REUTERS/lucy nicholson
cannabis goes corporate
california could soon unfetter a multibillion dollar market for legal marijuana
july 2010
pot inc.
july 2010
special report
california hopes rolling joints will
have the state rolling in cash
The Golden State was the first to legalize medical
marijuana. Now it might make the drug its next
big export. Competition could bring the price of a
joint down to $1.50 and swell state coffers by $1.4
billion. How Mexico’s ruthless drug cartels react is
anybody’s guess.
by peter henderson
J
eff Wilcox, a middle-aged, clean-cut man who dresses in the
Bay Area casual business attire of clean jeans, collared shirt
and running shoes, may be the face of Marijuana, Inc, the
corporatization of cannabis.
He has just persuaded Oakland to legalize industrial-sized marijuana
farms, touting a study that promised millions in city taxes and
hundreds of high-paying union jobs.
The long-struggling city, which has failed spectacularly to capitalize
on the high-tech boom, could be the Silicon Valley of pot, Wilcox told
the City Council this week before its historic vote to grant four permits
for urban, industrial-size marijuana farms.
GREEN FOR GREEN: Many supporters of legalizing marijuana say the drug could
help end the state’s money woes, June 30, 2010. REUTERS/ROBERT GALBRAITH
But as Wilcox points out, his business model -- a nonprofit -- will
be less Google or Apple and more Trader Joe’s, a California cut rate
gourmet grocery chain. The store’s best-known product is $2 per
bottle Charles Shaw wine, known affectionately as Two Buck Chuck
and considered a great glass of wine for the price.
“The new Two Buck Chuck will be $40 an ounce pot,” Wilcox said in
an interview, looking forward to a day of full legalization. Boutique
growers could produce the high-end stuff in their “gardens,” he
explained, while he supplied the masses with a clean, controlled,
great-value product.
If California legalizes marijuana, the rest of the nation may well
follow. One way or the other, cut rate, highly potent California weed is
unlikely to stop at the state’s borders.
The U.S. state that first allowed sales of medicinal marijuana, in 1996,
may take away all restrictions on adult use of the drug in a November
vote, giving local governments the option to regulate sales and
growing of marijuana.
The magnitude of the experiment is difficult to fathom -- the world’s
eighth largest economy will tear down barriers to the most used
illegal drug in the United States. The state that invented car culture
will have open freeways to take the bounty to the rest of the nation,
where higher prices -- and the risk of handcuffs -- beckon.
HALF BAKED: A customer considers his options of medical marijuana at the Harborside Health
Center in Oakland, California, June 30, 2010. REUTERS/ROBERT GALBRAITH
Even the cops who most hate it see legal California marijuana as a
different breed of drug -- and a game changer for the country. “The
stuff we are getting in California is fricking leading the world,” said
Los Angeles County Sheriff’s Department Senior Narcotics Detective
Glenn Walsh. “We already send marijuana all over the States,
presumably all over the world.”
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“What you are dealing with is frustrated sex for plants.”
A drug of hippies and cartels, marijuana has become a cultural
touchstone. To advocates, it symbolizes counterculture freedom and
alternative medicine; to detractors, it is a drug that saps the resolve
of hardworking Americans, draws children down a path to other more
dangerous drugs and enriches ruthless Mexican cartels.
Economists see a different picture -- a multibillion dollar market about
to be unfettered with little sense of how consumers will react. Two rules
they expect to apply: competition will lower prices and expand the
market; businesses will look for ways to get ahead of the pack.
One recent study predicted California marijuana would underprice
high-quality Mexican imports in virtually every city in the United
States, even including the costs of smuggling and state taxes.
The reaction of drug cartels behind vast imports into the United
States is anybody’s guess, from abandoning the field to doubling
down in a legal market where they can plow profits into political
campaigns for legitimate allies.
But fear of the effects of legal California ‘bud’ already has made its
way to the streets of Tijuana, the Mexican sister city to San Diego and
a major gateway of drugs into the United States. “We’re screwed,”
said Juan V., a street dealer in the grimy border city of around 2
million people. “They are going to want us to lower prices,” he said.
“We’ll just have to sell more here.”
