Feb. 14, 2022

Why Legalizing Cannabis Strengthened the Illegal Market

Let’s get down to cannabusiness.


Nora and Scott find out why the legal marijuana market in California is on the verge of collapse with Vice News correspondent Keegan Hamilton. He talks about his piece, How Legal Weed Sparked a Boom for Outlaw Growers in California. Then, we’ll hear from Darren Story, founder of Strong Agronomy, a California cannabis farm, who shares his perspective as a local industry dealing with illegal market competition.

Hosts: Nora Ali & Scott Rogowsky
Producer: Bella Hutchins
Production, Mixing & Sound Design: Daniel Markus
Music: Daniel Markus & Breakmaster Cylinder
Senior Producer: Katherine Milsop
Director of Audio: Alan Haburchak
VP, Head of Multimedia: Sarah Singer

Full episode transcript below.

Transcript

Nora Ali: So, Scott, you're in a state where recreational cannabis use and sale is legal. What's it like there on the ground, good sir?

Scott Rogowsky: It's pretty cool. You can just roll up to a dispensary and buy weed. I don't smoke. I don't smoke marijuana, but I imbibe it in other ways, occasionally, because you know, it's fun. I don't know the differences in prices. I guess they make fun of people who go to dispensaries as being like tourists. You know? Because I guess if you've lived in California for a while, you're entrenched in the legacy market.

Nora Ali: Yeah, you've got your guys.

Scott Rogowsky: You've got your dealers.

Nora Ali: Your gals.

Scott Rogowsky: You've got your guys, your gals.

Nora Ali: It's very like word of mouth. That's the best form of marketing is you ask your friend, "Who's your person?"

Scott Rogowsky: And that's how it is.

Nora Ali: I remember a couple years ago it was one of the most talked about segments from an investor standpoint, was cannabis companies going public, and the publicly traded ones like Aurora, Tilray, Canopy, their earnings days, the days that they would announce corporate earnings were huge for us to cover because people were so interested. I feel like that's died down a little bit, but it doesn't mean the complications around regulation have died down at all. Clearly it's still a big issue that has not been resolved.

Scott Rogowsky: Well it seems like this can go one of two ways, right? Either the states and governments can get their acts together and fix the problems that are plaguing the industry. Because there's two things happening. They're they're losing tax revenue to all these illegal operations and they're making the current taxes onerous on the people who want to do it legally. So there's a lot of problems to fix. But if they can do that and there could be some model that can be used nationally, because you're right. Those numbers are down. As someone who's bought a little marijuana stock. I can tell you those numbers are very low right now, those stocks. So it may be a good time to buy, but the risk is they'll never figure it out. And that's why we're seeing these depressed stock prices and yeah, it's not quite the attractive investment that it once was, Nora.

Nora Ali: Totally. All right. Well let's get into it. Today we're digging into the marijuana industry, specifically how it's legalization in places like California has had a contradictory effect of actually strengthening the illegal market while taxes, red tape, and criminal activity erode the regulated market. First we have Vice senior reporter, Keegan Hamilton, joining us to discuss his investigation, "How legal weeds sparked a boom for outlaw growers in California." And then we'll hear from Darren Story, a local California cannabis farmer who tells us why this boom is harming businesses like his. From Morning Brew, this is Business Casual, the podcast that reveals the unexpected business story behind everything. I'm Nora Ali. 

Scott Rogowsky: And I'm Scott Rogowsky. Nora and I are here for your ears, bringing you conversations with creators, thinkers, and innovators who can tell us what it all means and why we should care. Now let's get down to business.

Nora Ali: Keegan Hamilton, senior reporter for Vice, welcome to Business Casual.

Keegan Hamilton: Hey guys.

Nora Ali: There have been a lot of developments in the cannabis industry over the past few years when it comes to regulation. And I think it would be useful to just give our listeners some context. So let's start with Proposition 64, which legalized recreational marijuana in California in 2016. What regulations are legal marijuana growers and sellers required to follow under this law?

Keegan Hamilton: So I wish it was as straightforward as there's just one sort of state law that they have to follow. That's true, there is a state law that they have to follow and that's regulated by this California agency called the Department of Cannabis Control. But when California legalized recreational marijuana, they allowed local municipalities, cities, counties to add their own sort of regulations on top of that system. So not only does somebody have to follow the standards that the state puts forward, they have to follow everything that's put forward by the actual place where they live or they're operating their business. And that can include all sorts of onerous restrictions in terms of what type of business you have, what kind of location it is. So there's a lot of red tape and bureaucracy that goes into getting a license. A lot of money, too, that goes with paying the fees that you need to get licensed. And so all of that, these hurdles that the state has sort of set up to get people into the legal market is one of the things that has contributed towards a lot of people just saying, "Screw it. I'm going to stay on the black market."

