Not Even Close To OK !!! California, Cannabis & IBI (Inherent Bureaucratic Ineptitude)

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AUTHOR:  “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s
PUBLISHER:  CANNABIS LAW REPORT

We were prompted to write this article by the Los Angeles Times publication of “California to Give Struggling Cannabis Businesses More Time on Provisional Permits” on June 14, 2019.  

The Times article describes yet another band-aid the Legislature is slapping on California’s maladroit roll-out of cannabis regulation. This particular band-aid is an emergency extension of time through a budget Trailer Bill. The Bill, which is opposed by environmental groups, extends provisional licensing.  

While we applaud the efforts of Governor Newsom and the Legislature, some problems with California’s roll-out of regulation cannot be solved through extensions of time. Extensions of time address symptoms. Actual solutions address the causes of the problems. The Governor and Legislature must address the causes of the chaos in California’s regulation of cannabis.

First, we want to direct our readers to an article by John Schroyer that provides insights into the state of California’s cannabis industry that are closer to ground zero. John Schroyer’s article, which was published in the Marijuana Business Daily one day before the Times article, is based on comments made at an invitational retreat for some of the notables in California’s cannabis industry. The retreat was held just a few days ago in the heart of the Emerald Triangle. John’s article should be required reading for the legislators who are trying to deal with the chaos in California’s cannabis industry. The Governor should not have to read this article. Nicole Elliott, the Governor’s Cannabis Czarina, attended the conference.

The Times article focuses on the backlog in the licensing of cultivators. John’s article discusses a number of issues in addition to the licensing of growers. Both articles describe the chaos in California’s cannabis industry. Some of California’s cannabis administrators attended the conference and acknowledged the chaos. Unfortunately, the participants in the conference, like so many others, focus on the consequences of the chaos rather than the causes. Like Typhoid Marys the carriers of the disease do not realize they are a cause of the disease.

 

John’s article quotes the Chief of the Bureau of Cannabis Control (“BCC”), Lori Ajax,

“I just want to crush the illegal market,” Ajax said to applause at Meadowlands. “I don’t usually say that out loud …We didn’t go through this the last few years to have (the legal) market be undermined.”

 

Lori Ajax is at the top of the heap of the agencies involved in the regulation of California’s cannabis industry. BCC as the lead agency for the regulation of California’s cannabis industry. BCC is tasked with the “power, duty, purpose, responsibility, and jurisdiction to regulate” commercial cannabis in California. The administrative agencies tasked with the regulation of cannabis in California have run amuck. BCC as the head agency has allowed these agencies to run amuck.

 

California’s cannabis regulatory agencies are one of the principal causes

of the booming underground cannabis industry.

 

There are many causes of the chaos in California’s cannabis industry. A hastily drawn list of causes will include: 20 years of medical cannabis; years of regulatory inattention; failed federal drug policies; social evolution; and an ill-conceived and poorly drafted Proposition 64. We have discussed many of these causes in other articles. [See California Chaos Causes, Colossal Cannabis Fiasco, and California Cannabis Regulation Blunders] We are writing this article to focus on one principal cause of the chaos that has not received enough attention. In fact, this cause appears to have been largely overlooked. We have decided to label this cause of the chaos in California’s cannabis industry as Inherent Bureaucratic Ineptitude (“IBI”). 

IBI is a condition, or a disease if you prefer. The principles on which IBI is based are found in the laws of physics that govern the physical universe. IBI is based on the same laws of physics that cause rocks to roll downhill and that make it difficult for large ships to reverse course. Once an administrative agency is given a budget and set in motion, it will grow and expand. An administrative agency will expand like gas filling a vacuum. The Trailer Bill described above is a temporary treatment to alleviate symptoms of IBI. The Bill does not address any underlying causes. If the causes of this disease are not addressed, those who are burdened with the costs and injuries will continue to suffer.

