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Growing Pains: California’s Legal Cannabis Industry Struggles with Supply and Distribution Concerns

Cultivators and retailers across the Golden State are having trouble keeping up with demand under California’s newly implemented reefer rules.

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California’s one-month-old market for recreational marijuana is starting to find its feet, with cultivators, manufacturers, distributors, and retailers all working to secure their place under the new regulations while ensuring product keeps moving to customers. However, several new reports concerning the Golden State's cannabis supply chain suggest there may be rough waters on the horizon.

According to a report from the Associated Press, California’s adult-use cannabis retailers say their supplies are already running low, and a lack of properly licensed cultivators and distributors may soon be unable to keep up with increasing demand, especially as the backstock of last year’s crop begins to dwindle. Under a state-approved grace period, untested cannabis harvested before the launch of the newly legal market can be sold until July 1st of this year, at which point all product sold must meet state standards and have been cultivated after January 1st, 2018.

With only 1,900 total licenses awarded across the state, a number of ganjapreneurs worry there won’t be enough weed to go around once those reserves run out — a prospect that could crush businesses and defeat the state’s larger criminal justice goals alike.

"They are going to have to come online with more producers in the next 12 months to keep up with the demand," Will Senn, founder of the SoCal dispensary chain Urbn Leaf, told the AP. "The black market will balloon if we can't get legal, licensed producers to step into the industry. That's the biggest risk.”

Under the state’s newly revised adult-use and medical cannabis regulations, cultivators are now required to send all of their cannabis products to an independent distributor, who then brings the weed to a warehouse, where samples are taken to testing labs and then, if the weed meets state standards, it is sent from those third-party warehouses to licensed retailers. But at every level of the cannabis supply chain — cultivator, distributor, and retailer — ganjapreneurs worry that their product won’t be able to reach the state’s widespread consumers.

“Many growers hope that distributors will help to ensure revenue is distributed more equitably throughout the supply chain than was possible under the collective model. Unfortunately, until there are a lot more retailers, market access will continue to be restricted and concerns about market manipulation will persist,” Hezekiah Allen, executive director of the California Growers Association, told Cannabis Now.

California regulators have continued to issue licenses across the cannabis supply chain throughout January, but with most adult-use retailers still relying on product grandfathered in from the state’s previous medical program, it’s still too early to know what will happen when that weed runs out and the Golden State’s grace period comes to a close.

In the meantime, California cannabis officials are trying their hardest to solve the impending shortage before tourists and residents alike abandon the still-growing adult-use retail system.

"We legalized cannabis — you want to have that product available," Lori Ajax, chief of California’s Bureau of Cannabis Control, told the AP. "We don't want people going to the black market because they can't get product from the legal market."