Scott Rogowsky: Yeah. This whole issue seems like the poster child for the law of unintended consequences, right? Because obviously there were good intentions behind this proposition. I mean, hell, it was voted upon by 8 million California voters. The people of California spoke and they wanted legal pot. Then the government steps in and says, "Okay, how do we facilitate this?" And it seems like they've done all the wrong things in terms of trying to get people off the black market, trying to help social equity into the legal market, trying to increase safety for consumers, trying to bolster the environment with their regulations. Every good intention has seemed to have a very negative consequence. Can you walk us through some of those?

Keegan Hamilton: Yeah, I think it is very much is good intentions and, yes, this is something that the vast majority of California voters, and voters in states across the country, are increasingly in favor of. We want to end the drug war, stop putting people in prison for marijuana. Those are great ideas. But it is having these unintended consequences by making it so hard for people to participate in the legal market in terms of all those things we just talked. Cost. Red tape. A long time to go from applying to actually getting your license and being able to do it legally. That that has led to them saying there's another way that I can make money, and that is on this parallel market that exists where there are no taxes, there are no licenses, and the barrier to entry is only your willingness to put a little risk out there. And that risk has gone down considerably since the laws change because there just aren't the same penalties that there were in place before if you get caught doing this. Now, that's a good thing, right? We don't want people going to prison for marijuana anymore. As a country, we've sort of agreed that's for the best. But until this government can figure out a way to streamline this process and be more inclusive, it's going to contribute to this spillover effect of the black market continuing to thrive. Nora Ali: And you wrote about this particular phenomenon known as the burner distro where license operators themselves are diverting marijuana to the illicit market because that's how they turn a profit given all the taxes and other fees that they have to pay in the legal market. So explain what that phenomenon is, this burner distro.

Keegan Hamilton: Right. This was one of the things that was new to me and I think is a new phenomenon that has sprung up in California under the legal market. And it's basically an old-fashioned front operation where someone obtains what's known as a distributor license. Because in California, as we said, there's a lot of red tape and there's licenses for sort of every person involved in the process. There's a grower, a distributor who's like effectively a middle man who takes the product from the grower to the store. And then like the store is retail, right? So people are getting these distributor licenses and just treating them as burners, like a burner cell phone where it's disposable. And because I'm told the state is not keeping a super close eye on their tracking system, there's supposed to be a system that says like seed to sale. We know where this plant or product is at every stage. They're basically taking it to the burners, to the distribution part of that supply chain. And then instead of sending it to the store, sending it to distributors on the illegal marketplace. By the time the state catches on that license is expired. They don't care. They've moved on to another license, another way of distributing it. So it's a weird phenomenon of like, air quotes, legal weed going to the illegal marketplace. And that is just purely a symptom of sort of the dysfunction of California's legal system right now.

Nora Ali: So you wrote about this. You wrote about the fact that these farms are popping up at an unprecedented rate in San Bernardino County, for example. Just how drastic has the amount of legal farms operating in these areas changed since legalization?

Keegan Hamilton: Yeah. I mean, I've visited several of these illegal farms. One as a guest of sort of the people who are growing illegally just to show that they're not the bad guys that they've necessarily been made out to be. And another time with the Sheriff's Department as they were raiding a very large operation with like 150 greenhouses and thousands and thousands of plants. When I was with the Sheriff's Department and they raided that property, I couldn't help but look around and see just down the road there was another one, and other one. As far as the eye could see these people just basically carved a little flat space in the desert, set up a bunch of greenhouses and put plants in. And even if the Sheriff's Department doubled their resources, they couldn't get to all of these places to forcefully put them out of business. They're trying to respond to ones that they get complaints about from people in the community regarding stealing water and litter and things of that nature. But really there's no way that they can actually raid every single illegal grow operation in their county. It's not physically possible. And there's seizure data of like how many plants they seize per year has steadily increased every year since legalization. Partly that's they do have more resources and manpower to go out there and do it. But it is a direct indicator of how flagrant and plentiful these operations are in the desert east of Los Angeles.

Nora Ali: And then is it easy for those growers who do get busted to start their business again? Is it easy for them to just pick up operations later on?

