Adjusting Perspective

Adjusting Perspective on the California Cannabis Transition

The six month report card on California’s first steps into regulated cannabis came in with a sobering grade: “Needs Improvement.” With its heavy emphasis on local (county and municipal) controls, administratively intense applications and compounded State and local tax rates exceeding 45% for each cannabis dollar earned, most legacy California cannabis operators and indeed consumers, have simply elected not to participate.

Of the ~2,500 cannabis dispensaries operating before regulation, less than 500 have thus far become state-licensed shops. (The remaining 2,000 or so shops are electing instead to make as much money as they can until their Prop 215 rights sunset on January 1, 2019.) Because regulated operators cannot sell to legacy Prop 215 shops, the entire regulated marketplace has suffered massive constriction, forcing layoffs, reduced SKUs, and intense financial restructuring.

“Pioneers get the arrows, settlers get the land,” goes the saying. With regulation came a great reckoning that leveled the playing field and reset the marketplace, but with a much smaller footprint than anticipated. Some contraction was expected, but governments are scrambling to reset a healthier course. For example, our own County of Monterey was the first in the state to reduce cannabis tax rates, and it did so by almost 75%!  In the meantime, most operators in California who chose the regulated path are reeling to down-scale to a constrained market. Those who did not, the Prop 215 operators, have less than six months of existence left and time will only tell how many will migrate to the regulated environment.

As the hangover excitement of regulation fades, a new market emerges – even if slowly. Ours is a challenging landscape and Grupo Flor will surely earn its fair share of arrows.  However, unlike others, Grupo Flor was specifically designed to weather these transitional years. From our blend of cannabis and ancillary business units, to our aggressive acquisition of permits to the very architecture of our supply chain, we are specifically built to weather this transitional. Successful scaling will require more than a strong foundation, capital and guts; it also demands a mature adjustment of perspective with balanced expectations.

 



New Faces Join the Grupo Team

This spring, Grupo Flor hired two key players who bring a new level of expertise to cultivation and greenhouse operations — meet Sam Burgner and Mikey Towey.

Sam Burgner, Harkins Farm Indoor Lead Grower, is a recent Master of Science graduate from Purdue University — one of the nation’s top horticulture programs. Sam also worked alongside NASA Kennedy Space Center on how to efficiently grow plants in zero gravity on the International Space Station and conducted research on ways to cultivate food crops under the harsh conditions present aboard spacecraft.

Sam’s in-depth knowledge of plant and environmental physiology is being put to good use on the vertically-tiered production project at Harkins Farm, which will utilize cutting-edge fertigation, lighting, and climate control systems for 22,000 square feet of intensive production.

“Joining Grupo Flor was a natural fit. For years they have had their eyes on the future of Cannabis in California, and mine have been fixed on the future of crop production. I appreciate the innovation that they bring to the industry and the easy-going nature of the team makes the difficulties of building an industry from the ground up flow smoothly,” said Sam Burgner.

As a former whitewater raft guide, an avid outdoorsman, and devotee of fresh and local agriculture, Sam is already finding himself at home on the Monterey Peninsula with the natural beauty, great trails and hikes to explore.

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Mikey Towey, Compliance Manager, who overlooks Grupo Flor’s ongoing compliance efforts, including the identification and prioritization of applicable regulations, development of internal processes and procedures, and the rollout to partners, stakeholders, and employees. Mikey’s expert knowledge in the state-mandated track and trace program is instrumental in the successful implementation and integration.

Mikey ran operations for one of the largest indoor cultivation centers in Washington State and most recently managed greenhouse operations in Monterey County. With this type of expertise, Mikey plays a major role in the design of Harkins Grow and the general A to B operation flow, as well as the procurement of genetics.

“I’m excited to be a part of such a talented team where everyone shares the same vision for excellence and innovation. This position gives me the opportunity to create infrastructure and procedures for a fast growing company in a nascent industry and that is pretty cool,”  stated Mikey Towey.

When Mikey isn’t overseeing major cannabis operations, he enjoys spending time with his girlfriend, Serina, and his french bulldog, Napoleon. As a former substitute percussionist for the Seattle Symphony, he still likes to practice music and composition (when he isn’t at the gym or yoga, of course).


