California Commodity Brokers – A call to action

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As California’s Cannabis Industry prepares for statewide regulations, enforcement efforts should be aimed at the black market bad actors, rather than businesses that play by the rules

By Colin Ginsburg

If California’s Bureau of Medical Marijuana Regulation is up to the task of promoting and enforcing legal compliance throughout the state’s billion-dollar marijuana industry, it should start at the Mount Olympus of chokepoints: the self-described “commodity brokers,” also known on the street as “brokers” and “plugs.” The BMMR will not build credibility or trust, much less have real impact, if investigations focus on the husband-and-wife grow sites and corner store dispensaries.

The majority of the industry’s unlicensed and illegal cannabis trade has a direct nexus to brokers moving bulk quantities from the grow sites onward. Since California’s prior medical marijuana laws, Prop 215 and Senate Bill 420, never accounted for or addressed the role of a distributor, these brokers have been making their own rules and operating in a shadowy gray area for a long time.

The general public mistakenly believes that 85% of cannabis businesses operate legally. But just because a grower or retailer is registered as a 501(c)(4) non-profit, hires an accountant or calls itself a collective does not mean it is legal. Based on a general calculus of trade — the volume of plants bought and sold in bulk — it is likely that merely 15% of all cannabis trade in California is presently legal.

By and large, brokers are not interested in the complexities and legal nuances related to becoming compliant. They’ve run with dealers and organized crime for years, and simply don’t have the interest, much less the acumen, for the new regulated phase of the California cannabis industry.

Also, the consequence of scarcity plays to the brokers’ advantage. When the BMMR shuts down a handful of small grow sites, this will not affect the brokers’ supply. Brokers’ margins will increase as supply of competitors’ products diminish. Brokers have a deeply ensconced underground wholesale system and logistics apparatus that is immune to limited-scope enforcement actions taken against community-based growers and shops.

The Medical Marijuana Regulation and Safety Act requires distributors to act as middlemen. All cultivators and manufacturers must use the safe, accountable and unbiased services of a licensed distributor to make sure products are transacted legally, lab-tested and transported safely. According to the law:

– The distributor has the duty of transporting a sample of the product to a licensed laboratory for batch testing and certification;

– The distributor has the responsibility of executing the contract between the cultivator and manufacturer or manufacturer and retailer;

– Distributors cannot hold any other license other than one for transportation.

The BMMR must understand that illegal brokers are most comfortable working in the shadows. They use “burner” phones and avoid the Internet. They buy huge quantities of marijuana and are first in line to do so, a privilege they either win from years moving large quantities, or through other persuasive means (read: organized crime). Brokers aren’t hampered by the need to conduct quality control, to vet growers or buyers, to lab test products, or to employ transportation methods that safeguard the product or public’s wellbeing. Many do not hesitate to facilitate lucrative sales and shipments out of state. With years of success operating in this manner, brokers have shrunk overhead and maximized their all-cash profits. They also wield tremendous influence at the retail end.

Thus, while the grassroots retailers, growers and manufacturers politely tiptoe into the forefront of the public’s eye with their lawyers and accountants, hoping to become incrementally more legal and contribute to local communities, the shadowy middlemen will persist, illicitly buying and selling in bulk, undiscouraged by concerns for the law, licensing, taxes or public safety.

The BMMR must gain the industry knowledge and investigative intelligence necessary to permanently shut down this middle sector. But this call to action is also for growers to resist the pressure and influence of brokers, and for retailers to pay more and expect more from those in the middle, especially if they covet entrée into the financial mainstream and acceptance by law-abiding patrons and neighbors.

There are growers, manufacturers and retailers of all shapes and sizes that want to become mainstream and legally compliant. The BMMR and the Legislature need only create the boundaries and guidelines, with reasonable expectations, and these industry sectors will gravitate toward compliance. This same enthusiastic level of consent is not shared, however, by the black market middlemen. Thus, government resources, which are limited, should be directed accordingly.

 

Colin Ginsburg’s company, Sage Wholesale Distributor, consults on security, transportation, distribution and financial matters for the cannabis industry. He can be reached at distribution@sagedistro.com.

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