Keegan Hamilton: So the police feel that the law change has emboldened people because there's no threat of jail time, or reduced threat of jail time. We were told that most of the people who were arrested at that massive grow operation were going to get a misdemeanor citation and be released that same day. Again, is this necessarily a bad thing? Probably not. Like they're just growing marijuana. It's a victimless crime in that sense. But what the police were advocating for is like going after the landowners who allow this to happen on their properties and levying more sort of financial penalties, because people are making a lot of money off of these illegal farms that can be up and running as quickly as a few weeks, a month or so after they're raided.

 

Nora Ali: Let's take a quick break. When we come back, more with Keegan Hamilton. Okay. Keegan, just comparing again, the illegal market to the legal market a little bit more. In your article, you talked about the fact that there are these, quote, illegal farmers with good intentions. But just to reiterate and maybe get a little bit more specific, what are the barriers that are keeping those farmers from joining the legal market?

Keegan Hamilton: The folks that I went and visited, it's as simple as the county that they're in is one of roughly half of the counties in California that does not allow any type of commercial or retail marijuana activity. California state law said anybody who's an adult can possess and use marijuana. But a lot of the regulations of the commercial aspects of it, the growing and distribution, were left to local authorities to sort of regulate however they see fit. And half of the state decided to go with defacto prohibition and have bans on allowing any type of growths for commercial purposes. So these folks said, "I would love to go legal, but my county won't even allow it. There's no pathway for that to happen." And even in places where it is legal, you face a lot of times, just beyond the red tape of getting licensed, the impossibility of finding a place to open your business. In the city of Los Angeles, for example, there are a lot of onerous zoning restriction that say you have to be X feet away from a park, a school, a church. So that knocks out a lot of places that could work as suitable businesses for people to run their operations. And eventually landlords have caught on and said, "I can charge a fortune for a property that is able to use for marijuana." And that's resulted in some people being straight up priced out of being able to get the space that they need to operate legally.

Nora Ali: And even these programs that are intended to make it easier for minorities, for example, to enter the legal market, like the social equity programs, even that has had unintended consequences. Can you talk about why rollout wasn't optimal, the social equity program specifically?

Keegan Hamilton: Yeah. Social equity is another one of great intentions with unintended consequences, where the state sort of left it to local authorities, again, to set up programs that put victims of the drug war, people who were affected by marijuana arrests or policing in the past, at the front of the line when it comes to licensing, to sort of right the wrongs of the past. In effect, though, all of these restrictions that we're talking about have kept people who want to get licensed from being able to actually open their business. It's only a handful in the city of Los Angeles when we were doing our reporting. Over I think 200 people had sort of applied, been vetted. The city decided these people are qualified. Let's give them a license. But because they couldn't find those adequate spaces. There's still other problems. You can't get a bank loan because of federal law. There's no training like there is in other fields to help people get businesses off the ground. So I don't remember the exact number offhand, but it was fewer than 10 that were actually able to start their business. And it's a shame. And what you're seeing instead is people who say, "Forget this, I have the license, I'm just going to sign it away to somebody else." So you get a qualified minority business owner who maybe wants to do it, but decides it's too much trouble and says, "I'm going to let this company that has bags of money and venture capital backing, let them deal with it because they have the experience, and this is too much hassle for me."

Scott Rogowsky: Again, it seems like there is not a single aspect of the system that's working properly, or is there? Is there anything you can point to, Keegan, where the government has done the right thing or there is no unintended consequence?

Keegan Hamilton: I mean, look, I don't want to overstate the problem too drastically. The sky is not really falling here. I live in California. There's a dispensary down the street for me where if I'm so inclined, I can walk down the street and buy marijuana legally, right? Something is still working at that level. Right? But the efforts to be so inclusive that we're delivering on the promise of putting the black market out of business is just not there yet. And maybe it's too soon. Maybe it's just this system is inherently flawed and a bunch of things need to change, including the taxes. But right now California's broken. And I think, as other states across the country look to join the club of legalization, there's some lessons to be learned here about how not to do it. I have one person actually say that to me, like "There's lessons to be learned from California, and most of them are 'don't'".

Scott Rogowsky: Is this a unique problem to California? Or is there a particular state that has figured it out, maybe learned some of these lessons already? Is there a model that California can look to to fix their problems and maybe someday a national model we can all use?

Keegan Hamilton: I mean, Washington State is one that folks have pointed to. They were one of the first states to legalize, at the same time as Colorado. They had some growing pains in the same way that that California did in terms of black market lingering there. But it's been almost six years now, and the market has sort of stabilized. The state is really good of about holding license holders accountable, so that burner distro kind of thing can't happen there. It's a lot easier in Washington because it's smaller, right? California is massive, massive. So as other states that are sort comparable or smaller size come online, they can look to examples like Washington, Colorado as well, as ways that it can work. It is proof that this can be done in a way that doesn't embolden the black market and potentially antagonize people on the right, give them fodder to say, "Why are we legalizing in the first place?" You can look around the country and see that it is working. It's not perfect yet. It is causing problems. I mean, Oregon is another state like California that is seeing a lot of spillover to the black market right now.

