Valley officials fear keeping ‘black market alive’ as new legal pot regulations loom

California is on the verge of putting a massive set of regulations in place to govern commercial marijuana cultivation, distribution, manufacturing, testing and sales – but not all of the rules proposed since the passage of Proposition 64 two years ago are sitting well with cities and counties.

Lori Ajax, chief of the state’s Bureau of Cannabis Control, was in Fresno on Thursday for a meeting of her agency’s Cannabis Advisory Committee.

She addressed a luncheon meeting of the Maddy Institute, a public policy and leadership program at Fresno State. Her visit came just two days after voters in Fresno appeared to approve Measure A, which authorizes the Fresno City Council to establish taxes on marijuana businesses.

Ajax noted that sentiment among most cities and counties in the Valley “is to ban commercial cannabis activity, and that’s OK because the law gives you local control to do that.”

But for cities like Fresno that are beginning to take steps toward potentially allowing some marijuana businesses, she added, “there’s benefit to being able to regulate this, for the locals to have control about what licenses come into your city or county and how you regulate that.”

California Marijuana Controlling The Market
Lori Ajax, chief of California’s Bureau of Medical Cannabis Regulation, poses in the bureau’s office in Sacramento. Ajax and her staff are crafting regulations and rules that will govern the state’s emerging legal pot market, from where and how plants can be grown to setting guidelines to track the buds from fields to storefront. RICH PEDRONCELLI AP

Where the state and many city and county agencies are at odds, however, involves how and where marijuana delivery operations can do business.

“One of the things we have in our regs that’s been very controversial, and it’s a challenge, is the delivery piece,” Ajax said. “If we issue a license for delivery, which is a retail license, they can deliver anywhere in the state, regardless of whether there’s a ban in place (locally) or not. …”

“Of course, a lot of cities don’t feel that way,” she added. “They feel that if they have a ban, we’re eroding their local control at that point. The state looks at it as, when we issue a license, we don’t issue just to a premises, but you can conduct commercial activity all over the state.”

Marijuana industries favor the state’s interpretation. “They don’t know when they’re driving down the street, sometimes you cross a street and go from the city to the county” or from one city to another with different local rules,” Ajax said.

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The state cannot issue licenses to businesses, however, unless the applicant first has won the approval of the city or county in which they want to do business.

And there are three different licensing agencies, depending on which segment of the industry is involved: the state Department of Food and Agriculture for cultivation operations, the Department of Public Health for the manufacture of cannabis products like edibles and ointments, and the Bureau of Cannabis Control for distribution, sales, and testing.

Two public officials listening to Ajax, Rep. Jim Costa, D-Fresno, and Fresno City Councilman Clint Olivier, both referenced the potential for regulatory and tax burdens to contribute to a continuation of the illegal marijuana trade, much as Prohibition did for illegal alcohol and bootlegging in the 1920s and ‘30s.

“Some local officials can get greedy and see this as a cash cow, but then it creates a huge overhead for the businesses,” Olivier said. “We don’t want to force people back to the illicit market.”

“If communities choose, for understandable reasons, not to allow dispensaries, when it’s harder to access I think … you continue to keep the black market thriving,” Costa added.

“There’s a tradeoff between people who want to have access to cannabis and find it extremely difficult to do. They have their sources as they had before in the black market, the people who are growing in the hills and keeping that market alive.”

Ajax acknowledged the need to find the right balance on regulation and taxation.

“Our regulations currently are 170 pages of text of requirements, just for the bureau,” she said. “And then you look at them paying license fees, at the local level and at the state level, and our licensing fees range from $500 to over $120,000 every year. And then you add on the state cultivation tax and excise tax and the retail sales tax. And you see that the price of cannabis is going down, so they’re not making the profits they probably once were.”

“Regulation costs businesses, it really does, and we all have to be mindful of that, even the state and how we set our fees,” Ajax added.

Tim Sheehan: 559-441-6319; Twitter: @TimSheehanNews.