IT’S THE ECONOMY
California’s climate is perfect for growing almost anything, but the
best marijuana ‘grow’ is a private world completely divorced from
nature that produces a drug with 10 or 15 times the punch as your
hippie grandparents’ weed.
CHRONIC RELIEF: Marijuana buds, including their cost and degree of potency are shown in a
medical marijuana dispensary in Oakland, June 30, 2010. REUTERS/ROBERT GALBRAITH
Mexican drug cartels grow good quality product in California national
and state parks, which are the target of frequent police raids and less
frequent arrests. Well-heeled consumers buy marijuana “medicine”
grown indoors in an environment often devoid of dirt, sun or bugs. In
about 10 weeks, a cutting from a mother plant can be grown into a
bush of buds, harvested, and sealed in a turkey basting bag, known
for its ability to contain the pungent smell of pot.
Big medical marijuana dispensaries offer dozens of types of
marijuana, with a spectrum of colors from deep purple to tangerine
orange and different tastes to boot. Years and decades of breeding
marijuana has produced superior pot, growers say, and once they get
a strain right, they stick with it, making cuttings of the perfect bush
and then teasing them to the brink of horticultural bliss.
“What you are dealing with is frustrated sex for plants,” says Wilcox,
explaining how the goal is to grow female plants to the point they are
yearning for fertilization, producing a sticky substance full of mindbending chemical THC.
The process typically begins in a musky smelling basement dripping
with tropical heat from high-powered grow lights, which have
contributed greatly to fires in Oakland, city officials say. Clippings
from the perfect mother plant, known as clones, are brushed in
rooting compound. They are then set in a pot of rock wool in a tub
that is regularly flooded with nutrient-enriched water.
WHERE THE GREEN GRASS GROWS: Small marijuana plants, available for sale, are shown in
a dispensary in Oakland, California, June 30, 2010. REUTERS/ROBERT GALBRAITH
Some growers pursue a Sea of Green strategy, raising an ocean of small
plants, while others try to produce a few monsters. Farmers also may aim
for a continuous harvest, putting plants of different maturity in different
rooms or locations so that every week or so they can harvest a crop. Young
pot plants start off with two weeks under grow lights shining 18 to 24 hours
a day, helping the plants vegetate. When it’s time to start flowering, lights
are turned to 12-hour cycles for six weeks.
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But Oakland could complicate his math. The city is considering an
8 percent tax on cannabis farms, more than double the top rate in
Wilcox’s economic analysis.
MARKET FORCES
The drive to legalize marijuana is based in the hardscrabble reality of
California finances, and voters want to get paid. The invisible hand
of the market also may act more like a fist on the price of marijuana.
Once the Golden State, California is now the poster child for political
dysfunction, tied for the lowest credit rating among the 50 states.
The prospect of a sin tax on a culturally acceptable drug has been
gaining advocates for years. A bill in the state legislature would
legalize pot, charge $50 an ounce tax and, according to state
accountants, bring in $1.4 billion per year.
A more likely path to legalization, though, is Proposition 19, the
brainchild of the Tax Cannabis movement, which would let local
governments decide whether and how to regulate sales and cultivation
of marijuana and would let anyone in the state 21 years or older use it.
“california could actually
make a lot of money from taxing
marijuana and then exporting it
to other states.”
A just-released study by the independent state Legislative Analyst’s
Office says that Proposition 19 could raise hundreds of millions of
dollars over time.
THE NOSE KNOWS: Marijuana buds are kept in sealed bags to retain the pungent smell, June
30, 2010. REUTERS/ROBERT GALBRAITH
When the flowers are at peak maturity and look snowy, the plants are
cut down. Leaves are stripped and turned into hash. Buds are dried and
then put in mason jars and ‘burped’ -- given occasional breaths of fresh
air -- in a regime that cures the pot, turning it sticky and stinky. Then
it is put in the turkey basting bag and brought to a dispensary for sale.
The costs are minimal, falling as low as 20 cents in electricity and
plant supplies for established growers whose pot would retail for as
much as $20 a gram, a Los Angeles area law enforcement source
estimated. That would take the cost of producing a pound of weed
to under $100. The Rand Corporation puts the price a few times that,
still offering plenty of room to drastically cut retail prices.