Can this cause of the chaos in California’s regulation of its cannabis industry be addressed? Yes, but addressing this cause is far more difficult that addressing the symptoms. Regulation of California’s cannabis industry has been imposed by Proposition 64, an amendment to the California Constitution. Regulation in California is here to stay. Proposition 64 preserved medical cannabis in California. As a consequence of the preservation of Proposition 215 in Proposition 64, a particularly complicated regulatory system will always exist in California.

Regulation increases the cost of the delivery of a commodity to a consumer. Taxes also increase the cost of a delivery to a consumer. The greater the delta between legal prices and underground prices, the more price differential will encourage evasion of the law. This circumstance is the definition of a dilemma.   We will address this dilemma in another article.

Let’s focus briefly on one symptom (or cause) of the chaos – unlicensed cultivation of cannabis. First, a couple of apparently disparate but actually related facts. Law enforcement pointed to unlicensed grows as the reason for the Anza Valley eradications. A major justification for the budget Trailer Bill is the number of unlicensed grows in California. We recall a conversation a couple of months ago with a representative of CalCannabis who was pleased to tell us the backlog of pending cultivation applications was not as extensive as reported because many applicants had failed to complete their applications. Read the message on the wall told by these events! 

The approach that CalCannabis took in its licensing of cultivation is a major cause of the number of unlicensed grows. We have discussed this on other occasions. CalCannabis failed to approach its role in licensing of cultivation from the perspective the Legislature intended. CalCannabis failed to make licensing as quick and easy as possible with a minimum of cost.

CalCannabis failed to defer to local jurisdictions to the maximum extent possible with respect to matters relating to land use and public health and safety. CalCannabis failed to approach its licensing task by supporting, assisting, and most importantly providing financial support, to local jurisdictions as the principal point of focus for licensing cultivation. CalCannabis engaged in empire-building. CalCannabis used regulation to completely rearrange cannabis cultivation in California. CalCannabis did so for no good reason except it could.

One of the most difficult aspects of IBI is that those who have the disease frequently do not recognize they are ill. Another difficult aspect of IBI is the fact administrative bureaucracies are as much part of the problem as they are a solution. One cure for IBI is found in the agencies themselves, but it is not an easy cure. The cure is a difficult pill to swallow because the agencies themselves are so much of the problem.

The cure to IBI lies in the leadership of an administrative agency. The cure is always present. This cure, however, is foreign to the operating norms of a bureaucratic agency. Bureaucracies of necessity focus on processes rather than goals. Thoughtful and knowledgeable leadership that constantly focuses on goals rather than processes is the sole internal cure for IBI. Leadership must ask over and over again. What is out goal? Why are we doing this? Is this necessary? Is there a better way? This cure for IBI necessitates that the leadership of a bureaucratic agency ask these and similar questions over and over again.

We want to provide a minor example of the failure of leadership in California’s regulation of the California’s cannabis industry before we close this article. This example is quite minor in comparison to the fiasco CalCannabis created with its licensing of cannabis cultivation.

As part of SB 94 the Legislature created a special form of California corporation that was specifically structured to allow small cannabis cultivators to band together in the equivalent of agricultural cooperatives. The enabling legislation for Cannabis Cooperative Associations (“CCAs”) passed two years ago. A significant number of CCAs have been organized and are operating in California. None, however, have been licensed to engage in commercial cannabis activity as CCAs. The agencies that regulate California’s cannabis industry all agree CCAs must be licensed to engage in commercial cannabis activity. These agencies, however, have been unable to determine which agency is responsible for licensing CCAs. Of course, the Trailer Bill can give California’s regulatory agencies an extension of time.

In closing we will mention one other unique aspect of IBI. IBI is unique in that those who have the illness and who hold the cure are not the population that suffers from the ravages of the disease. The agencies tasked with the regulation of California’s cannabis industry have both the illness and the cure.

It is, however, the population of California – the cultivators, the consumers, and the taxpayers – who pay all of the costs and suffer all of the damage and pain caused by IBI.

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Author: Sean Hocking
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