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California Prepares for New Cannabis Regulations, Anticipates Supply Shortages

With only 28 labs licensed to test all of the weed in the Golden State, officials expect a dearth of properly-tested pot once California’s final legalization regulations kick in on July 1st.

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California cannabis businesses have only two weeks to bring all of their products up to final state compliance and sell off any stock of untested pot. But even after six months of preparation time, a number of Golden State ganjapreneurs are still entering the regulatory transition unprepared, leading some experts to predict a few weeks of dirt-cheap pot shop fire sales before a summer of dispensary price hikes and product shortages.

When California enacted its adult-use cannabis retail market on January 1st, 2018, regulators built in a six-month grace period allowing distributors and dispensaries to skirt the state's new legal weed rules and sell pot that had not been laboratory tested or sealed in Proposition 64-approved packaging.

That slow transition towards statewide compliance will come to an abrupt close on July 1st, at which point all marijuana sold legally in the state of California will be required to meet the state's pesticide, contamination, and strength testing, as well as embrace packaging/labeling standards and THC limits for edibles, tinctures, and topicals. Any business that does not follow the new rules will be subject to fines and the loss of its license.

"We gave everyone six months to use up their supply on hand and get ready for the new standards that were coming July 1," Alex Traverso, spokesman for the state's Bureau of Cannabis Control, told the Orange County Register. "We felt like that was a sufficient amount of transition time."

During the first six months of legal weed sales, California dispensaries relied on a backstock loophole that allowed the sale of untested marijuana procured before January 1st. To avoid pricey testing fees and unstable post-legalization supply chains, pot shops piled countless pounds of pot into storage rooms and vaults. Now, with new testing rules set to turn the page on the entire market, retailers have only two weeks to sell the remainder of their untested weed. Subsequently, industry officials expect prices to drop consistently as dispensaries try to clear out all that chronic before the calendar flips to July.

"There are many people right now that still have a lot of inventory that they got before Dec. 31," Lisa Selan, a cannabis industry attorney based in Los Angeles, told Marijuana Business Daily. "People stocked up, they wanted to not pay the cultivation tax… so that product is going to have to be fire sale'd or destroyed this month."

But once that six-month-old weed is offloaded, refilling shelves could prove to be an even larger obstacle. With only 28 laboratories licensed to test legal weed, and a number of pricey packaging requirements, some California ganjapreneurs will have a hard time stocking enough state-sanctioned product to satisfy consumer demand.

"You're close to 20 million square feet of canopy statewide. And if you have to get that tested at 28 different locations… it's mathematically impossible," Selan said.

At Steep Hill labs in Berkeley, CRO Tony Daniel says that the company was startled by the lack of regulatory urgency among local growers, distributors, and dispensaries.

"We were a little surprised that more growers and producers weren't coming to the labs to make sure that their products were going to survive compliance," Daniel told the OC Register.

If those predictions do come to fruition and retailers are unable to find enough compliant product to supply hordes of Fourth of July shoppers, June's closeout sales could quickly turn into a pot shop price hike, with retailers trying their hardest to recoup enough profit to keep up with the new regulations.

"If you're a brand out there and you haven't been putting in the homework to get ready for this, July is going to be an incredibly rough month," Lucas Seymour, co-founder of the distribution firm Old Kai Logistics, told MJBiz Daily.

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On the other hand, a number of forward-thinking businesses have already prepared for the summer transition, and say that their packaging and products will pass any state test. For more information on the California cannabis industry's final regulatory transition, the California Cannabis Bureau's official requirements can be found here.

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