Heather Burke: A respectful addition to the local conversation re Prop 64 in Nevada County

November 7, 2016 – In light of the Nevada County Cannabis Alliance’s recent position on Prop 64, and beloved local advocate Jonathan Collier’s opinion piece about the initiative on YubaNet, I thought a bit of additional information about Prop 64 was warranted. Here is a slightly more of a technical perspective that Nevada County farmers may also want to consider about this controversial initiative before casting their vote this Tuesday:

  1. “Corporate Takeover,” the “Industrialization of Cannabis,” and “Monopolization”

I’m addressing these concepts together, since they all somewhat relate to the fear of an apocalyptic-style hostile corporate takeover under Prop 64, and because the arguments underlying them are often grounded in the same pieces of 64. While words like “corporate takeover” rightly invoke fear in the hearts of our farmers, I think a quick comparison between Prop 64 and MCRSA is extremely helpful to tone down the “corporate overload” rhetoric a bit:

Vertical Integration and Cross Licensing

While it is true Prop 64 does not mandate MCRSA’s cross licensing restrictions, those are often the most complained about provisions of MCRSA today! Although Prop 64 admittedly allows the big guys to keep all steps in the supply chain in-house, it also allows growers to be more creative in their own business model, as a flower producer cannot also be a nursery under MCRSA, nor can a medium sized (Type 3) flower producer hold a manufacturer license, nor even be a transporter. Should the BMCR define “ownership” in a highly restrictive manner (which remains to be seen), most cultivators who also engage in other forms of cannabis-related conduct may end up being thankful Prop 64 eliminates those hyper-strict cross licensure (and, in some cases, nonsensical) restrictions. Plus, we may see 64’s yet-to-be drafted regulations limit cross-licensing in some manner, as the license types track MCRSA in all other ways.

Please note MCRSA already “grandfathered” vertical integration to the super big guys such as Harborside for the next decade! So they get to do it anyway under MCRSA, but it is a felony for the small farmer to do the same without Prop 64. Prop 64’s allowance for all to vertically integrate gives the little guys greater flexibility in an ever-shifting cannabis marketplace, while holding off on issuing the biggest licenses for at least the next five years, something MCRSA does not. Should a small farmer go through all the work to obtain a particular state license under MCRSA (such as a Type 1) and then later realize that license does not make sense for them, they will have to entirely dissolve that company and wait until all of their interests in that company are extinguished before they can even apply for a different type of license that is precluded under MCRSA’s cross licensure rules. And then they would have to go through the cumbersome local permitting process again, before even applying again to the State, a task that is not required under 64. The realities of being fatally locked into the MCRSA licenses may end up being far more detrimental to a small farmer than a large company with a staff of highly paid attorneys and shifting business organizations.

At the end of the day, cannabis is a consumer-driven economy, and we have to keep in mind that consumers want quality. Since quality cannabis is grown better in small batches, that means these “corporate overloads” will be producing a subpar, likely chemically laden, product. Only the small farms will produce the quality that Nevada County consumers have grown accustomed to. While not a perfect comparison, I often note that most restaurants in Nevada City don’t even serve mass produced beer as they almost entirely serve small batch local brews. Why would consumers have lesser quality demands for our herb? They won’t.

Industrialization

The Cannabis Alliance’s position says Prop 64 allows “any size grow to operate in California.” While we will likely see some industrialized grows in the central valley or impoverished cities like Coalinga and Desert Hot Springs, Prop 64 simply makes express that which MCRSA implies. The fact that Type 5 (1+ acre) gardens may someday occur does not mean we will all be living with “football fields upon football fields of cannabis growing in place of natural habitat.” Recall that Prop 64, like MCRSA, mandates growers obtain local permit prior to their state license. Thus, if the locals allow these “football fields upon football fields,” which is a greater likelihood in the central valley and impoverished desert cities, then more power to ‘em to use cannabis to revitalize their dilapidated towns. However, for the rest of my great home state, Type 5s will be few and far between, except in Humboldt which already grants licenses that would fall into the Type 5 category (and don’t forget that growers were super stoked when that happened last December).