Federal Legislative Look

In Washington, evolution on the marijuana issue is moving forward at warp speed in political terms.

Senator, Mitch McConnell fast-tracked a Senate bill to legalize low-THC hemp. Democratic Senate Minority Leader Chuck Schumer of New York introduced a bill to remove marijuana from the Controlled Substances Act, which would deschedule marijuana entirely. Colorado Senator Cory Gardner struck a deal with President Donald Trump, who promised to not target Colorado’s legal marijuana industry in exchange for Gardner releasing his hold on Trump’s Department of Justice nominees. The Food and Drug Administration opened a comment period on the scheduling of marijuana ahead of a special session of the World Health Organization convened to re-evaluate marijuana laws, and both chambers of Congress passed “right to try” bills that might have accidentally legalized medical marijuana for terminally ill patients. Taken together they suggest that nearly 50 years of federal marijuana prohibition is about to disappear, and it’s happening in the face of an administration that has expressed its outright hostility to the notion. Bipartisan efforts are picking up steam to push for access to banking for legal marijuana businesses at the least making it so marijuana businesses don’t have to be all cash.


State Legislative Look

What’s Noteworthy About California’s Newly Released Regulations?
California released its updated regulations in late May and they’re largely seen as a baby step between the initial rules released late last year and what will become the final regulations later this year.

The new rules came from the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health, and what is noteworthy, is that they allow companies with medical licenses to continue to do business with those holding only adult-use, recreational licenses rather than requiring a separation (which would have been a huge disruption to the industry). Of special interest to Grupo Flor, is that a provision requiring that if a product is branded as being from a specific county, 100 percent of the cannabis used in it must be from said county, and all of our cultivation is done is Monterey County.

The new regulations also outlaw what industry folks refer to as the “ice cream truck” delivery model, in which someone can load up a delivery truck with all kinds of cannabis products to have on hand as orders are placed online and a delivery driver cruises through town. Instead, delivery drivers now must receive orders and stock their vehicles at a brick-and-mortar location before making the rounds.

Bigger changes are down the road, most notably, the July 1 deadline, after which all cannabis products sold legally in California must pass stringent laboratory tests for potency, molds and pesticides, with products that fail testing, facing the possibility of being destroyed.


Local Look

On May 22, 2018 the Monterey County Board of Supervisors reduced cannabis taxes! This decision was spurred by pressure from the local cannabis industry about the damaging impacts of the high taxes. This was supplemented by a report from HdL a cannabis consulting firm that analyzes rates in jurisdictions across the State. This report exemplified the challenges growers face to succeed with the cumulative state and local tax rates already at 30 percent. Listed below are the new tax rates that will be adopted in July of 2018.

  • Mixed Light Cultivation (greenhouses): $5 per sq. foot
  • Indoor Cultivation: $8 per sq. foot
  • Nurseries: $1 per sq. foot
  • Manufacturers: 2.5% of gross receipts
  • Distributors: 2% of gross receipts
  • Testing: 1% of gross receipts
  • Retailers: 4% of gross receipts

These new tax rates are a relief for the industry, however, there is still a disconnect between the popular perceptions of the ‘Green Rush’ wealth and the harsh economic realities faced by those seeking to comply with the new law.

The Future Is Bright

It’s been 168 years since the gold rush and with legalization of cannabis California, Grupo Flor is smack dab in the middle of a well publicized “green rush.” This is energizing a whole new crop of investment and participation interest in cannabis. It seems whether we’re at a local basketball game or dinner party, whenever someone hears that we’re in the cannabis industry, the first questions is, How do I get involved? This is usually followed by a litany of questions about investing in cannabis and Grupo Flor’s activities.


The Future Is Bright

Despite what is considered to be an unfriendly administration in Washington D.C., nine states and the District of Columbia now allow for recreational marijuana use, and thirty allow for medical use. Twelve states are poised to join the marijuana legalization wave this year, with more possibly joining as legislative sessions continue. Public support for marijuana legalization reached new highs in 2017. A Gallup poll showed that 64% of Americans favor legalization, and a majority of Republicans back it for the first time. Vermont became the first state to legalize marijuana through the legislature rather than a ballot initiative, in January of 2018. There is a distinct rolling out of increased regulatory acceptance of the cannabis industry throughout the nation.


