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How the Mendocino Complex Fire is Affecting Cannabis Crops

Retailers have good reason to be concerned about the impact of wildfires on the cannabis market.
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Fewer things are more terrifying to those in the California cannabis industry than literally watching their investment go up in smoke. But it’s a disturbing possibility—and in some cases, reality—thanks to the ongoing Mendocino Complex Fire.

Reports suggest that cannabis crop damage is likely. Sadly, that isn’t surprising as Mendocino County is a major hub of cannabis cultivation and processing. The region was still haunted by the devastation of the October 2017 wildfires. Between 30 and 40 percent of growers were affected.

No doubt that as the Mendocino Complex Fire continues to burn, it represents the serious risk that annual wildfires pose to the fledgling California legal cannabis industry. Understanding what’s happening with the ongoing wildfire situation can help cannabis retailers know what to expect once the flames die down and the full damage can be assessed.

However, it’s also important to remember that wildfires are but one potential threat facing cannabis farmers and retailers. Even as demand rises, a host of factors could be threatening supply sources throughout the state.

Factor 1: The Mendocino Complex Fire & Other Fires

The fear and uncertainty tied to the fearsome Mendocino Complex Fire are palpable. It’s officially the biggest wildfire in California’s history. Since July 28, the fires have scorched more than 302,086 acres or 470 square miles of land.

But despite its monstrous size, thus far no lives have been claimed by the dangerous inferno. Property damage is another matter, with at least 119 homes and 110 buildings going up in smoke.

While the location of the fire is favorable for avoiding human harm and loss of life, much of the Mendocino fire is burning in areas of forest far away from populated areas. It’s terrible luck for cannabis crop growers. The area is as ripe for growing marijuana as it is for wildfires just waiting to break out.

The ongoing blaze has some growers so fearful of losing their crop, they’re willing to go to jail. At least one farmer who lost his crops in 2017 said that if that if the same thing happens with the Mendocino Complex Fire, he’ll likely walk away from the cannabis industry.

MendocinoIt’s very possible that the Mendocino Complex Fire could lead to a series of setbacks that will make it hard for growers to stay in the industry. These setbacks might also cause headaches for cannabis retailers. But even annual wildfires aren’t the biggest challenge facing California cannabis business owners.

Whatever the outcome of the Mendocino Complex Fire, it will weave its way through an ongoing conversation about the ups and downs of California cannabis and whether the state government is doing enough to protect the industry and provide a landscape in which it can flourish.

Factor 2: High Taxes & Black Market Competition

Experts believe the Mendocino wildfires will continue to burn until September, after which, impacted cannabis farmers and retailers will have to figure out how best to move forward. But under present compliance constraints, it might not be nearly as easy for legal businesses to recover as cannabis sellers operating on the black market.

A recent survey revealed that despite 84 percent of Californians surveyed approving of the legal market, 20 percent still consume cannabis through illegal purchases. Some deem legal pot to be “too expensive” compared to illegal options.

The revelation echoes complaints by legal dispensary owners, who say local consumers opt for cheaper, black-market options whenever available, causing them to lose business.

Because illegal cannabis growers can afford to sell their products for lower prices than legal business owners, it's possible that the illegal cannabis market could bounce back faster from wildfire-related complications than legal cannabis retailers.

With some retailers struggling to stay afloat even without the fear of wildfires wiping out their stock, California legislators are being strongly urged to consider lowering taxes. The town of Berkeley reportedly already took these steps, lowering city taxes on cannabis from 10 to 5 percent. It’s predicted that lowering taxes across the state in a similar manner would drive consumers away from the black market and ease pricing concerns.

Interestingly enough, the damage to crops caused by the Mendocino Complex Fire isn’t expected to have any major impact on cannabis pricing. That’s because California currently produces nearly five times the amount of cannabis as locals consume.

Factor 3: Woefully Absent Insurance Coverage

While the Mendocino Complex Fire might cause harm to a variety of plant life and crops in the region, cannabis growers are a world apart from most affected land and business owners. That’s because the majority of California’s marijuana crops are uninsured.

The lack of insurance for cannabis crops and related businesses is largely due to the status of marijuana as a Schedule 1 drug. Even so, there are a few insurers who’ve moved into the market. One such company paid out $1 million to a farmer whose crops were destroyed the October 2017 California wildfires.

Although it’s slow going, having more insurers backing crops may build confidence among growers, making them less likely to walk away from the market should they lose way more than they can afford from the massive wildfires or other unpredictable tragedies.

Factor 4: A Lack of Preparedness

The California cannabis industry is still in a delicate transition process. In theory, the ever-growing demand should mean that if those in the business stick with it, things will turn around eventually. But more than halfway through 2018, profits were rare.