Wilcox’s plan includes a 7-acre site with a 100,000-square-foot
growing space, a bakery, a testing lab, job training and growing
equipment production at the site -- which would need to win one of
the four Oakland permits to go into business. If it did, it would produce
58 pounds of cannabis a day at wholesale prices of $2,500 to $3,000
per pound and send the city more than $2 million per year in taxes if
a 3 percent growers’ tax were initiated.
California may be overly optimistic, according to a new Rand
Corporation study. By the time taxes are high enough to produce
the billions that California wants, they will have created a thriving
black market. “So now you have the dual evils, lower prices and still a
black market to deal with,” researcher Rosalie Liccardo Pacula said,
referring to the $50 an ounce charge.
If marijuana were legalized, Rand projects the price of high-quality
marijuana to fall to as little as a tenth of current levels and says that
usage could more than double as consumers respond to cheaper prices.
A single joint, which at today’s potency is enough to get a single person
high a couple of times, would cost $1.50, even taxed at $50 per ounce.
More than half of that cost would be the tax, though, and as the novelty
of legalized pot wore off, consumers who at first found a $1.50 joint a
rock-bottom deal, might start to see it as a rip-off. The same joint could
be had, untaxed, for half price on a street corner. “As time goes on, the
black market prices will look more appealing,” said Pacula.
But there is one way, Rand found, for California to boost tax revenue
substantially: exports. “California could actually make a lot of money
from taxing marijuana and then exporting it to other states,” said
study author Beau Kilmer.
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MEXICANS AND MORALITY
The response of Mexican cartels could be the most significant issue for
California, which hopes to drive illegal drug operators out of business. The
drug industry source from Los Angeles sees organized crime throughout
the marijuana trade in southern California. They grow in the mountains,
but they also search the cities for independents. “Once they find out who
you are, they will tax you,” said the source, miming putting a gun to a head.
He was skeptical that legalization would change the industry.
If done poorly, legalization may simply invite them to put down roots, say
law enforcement personnel, who fear the Mexican mafia will take the hit to
profits, go legitimate and start supporting political candidates who back
their causes.
“The cartels already have the supply lines. They already have the business,
they already have the product. The only thing you are going to do is give the
cartels a legal drug to sell,” said LA Sheriff’s Department’s Walsh.
STACKED SUPPLY: A mexican soldier arranges blocks of marijuana, weighing 46 tons, before they
are incinerated at a military base in the border city of Tijuana, May 11, 2010 . REUTERS/stringer
Using publicly available prices of marijuana throughout the United
States, researchers imputed the costs of smuggling and calculated
that high-quality California marijuana, even at taxed prices, could
undercut current prices of comparable pot in 42 of 48 continental U.S.
states, even with the $50 per ounce tax that Pacula calculates would
create a black market. Six times as many marijuana users are outside
California as in the state, Rand quoted federal studies as showing.
“my big thing is ending
prohibition, getting people out
of prison who shouldn’t be
there.’”
Despite the money at play, Californians may decide the issue on the basis
of morals, just like many of the creators of the Tax Cannabis movement.
“My big thing is ending prohibition, getting people out of prison who
shouldn’t be there, stop the violence, get better police protection, return
respect for laws and law enforcement,” said Richard Lee, the founder of
Oaksterdam University in Oakland, a school which teaches marijuana
growing.
He funded the signature drive that put Prop 19 on the ballot, which he says
cost him his status as a millionaire. Civil rights, he said, was the name of
the game. “That’s what I got into this for. It isn’t to protect the small grower,
protect the big grower, make jobs here. Those are all ancillary things and
I think the free market will take care of itself and the culture and different
local jurisdictions will decide how they want to handle those issues.”
One industry source, who is still involved in illicit drug circles and
requested to remain anonymous, said he recalls prices falling in Los
Angeles as medical marijuana dispensaries exploded there. Early
on in his career, high quality marijuana went for $6,000 to $7,000 a
pound. “Now you are getting $3,500. What’s going to happen when
you legalize? You are going to take it a couple of states (east),” he
said. Growers and vendors with expensive taste would not be able to
continue to lead the high life at legal prices, he said.
