ARTICLE
Santa Cruz County, like other jurisdictions throughout California, is drafting rules to control the commercial cultivation of marijuana. These ordinances would regulate not only the growers under the narrowly-defined medical marijuana laws currently in place, but also growers and related industry segments that will emerge or become legalized if one of the measures proposed for the November 2016 election is placed on the ballot and approved by California voters. The value of this industry in Santa Cruz County is uncertain. Conservative estimates place it at $100 million, more liberal projects talk about $1 billion. The current best estimated by the study committee are between $300 and $700 million annually for cultivation and products. For comparison, the County’s largest employer is UCSC; their 2015-16 budget is $722 million. The Chamber’s board is also discussing how the Chamber should relate to this legalization process. There has been general consensus on the board that, to the extent cannabis cultivation and sale are legalized, the Chamber should provide the same sorts of services and advocacy as it does to other industry segments. Since the adoption of medical marijuana laws the Chamber has had active members engaged in this industry segment. However, the Chamber has not yet taken a position on the more complicated question of, “Should the economic community and the Chamber be an advocate for the legalization of an “agricultural scale” cannabis industry within the county?” Here are a few of the issues that make this decision complicated. Legal scope. It is unclear what elements of the industry might be legalized, what controlled by state law, and what effect federal law will have on these changes. While there is little indication that the Federal government will change its laws making the possession and use of marijuana illegal in the next few years, the current administration has “tolerated” state-level “legalization” in Colorado and Washington without Federal law enforcement interference. It is not clear whether the next administration will continue this policy, whether the federal government might remove marijuana from the controlled substances list, or the degree to which they might choose to regulate a legalized cannabis industry. In short, the legal status of the industry is uncertain and its legal future is unclear. Federal law conflicts. While the Federal government has not directly interfered with California’s medical marijuana laws or other state’s legalization, many other Federal laws and regulations from the Postal Service to banking regulation do have a significant impact. For instance, suppliers are not permitted to engage in transactions with cannabis growers through Federally-chartered banks and reporting of income and expense for federal tax purposes raises complicated questions. It is not clear how this might affect a nascent “legalized” industry segment as larger sums of money are involved. Industry Scope. The scope of a local industry will depend on much more than legalization. A first question is the character of the market. Would cannabis become an agricultural commodity traded on large exchanges like corn or tobacco, will it be a specialty crop like wine grapes, or will it be some combination of these? To what extent will it be processed as an ingredient for foods, reduced to pharmacology or a food supplement, or processed and packaged like cigarettes or pipe tobacco? Answers to these and other ‘business’ questions will determine the economic conditions necessary for such an industry to thrive in Santa Cruz County. If inexpensive land, water, and labor are necessary to be competitive, Santa Cruz County is less likely to be a significant participant. To the extent the growing environment is a key element to product quality, the Santa Cruz mountains may provide competitive advantage. To the extent the industry focus on quality, testing, and/or research, Santa Cruz County is already an industry leader. Land Use. Scale is likely to depend in part on state law, but the County’s study group has discuss a range of options from 200 square feet to 10 acres. The committee has also discussed a variety of agricultural elements including warehouse and hydroponic growing environments and the opportunities and demands of related industry elements providing seed, fertilizer, equipment, and water systems. However, much of the current land dedicated to growing is in relatively inaccessible areas in the mountains. These areas are illegal today and, most likely, will be illegal under whatever rules are adopted. The ordinances are expected to continue strong protections to local property owners and public lands by prohibiting unauthorized land use. There are many suitable areas already dedicated to agriculture. However, the value of cannabis cultivation, vis a vis wine grapes or berries, in a newly-legalized environment is uncertain. This will depend not only on land suitability and industry resources but also on land owners interests and the costs of conversion from existing crops. Home cultivation on a limited scale is currently regulated for medical marijuana users in the County. The possibility of creating a “cottage industry” of a home-growers environment has also been discussed. It is not clear that this would be a commercially feasible segment in a legalize marijuana environment. Distribution Regulation. It is certain that restrictions will continue on interstate transfer for the foreseeable future; there may be limits on intra-county movement of legally grown cannabis as well. To enforce these rules may require identifying and tracking each localities’ legally-grown product. This would at least theoretically insure that, e.g., legally-grown California product would not be illegally sold in other states. This suggests individual identifiers on each plant, most likely genetic “tags” indicating when, where, and, perhaps, even by whom product was grown. Agricultural Regulation. As with other agricultural crops, cannabis growers utilize fertilizers, herbicides, and a variety of pest control alternatives to improve productivity. These can have negative impacts on surrounding properties and their uses. Buffer areas, rules about application and storage, and limitations on chemicals and techniques will be core elements of the development of a larger industry. Taxation and Fees. One of the most significant community upsides to the legalization of a cannabis industry is the potential contribution to public funding. At a minimum, the costs of law enforcement, public land management, water, and other public resources diverted to cannabis growing and processing use seems only fair. That these businesses would also contribute to the streets and road, schools, parks, and other public resources and administrative costs is an attractive possibility. At the current tax rate on cannabis of 7%, each $100 million in production would generate $7 million in local funding. The County’s Cannabis Cultivation Committee expected to deliver its recommendations to the Board of supervisors this week. The scope of their work will include commercial grows including green house and warehouse, small rural grows, large rural grows, and, perhaps, home based cultivation. The report will consider protection of neighborhoods and focus on providing sufficient product to supply legal local needs. The expectation of the Committee and the Board has been that the legalized industry would be small and local-serving. Questions about retail will be included in the planning but not necessarily in the ordinance. The future of cannabis as an industry is uncertain. The orderly development of administrative structures and the difficult process of converting from a “prohibition” environment to an agriculture-based industry will be both challenging and productive. Agenda for Cannabis Cultivation Choices Committee, Tuesday March 29, 2016