One Sacramento-based accountant who worked closely with licensed manufacturers, retailers and distributors said that many “broke even, but probably weren’t hitting their budget.” Although some businesses have found success, many found themselves unprepared to properly cope with realities brought on by

  • New state compliance requirements
  • High taxes (state and local)
  • Lack of confidence in supply availability
  • Lost profit due to the black market

Costs are up due to child restraint packaging requirements, with one retailer saying they went from “7 cents per unit to 55 cents per unit.” Testing costs for retailers and distributors can also run into tens of thousands of dollars monthly.

It seems that with the changes that came into effect on July 1, a number of people just weren’t prepared to cope with expensest least on the legal side of the industry. Unless legislators are willing to step up to help legal retailers and growers, they may be inadvertently driving consumers towards the black market.

What Happens When the Smoke Clears?

It’s strangely eerie that the Mendocino Fire Complex is now burning within the same window of time as cannabis retailers trying to see their way through the haze of uncertainty brought on by recent issues.

It’s possible that annual wildfires can eat their way through the excess levels of product within the next few years. Particularly if enough growers move on. However, for the time being, it seems that the wildfire is not nearly as big a concern to dispensaries, farmers, and consumers as one would think.

At the very most, the Mendocino Complex Fire has served to highlight problems that might have existed for cannabis business owners even if nothing was ablaze.

The fires are a reminder of the lack of insurance coverage in the industry.

If losses are ultimately comparable to damage suffered in 2017, steps might be taken at the state level to offer better incentives to farms, suppliers, or dispensaries that were somehow negatively impacted.

It’s possible that damages might not be as terrible as once thought. Still, concerns raised by losses to the wildfire might be the one factor that forces state and local government to act in ways that nudge legal cannabis business ventures in the direction of recovering more quickly from tight regulations and high taxes.

State & local Lawmakers Hold the Long-Term Remedy

leavesWhether it’s helping farmers recover from wildfire devastation or bringing taxes down low enough to allow legitimate businesses to compete with the black market, it really does seem that local and state legislators hold the keys to the long-term survival of the California marijuana industry.

Making marijuana legal and sensibly regulated might not be enough. It seems more should be done to encourage more insurance options for growers and retailers. For example, state and local lawmakers uniting to bring down taxes low enough to drive consumers away from illegal businesses.

Legal cannabis growers are working hard to take every possible step to meet compliance. Additional changes to the law can help protect marijuana businesses that are doing everything they can to operate legally, and inspire more people to enter or stay in the industry.

Make no mistake: Marijuana continues to be California’s most valuable cash crop. But with the “green rush” ending and business owners taking a hard look at their bottom line, legislators may want to take their own steps forward to protect the industry’s long-term potential through legal earnings. California cannabis shop owners and farmers shouldn’t live in perpetual fear that wildfires or a lack of legislative support will lead to their aspirations going up in smoke.

To conclude, the monstrous Mendocino Complex Fire isn’t necessarily the massive threat to the region’s marijuana farms as one would think. Time will tell if there’s been nearly as much damage as fires caused last fall; it’s still too soon to know anything for certain.

Yet what we do know is that the wildfire is just one of a few harsh factors negatively impacting California marijuana businesses. Even though the Mendocino Complex Fire will likely be 100 percent contained within a month, still more challenges lie beyond. Help is needed, at the state and local level, to help legal marijuana thrive as well as the illegal portion of the industry.

The demand is there and the potential is there. While some businesses have the potential to weather the short-term strain, the whole industry could benefit from long-term legal adjustments.

 

SOURCES:

https://www.rollingstone.com/culture/culture-features/what-the-california-fires-mean-for-the-weed-industry-198254/

https://www.usatoday.com/story/news/2018/08/08/california-fires-mendocino-complex-fire/943899002/

http://www.latimes.com/local/lanow/la-me-mendocino-fire-explainer-20180807-story.html

https://sacramento.cbslocal.com/2018/08/04/ranch-fire-arrest-marijuana-plants/

http://www.capradio.org/articles/2018/08/08/marijuana-grows-destroyed-by-california-wildfires-but-its-unclear-how-many

https://www.cnn.com/2018/08/08/us/california-fires/index.html

https://www.eaze.com/article/eaze-insights-2018-cannabis-marijuana-legal-illicit-market-survey

http://www.ccguide.org/news/shownewsarticle.php?articleid=22664

https://www.leafly.com/news/industry/california-marijuana-and-wildfire-heres-the-latest  

https://www.potnetwork.com/news/california-cannabis-crops-largely-uninsured-due-federal-marijuana-status

https://www.vox.com/cards/marijuana-legalization/marijuana-schedule

https://mjbizdaily.com/profits-are-a-rarity-californias-new-regulated-marijuana-market-six-months-in/

https://www.ocregister.com/2016/12/29/californias-marijuana-production-is-already-mind-boggling/

 

 

 

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