Survey provides insight on barriers to entry in California cannabis

A recent survey conducted by the California Growers Association provides insight into the uncertainty that many growers and cannabis business owners are facing as the state prepares to regulate commercial cannabis in 2018. 


Of the 226 people who participated in the survey 193 were growers, 59 were manufacturers, 33 were distributors and 30 were retailers. Almost 32% of respondents were new to cannabis, having been in operation less than 3 years while 17% have been operating for more than 20 years. 

A strong majority (85%) indicated they wanted to participate in the regulated marketplace; 14% were undecided while only 2 respondents indicated that they had no interest in regulations.

However, despite such strong interest in participating only 20% of survey respondents indicated they had a high degree of confidence they would be able to participate in the regulated marketplace. 

What will happen to those who can't participate? 

• 39 percent said they would continue operating and hope for the best;
• 11 percent said they would go out of business but that they had a backup plan;
• 23 percent said they would go out of business and that they had no idea what they would do next. 

What are the leading causes of concern? 

Participants ranked various reasons barriers to entry. The leading cause for concern were local bans followed by the cost of compliance. Land use challenges (parcel size or zoning), lack of market access, too few distribution options, business culture and timeline were the leading cause of concern for about 10 percent of respondents. The price of cannabis was only viewed as the leading barrier to entry by 9 percent of respondents. 

Overall, participants ranked these concerns in the following order:

  1. Local Ban: my city or county has a ban in place. 
  2. Land use: I don't have the right zone or a big enough parcel. 
  3. Cost: I can't afford basic compliance costs.
  4. Market access: Regulated retailers won't buy my products.
  5. Price: I can't sell my products for enough to pay the bills.
  6. Business culture: I have been operating underground and need to transition my business. 
  7. Timeline: Regulation is coming to quickly and I don't have time to meet all of the requirements before January 1.
  8. Distribution: I don't have an option for distributing my products and identifying sales leads. 

Do these concerns impact different segments of the market disproportionately? 

Retailers (43%) and distributors (39%) were significantly more confident than growers (20%) that they would be able to participate; 27 percent of manufacturers were confident they would be able to participate. 

Businesses that had been operating for less than 10 years were much more likely to have a fallback plan. Growers were significantly more likely to have been operating for more than 10 years.

Businesses that had been operating more than 3 years showed significantly higher levels of indecision about whether they wanted to participate in the regulated marketplace. Businesses that had been operating more than 5 years were significantly more likely to have a very low level of confidence that they would be able to participate. 

Recommendations and discussion

  • Focus on local permits. Participation will be a key component of the success of the regulatory experiment in California. If cannabis business don't participate or are unable to participate in the regulated marketplace California neighborhoods and watersheds will not benefit from compliance. It is critical to the success of regulation in California that local permits are made available in more cities and counties prior to the issuance of state licenses. 
  • Cannabis businesses need access to financial services to meet compliance costs. Documented compliance costs range from $25,000 to $750,000 with most paying upwards of $100,000 to prepare for state licensure and obtain a local permit. With limited access to banks and financial services most operators are forced to self finance or rely on hard cash loans or venture capitol. The terms for these loans are often not attractive, this business forced to accept high interest rates or to sell ownership stake in their farm or business. Small business loans should be made available to cannabis business to ensure that the significant one-time costs of compliance do not inhibit participation. 
  • The state should start preparing for significant job loss. We estimate that at least 20,000 business will be displaced and more than 100,000 jobs will be lost. These business owners and workers are highly specialized and will need access to workforce training programs to ensure they are able to secure employment in other sectors. This impact will likely be especially pronounced in rural communities which often already suffer from the highest unemployment rates in the state.  Many of these people also have had issues with the criminal justice system which may exacerbate the transition. Additionally a significant segment of this workforce is seasonal and migrant and the workers are particularly vulnerable. 
  • Lack of confidence is cause for concern. Lower levels of confidence will lead to reduced rates of participation and success. It is in the interest of the state to focus outreach and technical support resources on the segments of the community that have lowest levels of confidence. Growers--and those businesses who have been operating for more than 5 years--are the least confident and face the highest barriers to entry. 
  • Non storefront dispensaries would make a difference. The leading cause of concern among retailers is lack of real estate. Creating a license option for non storefront dispensaries would expand the inventory of appropriate properties and would result in reduced barriers to entry. This could also help mitigate speculative real estate practices.