In any event, compliance with the Water Boards’ new cannabis programs already is- or will be- mandatory for all cannabis farms, and those regulations have awesome environmental protections I wish everyone would follow today. Additionally, strict environmental protections can be built directly into the local codes, like they did in Humboldt. However, in places like Nevada County where all commercial cannabis conduct is banned and we are fighting for MCRSA’s smallest commercial licenses, i.e. the Type 1(c), its a stretch to definitively state we will see “hundreds of acres of row crops” pop up on November 9th. Not gonna happen.

Monopolies

First, please know that MCRSA allows a cannabis monopoly by failing to prohibit it. Although there are some cross-licensing restrictions, MCRSA excluded a mere nine (9!!) big guys from those restrictions by “grandfathering” them into vertical integration for a freaking decade. Without 64, MCRSA places California in a similar predicament that Ohio would have been in, had it approved its monopolistic legalization initiative their state thankfully rejected last year. Or for licensees with capped licenses, whether that cap comes from the state (like a Type 7) or from the locals, a non-vertically integrated licensee could still take over a market and create a monopoly under MCRSA. Although the state does have some antitrust laws on our books that might ostensibly apply to MCRSA licensees, Prop 64 actually allows the licensing authority to deny a license if it would give the licensee a monopoly, something MCRSA does not even come close to doing. Monopolization is a far more frightening concept to me if Prop 64 fails, since those few who obtained grandfathering or capped licenses are already pushing hard to dominate the market, while the little guys will be committing a felony if they try to do the same.

Secondly, if and when the legislature allows for a large license under MCRSA (as the elusive MCRSA Type 5), that license will go to whomever pads the legislators’ or regulators’ pockets, since politics is an undeniably dirty game. At least with Prop 64, successful medium-sized farmers will have a fighting chance to move up to the large license if they want to, and they get the next 5 years to gather experience, resources, and political capital. They could ostensibly even apply to enlarge their Type 1, 2 or 3 to a Type 5 while they hold the smaller license type; a task that is precluded under MCRSA’s plain language.

2. Changing a Voter Initiative

I can’t quite tell what the Alliance or Jonathan’s position is regarding whether the initiative is easily amendable, but both articles state in almost identical terms that voter initiatives are “bullet proof,” and that voter initiatives can only be changed by (1) other voter initiative or (2) a supermajority. That is usually true, unless the initiative explicitly states another standard, as does Prop 64. Prop 64 limits itself to allow the Legislature to reduce Prop 64’s criminal and civil penalties by a simple 51% majority. Additionally, the initiative says that amendments to further protect employees of licensees can also be changed by a simple majority. That means any of the punishments set forth under Prop 64, and any rules to protect workers’ rights, can be made better, just as easily as under MCRSA, and perhaps more so, since these two avenues for amendment are identified in the initiative.

Notably, even the Legislature cannot amend some statutes without a 3/4ths vote, like tax measures or urgency bills. That means any amendments to the taxing provisions of Prop 64 would require the exact same number of Legislature votes as it would, were the initiative to have been passed as a bill.

Finally, the remainder of the terms can be changed by a 66% majority, which is only 15% more than required to amend MCRSA (51%). It cannot escape note that political experts expect the California Legislature to have a supermajority of Democrats this term, the party who historically has been more open to cannabis-related regulation in the first place, so amendments are not an impossibility. That means that, if something is not working, the Legislature can change it almost as easily (or in some cases more easily) than under MCRSA. This is a good thing!

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Small farmers should also remain cognizant that Prop 64 will create an organic designation for cannabis, as well as allow for appellation branding and onsite consumption. Its fees are scaled according to license size, and they cannot consider prior cannabis felonies against an applicant like they can under MCRSA. I am not offering this to convince you to vote for the initiative, since I love and support those who are voting “no,” despite my own personal reasons for voting “yes.” Rather, I offer this so that your vote is as informed as it possible can be, whatever that vote may be.

In closing, I cannot stress how much I respect and appreciate the work that both the Cannabis Alliance and my dear friend Jonathan Collier are doing in Nevada County. I’m in awe of the strides they have been making in local cannabis policy. As such, please accept this as complementary information that is perhaps a bit more specific so that our farmers and our industry have all the information.

However you vote, please just make sure you do vote! We’ll regroup on November 9th, regardless of the outcome of the election, and get back to work! Either way, our team is united and unstoppable. The tides have turned. Be sure of that.

Heather Burke is a criminal defense attorney specializing in cannabis law in California.