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SoCal recreational cannabis firms struggle with product shortages, licensing and black market

“Growing pains” is an understatement to describe Southern California’s tumultuous recreational marijuana marketplace.

New regulations that took effect July 1, product shortages, slow license approvals and a thriving black market are rattling what was already a turbulent sector of the California MJ industry.

Southern California adult-use cannabis businesses, for their part, are facing a variety of curveballs and headwinds, including:

  • Sales at Blum, a recreational and medical marijuana facility in Santa Ana, are down about 20% compared to last year, according to Derek Peterson, CEO of the store’s parent company, Terra Tech. A licensing logjam contributed to a shortage of branded products.
  • Aaron Riley, president of Cannasafe Analytics in Van Nuys, said the laboratory had to wait more than eight months to receive its testing license from Los Angeles authorities.
  • MedMen – a Los Angeles-based, vertically integrated cannabis company – has six rec and MMJ stores in L.A., one in Santa Ana and one in San Diego that are performing well, according to company spokesman Daniel Yi. But sales have been crimped by black-market operators.

“The biggest issue is probably that 65% to 70% of cities and counties still ban commercial cannabis,” said Alex Traverso, spokesman for the Bureau of Cannabis Control (BCC), which oversees marijuana storefronts and delivery businesses.Those challenges exist mainly in the few municipalities in Southern California that allow recreational marijuana sales. Moreover, the dearth of legal markets is yet another concern for both business owners and the state’s top regulator.

“We need more licensees, particularly retail and testing labs.”

Lack of access to product

A shortage of cannabis products appears to be a particularly thorny issue in the greater Los Angeles Area.

Blum, for example, dealt with low inventory and scant product availability for the first three months of the year as brands failed to meet new licensing standards that took effect Jan. 1 – or had yet to win approval.

Terra Tech’s Peterson said Blum ended up having “a bare-bones retail environment for a few months, where a lot of our staple brands were no longer on our shelves because they weren’t yet compliant. However, a lot of those brands were still doing business with gray-market retailers.”

Wholesalers also have felt the pinch as their products were carried in more than 1,000 stores in California before Jan. 1, but only a few hundred were licensed for business toward the beginning of the year after the launch of the state’s newly regulated market.

“I know wholesale brands that were doing $50 to $60 million in sales and now it’s back down to $15 (million),” Peterson said.

The BCC’s Traverso singled out the licensing process.

“The biggest issue we’ve heard from L.A. businesses is that the rollout of licensing has been too slow,” he noted. “There are still too many businesses looking to get licensed that haven’t been able to do so.”

Testing troubles

Cannasafe Analytics’ Riley said the demand for testing services hasn’t lived up to the state’s own projections – meaning his company hasn’t been as busy as it expected.

To Read The Rest Of This Article By Chris Casacchia on MJBizDaily

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Published: October 18, 2018

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