Far-fetched comparison or warning signs of failure?
California’s rocky transition to adult-use cannabis sales has been particularly jarring on the smaller, bootstrapped companies that were once such a central component of the largest medical marijuana market in the world.
Heavy taxation and licensing hurdles have allowed the state’s illicit market to thrive at a time when many entrepreneurs have been hustling non-stop to stay afloat in the legal market since the most significant changes began taking effect in 2018.
During a “well-earned and much-needed” vacation, Therapy Tonics & Provisions founder and CEO Christopher Coggan spent a day in Romania at a museum dedicated to the victims of communism and realized an unlikely comparison between California’s current state of affairs and Cold War-era socioeconomics.
“To my surprise, the history of communism in Romania actually shared some parallels with the California cannabis industry,” Coggan says.
While Romanian citizens faced starvation and financial devastation, eventually leading to a violent revolt, California’s cannabis industry — obviously — has much less at stake. But the subtle similarities with Romania’s history with communism, Coggan says, paint a bleak picture for the industry unless a regulatory revolution can shift its course.
Marijuana Venture: What are the parallels you see between the history of communism in Romania and California’s cannabis industry?
Christopher Coggan: After World War II, as the communist grip tightened in Romania, the government’s unyielding commitment to collectivism really crushed the people it was supposed to help.
The government took the power of ownership out of the hands of individuals and small farms. It over-regulated and over-taxed them, resulting in only one way to get their products to market — through collectives that were sanctioned and owned by the state. The problem was that the cost of doing business in this environment was so outrageous that even the most efficient farms could no longer operate. Many people were forced to the burgeoning black market, the remnants of which are still alive today in the bucolic villages of the Romanian countryside.
Brands of all sizes in the California cannabis industry face a shockingly similar reality: Over-taxation; over-regulation; exponentially more expensive real estate; much higher costs than those of other consumer product markets; arbitrary caps on licensing; limited access to all elements of the supply chain; and for smaller, bootstrapped brands — the ones the state committed to helping — the cost of doing business is extended far beyond these state and local fees. They are forced by circumstance into relationships with their larger counterparts, while the extended costs of co-manufacturing, white labeling and third-party distribution add additional layers of fees and markup.
Although the state and local municipalities do not own the businesses — nor are we neck deep in corrupt oligarchs — they do maintain exclusive ownership over the proverbial keys to the legal marketplace and California’s consumers.
Much like the Soviet satellite states of the 20th century, it is the people who ultimately suffer under these conditions. We see market and brand consolidation, higher prices, stifled innovation, lack of information and long lines at retail locations, reminiscent of the bread lines during the height of the Cold War. Again, in parody with the history I reference, there is a burgeoning and unchecked illicit market.
MV: But communism ultimately failed in Romania, right?
CC: It didn’t just fail; it failed riotously. After the Communists emptied the coffers, poisoned the environment, destroyed the quality of life of millions and made more than 120,000 people disappear, there was a violent uprising in 1989 against Romania’s leader, Nicolae Ceausescu. He and his wife were executed by firing squad a few days later. There was a lot of anger. Hell, there still is.
MV: So what does that mean for California cannabis?
CC: Well, that is obviously where the metaphor ends. I mean, people are pissed, regulation is broken and taxes are, for all intents and purposes, misaligned with reality. There are a lot of issues. But this is democracy, folks. There will be no firing squads, but instead political discourse will unwind the mistakes that make California cannabis resemble a failed communist state.
The good news is that the Legislature and regulators are cognizant of many of the issues at hand. Although they have stopped short of taking responsibility for their missteps, they have begun to address some of the biggest challenges that plague the industry and inhibit its growth.
MV: How does Therapy Tonics & Provisions fit into all of this?
CC: We are a small, bootstrapped, artisan beverage and tincture company. We’ve been grinding away at this dream for a long time, in the shadow of many well-funded competitors. Because our marketing budget is best described as a few paperclips and a ball of lint, we have put a lot of time and energy into politics. This is why that little history lesson is so apropos. I think it’s extremely consequential that both cannabis business owners and consumers really understand both short- and long-term implications of current policy and are propelled to action. Many of the issues cannabis operators face have pretty serious implications.
Therapy Tonics works to bring those issues to light through our engagement with the California Cannabis Industry Association (CCIA), the largest, most cohesive association representing cannabis businesses in California. Through that association and our political action committee, which lobbies on behalf of the industry, we have a respected and valued voice in Sacramento.
I am a board member of the CCIA and also am serving as the chairperson of the manufacturing committee for the second year in a row.
MV: What are the biggest issues you’re focusing on?
CC: The California Legislature and regulators remain our biggest challenge. Even though permanent regulations have been implemented, there have been well over 50 cannabis-related bills proposed this year alone in both the Assembly and the Senate. So although in some ways the verdict is in, there is still a lot of work to be done. Serious work like changes to the underlying statutes that have been flawed since Proposition 64 was put to the voters in 2016.
There are two other big issues that continue to prevent more timely reform.
The first of these is the industry’s engagement. When one considers the predicted size of the California cannabis market, businesses and consumers alike need to recognize that we, as an industry, can muster some serious clout. In order to maximize the impact of our economic standing in California, more cannabis companies need to get involved. The CCIA membership hovers around 10% of all California license holders. From where I’m sitting, this is an embarrassment. I mean this is really simple math. More members equals more funding. More funding equals exponentially more clout.
The second issue is best described as the dissemination of information to the public. Mainstream media, with a few exceptions, paints a picture of the cannabis industry that is more of an impressionist-style piece. They often smooth over the rough edges with half-truths to fit their narrative. I believe it should be an industry priority to tell the real stories about our challenges, to propose solutions and to educate consumers so they can get behind our efforts to reform the regulatory environment in the name of safe access.
MV: That sounds like a lot of work.
CC: Well, if I only had the time to give it the attention it deserves. Honestly, this year I haven’t felt as effective or engaged as I would like to be. That’s why having the chance to talk about it is so important. It reignites that passion and reinvigorates the soul.
MV: Do you have anything you’d like to say in closing?
CC: Just because I like to come full circle, even if the relevance is questionable, I’ll share my favorite quote from HBO’s Cold War-era miniseries, “Chernobyl.”
“Every lie we tell incurs a debt to the truth. Sooner or later, that debt is paid.”
This interview has been edited for length and clarity.