This is the first installment of a two-part series that will highlight views of the best way forward for Humboldt in the cannabis industry. Regardless of your views on cannabis as a profession, our area relies heavily on agricultural income and we have a collective interest in preserving this important driver of economic prosperity in our region.
While I continue to believe that scale farming offers the most viable long-term play, this series will focus on alternatives that are more palatable given the anti-corporate, anti-development bias of our area.
The backdrop
As predicted, this year has proven to be a challenging one for cannabis industry operators. After a brief window of modest prices, bulk clearance offers are now around $400 to $600 a pound, with some buyers claiming solid flow between the three. Packaged products continue to offer better value, but there are increasing stories of late payment or non-payment at the dispensary level. Cultivation licenses are expiring or lying fallow, ancillary business revenues are down and margins are thin across the supply chain.
Further complicating matters is that many farms in the Emerald Triangle have planted late in the year, not wanting to risk a poor first run in the unpredictable spring weather. People are coming to market with the first harvest of the year and are selling in a highly competitive landscape with ample supply and falling prices.
While California continues to boast modest unemployment and reasonable job growth, inflation is easing above nine percent and the US economy contracted 1.6% in the first quarter Most economists believe GDP will be negative in the second quarter, officially signaling a recession is on the way. Recessions are known for reduced consumption and falling prices for consumer goods, neither of which bode well for cannabis or Humboldt in general.
I’ve been talking to people all over the state and back east, and they all believe that flowers grown in the California sun will be a success in a national and global context. The problem is, not many of us will be able to hold out long enough to see this come true. Corporate players, such as in food and drink, will flock to the organic bandwagon and clear most of this market as well, but the opportunity to engage hundreds of millions of global consumers would be a welcome development for small family farms.
Apart from enabling cultivation at scale and radically increasing farm yields and quality through cultivar selection, plant shape, aggressive core and background, foliar nutrient and mineral delivery, artistic stress and a proper drying and curing program, I think two options give Humboldt a leg up. rise economically A robust micro-enterprise climate and robust cannabis tourism program could help Humboldt stay relevant in the space and buy us time as domestic and global markets open up.
Let’s delve into the concept of microenterprise opportunity. I’ll follow up next time with a look at cannabis tourism, which is gaining traction out there.
Microenterprise license
Here in California, you can get a micro-business license that allows small operators to achieve vertical integration — the crown jewel of the cannabis industry that corporate and multi-state operators implement to diversify revenue and improve margins. In a vertically integrated structure, it can be cultivated, manufactured, distributed and sold at retail. Cultivation is limited to less than 10,000 square feet, which is conveniently the size of many commercial operations here in Humboldt.
Why does this make sense?
Because in a world of shrinking margins and profitability, the ability to create multiple streams of income can be a lifesaver.
I recently spoke with a larger operator in NorCal who stated that each segment of the vertical provided a 3-5% margin. For a small farm growing 1,000 pounds, a 3% margin on cannabis sales is unacceptably low and will lead to closure. Higher gross margins of 12-20% that include cultivation, distribution, manufacturing and retail can help family farms stay in the game.
In addition, microenterprises could help other local farmers sell flowers and create value-added products such as high-terpene full-spectrum extracts, which are in high demand in the market. The collaboration could flourish and we could exploit even more niche markets for some product lines.
As MOCA Humboldt recently demonstrated with a strong performance at the State Fair, micro-enterprises can shine in the areas of quality, innovation and brand recognition. MOCA took home several awards from the recent competition and is receiving a fair amount of press – a well-deserved and welcome development for any high-performance small operator. I read about his success from a third party on LinkedIn, one of the best cannabis networking platforms out there. This type of exposure not only builds brand awareness, but can also open doors and create profitable business relationships.
Unfortunately, regulations make it difficult to become a cannabis micro-enterprise. State rates are somewhat stiff between $15,000 and $1.5 million in revenue and $42,000 a year between $1.5 and several million in sales. Finding a location can also be difficult, as zoning restrictions greatly limit available sites.
I would like to see Humboldt lower the barriers to entry and allow more micro-enterprises to flourish. Reducing onerous zoning and other restrictions and allowing on-farm operations would streamline the process, allow for greater participation in this niche, and allow for more collaboration among the local cannabis community. Friends could help friends make products and get to market. Jobs would be created and Humboldt would be able to maintain and solidify its position as a world-renowned heritage cannabis community.
Overall market dynamics remain challenging in Cali and microenterprise operators should focus on quality, consistency, efficiency, marketing and building lasting relationships with the supply chain and consumers to have success In addition, operators should make investments in infrastructure to enable operation in various business segments. However, people would have a better chance of fighting through diversification, and Humboldt’s short-term economic prospects would improve significantly.
The recently proposed national legalization bill largely flopped… skeptics cite the lack of a meaningful road show or substantial press releases from Congress as evidence that the bill will go nowhere. Biden opposes recreational cannabis, so the move toward interstate commerce that everyone was betting on appears to be stalling. Biden has also failed to follow through on his campaign promise to release non-violent cannabis offenders, which is a downright shame. All told, industry insiders think it could be years before we have a fully functioning national market…not great news for the Emerald Triangle or small family farms.
Humboldt County regulators already stepped up once and granted operators a grow tax break. California followed suit and eliminated it as well. It’s time for Humboldt to take another step forward. Let’s stop bothering farmers and let micro-enterprises thrive.
Aside from the very niche distribution of packaged cannabis products or high-volume, low-cost outdoor production, making a living from dirt, our county’s bread and butter, is increasingly beyond the reach of most.
A streamlined microenterprise process that encourages wider adoption and differentiates Humboldt in terms of product quality and innovation can help us stay relevant. Additionally, these micro-cultivation, manufacturing and retail operations could be a huge draw for cannabis tourists. I’m personally fascinated by manufacturing, packaging and farming operations, and tens of millions of consumers agree, which we’ll talk about next time.
Humboldt must maintain its heritage…a rich, pioneering and profitable history of cannabis cultivation and medicinal discovery. Even though our way of life is threatened, an operator-friendly regulatory environment coupled with love, dedication, innovation, differentiation and collaboration can move us forward in unity and strength. Failure to do so puts our region firmly in the crosshairs of economic and social collapse.
much love,
Jesse
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Jesse Duncan is a lifelong Humboldt County resident, father of six, retired financial advisor and full-time commercial cannabis grower. He is also the creator of NorCal Financial and Cannabis Consulting, a no-cost platform that helps small farmers improve their financial, business and cultivation skills. Please check out his blog at, his Instagram at jesse_duncann and connect with him on Linkedin.