Spring Boasts Big Yields
With less than a month from the first official day of spring, our first harvests have been soaking up the extra sunlight and will bring the biggest yields yet. Our team of cultivation specialists have been festidigiously perfecting all stages of the plant life cycle from nursery to vegetation to flowering – and are always focused on the golden goal of the highest quality production at the most efficient cost. Our farms are generating highly sought after strains with unique genetics that bode frosty buds with high terpene counts and high cannabinoid levels.
“We’re about three weeks away from our biggest yield yet. It’s our boutique style grow with an emphasis on commercial scale processes, sustainable power and water systems, state-of-the-art facilities development, and clean cultivation practices that enable us to grow cost-efficient high quality consumer safe products,” said Omar Bitar, Co-Founder of Grupo Flor and President of Flor Cultivation.

Federal Legislative Look
The federal picture may at first seem dim in the wake of AG Jeff Sessions decision to revoke the Cole Memorandum (an enforcement priority statement that took a hands off approach on states regulating cannabis.) However, within the industry, this move is also considered valuable because it gives developing enterprises more breathing room to increase their value and stabilize operations before larger, well capitalized companies enter the industry.

Local Look
Monterey County has taken the lead, becoming one of the first to join a statewide oversight agency aimed at collecting regulatory data and improving access to financial services for the emerging industry.The Board of Supervisors unanimously approved a joint powers agreement establishing the California Cannabis Authority, becoming just the second County to do so after San Luis Obispo County.
Backed by the California State Association of Counties, the Authority has made its main goal developing and managing a statewide data platform to gather, collect and analyze a variety of cannabis industry information (including cultivation, track and trace, point of sales, taxation, and local and state regulatory data). The data collection will be designed to help local governments ensure regulatory compliance and provide necessary information for banks wanting to work with the industry.

A New Era For Grupo Flor

With the New Year well underway, we enter a new era – right smack dab in the center of the biggest legal, adult-use marijuana market in the world. At Grupo Flor, we’ve hit the ground running with plenty of great news to share…


But first, why Grupo Flor?
If you’ve been around this thing for a minute, you know the California cannabis marketplace is severely fractured and regional. Grupo Flor’s goal has been to create a regional “ecosystem” that is strong in a diversity of relationships… READ MORE



Seed to Store Model
Grupo Flor’s family of cannabis companies, both subsidiaries and affiliates, have all received permits in cultivation, manufacturing, retail dispensary and distribution. By having permits in all areas of the cannabis supply chain…READ MORE

Open for Business (almost)
Grupo Flor affiliate East of Eden Cannabis Co. will open its flagship retail dispensary in Salinas, California in the next few months. While East of Eden will offer top high-quality brands from across the entire state, the store will showcase a vast selection of best-in-class products grown and produced just a few short miles away.
“Being in the heart of the Salinas Valley, we are working hard to ensure that our space reflects the local community. We hope to open our doors to the public in late March, where we are committed to providing the highest quality, all natural, pesticide free and tested products.” Steve Podell, President of East of Eden


Fueling Grupo Flor’s Growth
Grupo Flor is excited to have secured much of the capital needed to complete facility build-outs, fuel hiring, purchase compliance technology and launch partnership brands through Grupo Flor’s affiliate distribution arm, Flor X, Inc.


Federal Legislative Look

We are also excited about a number of federal bills that seek to synthesize federal and state marijuana law. Among a handful of others, these five measures are pending in Congress that address some of the gaps once filled by the Cole memo…READ MORE



State Legislative Look 

After Jerry Brown swatted down the beehive of legislation that tried to show up at the end of 2017, things are calmer this start of 2018, with more emphasis on refining the regulated marketplace at the division levels of the Bureau and various departments handling different aspects of the supply chain. We are particularly excited about some negotiations underway that could change child proof packaging laws and maybe, just maybe, (fingers crossed) eliminate the difficult Adult Use and Medical distinction in the supply chain before it gets to the dispensary counter. We will keep you posted.


Local Legislative Look
If you have not yet, please join the Monterey County Cannabis Industry Association (“MCCIA”) which was created to advocate and promote all aspects of the industry. MCCIA is providing much needed industry representation, education and leadership throughout the region. If for no other reason, consider this one word: tax…READ MORE