming into focus with this year’s light-dep harvest,” said Hezekiah Allen, the former head of the California Growers Association who now lobbies for the sector.
Allen noted that many small growers had saved cannabis from the 2020 harvest that they now can’t unload either, making the situation more problematic.
“When you’re still holding onto product from last year and people are starting to harvest new fresh product, there’s a problem,” Allen said.
To make matters worse, the illegal pot market in California still thrives at an estimated value of two to three times larger than the legal market, and it offers even more profit to small growers who still can operate in the black market.
The wholesale price reduction comes as small cannabis growers increasingly feel let down in the aftermath of Proposition 64. That was the 2016 ballot initiative legalizing the recreational use of marijuana and established a new state regulatory system intended to finally bring cannabis growers out of the shadows and put them on par with other agricultural crops.