Also, not everyone buys the theory that California will become a rogue
drug state that can undermine national efforts to put a lid on marijuana.
The free market is pitting different cities eager for marijuana revenues
against one another, and small growers at the Oakland council
meeting threatened to leave the city if taxes were too high.
U.S. drug czar Gil Kerlikowske, director of the Office of National Drug
Control Policy, in an interview cast cold water on California export
potential. “I quite frankly don’t see that,” he said. “I just don’t see it
as being something that suddenly people in Kentucky say, ‘Ah now
marijuana can be shipped in from California.’”
LIT: A customer inspects medical marijuana at a dispensary in Oakland, June 30, 2010. REUTERS/
ROBERT GALBRAITH
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Recently the California chapter of the National Association for the
Advancement of Colored People came out in support of marijuana
legalization. “This is not a drugs rights issue, this is a civil rights issue.
It is time for them to stop using my community to populate the prison
system on such minor offenses such as having a joint,” said Alice
Huffman, the NAACP California president.
Legal marijuana may not solve many of the problems associated now
with the drug, but some proponents have an answer -- legalize harder
drugs as well. NAACP and a group of cops who favor legalization,
called Law Enforcement Against Prohibition, agree this is the first
step. Legalizing heroin and cocaine is a much harder sell, but there
is an answer to that too -- start with legalization for medical reasons
-- just like marijuana did.
“This is the beginning, the tip of the iceberg on drug reform. I think
like some countries where heroin is treated more medically than
criminally, we have to look at that. I think we have to try and get all of
the underground black market drug stuff out of the way so that law
enforcement can focus on the real issues,” Huffman said.
HELLO AMSTERDAM
Two different paths for legalization have already been sketched out in
Northern and Southern California with medical marijuana.
Oakland has limited itself to four dispensaries of medical marijuana to
control its habit. Oaksterdam University appears to have helped turn
around downtown. A doctor’s referral service recently opened across
the street from the school and a nearby coffee shop is modeled after
Amsterdam -- a cramped cannabis bar in back of a shop that sells brownies
and coffee in front. Nearby businesses are pleased with their neighbor and
wheelchair-bound Richard Lee is treated as a hero when he rolls around
the streets, stopping reluctantly to pose for pictures with passersby.
SMOKING BARRELS: Cancer survivor, Mellody Gannon, smokes medical marijuana during a
kickoff campaign in support of the Regulate, Control and Tax Cannabis Act of 2010, September
25, 2009. REUTERS/ROBERT GALBRAITH
The undisputed king of the medical marijuana dispensary industry is
located at a nearby marina. Harborside Health Center has blond wood
counters, dozens of types of marijuana, and an attentive staff that
offers free acupuncture and massages to patients seeking its medicine.
Los Angeles is a different story. Walsh estimates that detectives
manage to shut down four or fewer dispensaries a month, a rate at
which it will take years to winnow down the 600 to 1,000 sites to
under 200, as the city council has ordered.
Two recent dispensary murders highlight the danger.
On Venice Beach, it’s clear that medical marijuana has become a
joke way to score some pot. A second-floor dispensary is just a man
sitting in a small room with a computer and a security officer. Below,
the Kush Doctor chain offers $150 marijuana evaluations to get the
referral needed for legal medical marijuana.
A young woman in a tiger-print bikini bottom and tight white tee-shirt
hawks medical ‘referrals’ to buy weed. “The doctor is in,” she coos.
(Additional reporting by Lizbeth Diaz, additional research by Courtney
Hoffman; editing by Jim Impoco and Claudia Parsons)
PUSH THE KUSH: A man in a doctor’s coat stands outside a medical marijuana dispensary on
Venice Beach in Los Angeles, California, July 19, 2010. REUTERS/LUCY NICHOLSON
For more information contact:
Jim Impoco, Enterprise Editor, Americas
+1 646 223 8923
[email protected]
COVER PHOTO: Fridge magnets are displayed for sale outside a medical marijuana dispensary on
Venice Beach in Los Angeles, California, July 19, 2010. REUTERS/lucy nicholson
Claudia Parsons, Deputy Enterprise Editor
+1 646 223 6282
[email protected]
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