Nora Ali: What are some of the main things that legal growers in California are asking for? Our listeners will hear from another guest on this episode who is a cannabis grower, who is one of the many folks who sent a letter to Governor Gavin Newsom of California. From your reporting, what have you found is kind of the main sticking points that they would like changed?

Keegan Hamilton: I guess it's no surprise when you talk to a bunch of business owners and their main gripe is taxes. But in this case it really is. Everybody complains about the taxes and that's because in California, and a lot of other states too, as they've legalized lawmakers have gotten dollar signs in their eyes and saying, "This is a a cash cow for tax revenue." So California taxes marijuana at every step of the supply chain, and the end result is like an effective tax rate of something like 40%. I've talked to some folks who are like, "How is it that a barrel of oil produced in California pays less tax than a jar of marijuana that you buy at the store?" And other folks who said like this is the only industry where they tax farmers for growing their product. So those folks who contacted the governor, their message was across the board. Like we got to do some about the tax situation because we can't turn a profit when we're paying all these taxes and getting undermined by the illicit marketplace that's not paying any taxes. So that's the number one thing. And then fixing the social equity programs is also something that has really raised a lot of concerns in this community, and delivering on the promises of sort of fixing the harm of the drug war to the extent that is possible. Right?

Nora Ali: It just seems like an economic mistake coming up with these tax requirements that don't properly incentivize growers to join the legal market. You'd think someone would be doing sophisticated modeling to figure this out. Why do you think the government of California got it so wrong? Or is it just because it's a new market and states are going to have to make mistakes before they figure it out?

Keegan Hamilton: I think as lawmakers, you hear like, "Oh, marijuana, illegal drugs, that's money," right? Like it's valuable, we can extract money from it. And by putting those taxes on it, it would make sense if there were no competitive market that didn't pay any taxes. So the reality is like, eventually the taxes could go back up, right? But you've got to start it from a point where it can compete with the existing marketplace. And I said earlier that this is a victimless crime when people are growing illegally, not paying their taxes. And you're right, that it's not quite true because also the taxes go towards useful things. California is spending some of this marijuana tax revenue on education for young children and child care and things like that. A lot of it goes towards more enforcement of helping sheriffs and educating youth with anti-drug programs and yada yada yada. But the victim is this tax revenue does go to things that actually benefit people who live in the state of California.

Scott Rogowsky: Well, when it comes to fixing the cannabis industry in California, I guess we're all California dreaming for now, Keegan, until some better. You like that. That took me all episode to think of that one. Thank you for joining us on Business Casual, Keegan. We're going to take a quick break from you as we hear from Darren's Story, the CFO of a regenerative cannabis farm in California. But Keegan, we're coming back to you for the Quizness Casual. So stick around. Thank you for joining us on the show, Darren. What is your story? Can you start by telling us the work you do with Strong Agronomy and Coastal Sun Farms?

Darren Story: I'm a plant geek. I just love plants. They're my life.

Scott Rogowsky: Hell yeah.

Darren Story: Plant-based diet. I believe in the healthy medicinal aspects of plants. Strong Agronomy is our parent company. It's an umbrella that manages different farm projects. Coastal Sun is our consumer-facing brand. So I'm the CFO, one of the founders, also just kind of a Jack-of-all-trades. We're a startup, so there's a lot of things I do and not much I don't do. But anything I can't handle, I just hire somebody that's equally as talented, but maybe has a different skill set.

Nora Ali: That's smart. And as CFO, you're intimately familiar with all of the regulations, taxation, finances, obviously of the industry. And it's been a challenge in the state of California. So in December you had joined a group of other leaders in the cannabis industry to write a letter to Governor Newsom saying that the California cannabis system is a, quote unquote, nationwide mockery and a public policy lesson in what not to do. So what was that last straw that inspired the group to get together and write this letter to action? What were some of the issues that you saw arising?

Darren Story: The last straw is that the consumers have left. So we've been able to manage our margins as a producer as would be expected. As we scale, we become more efficient and we can continue to cut costs and lower the prices to the consumer. But the crazy thing is the consumers weren't realizing a lower cost of product at the retail register because taxes kept going up. So you have this crazy confluence of events where you have taxes increasing, we're lowering our cost and our price, the state's making more and more money off of every single sale, and then we have inflation rip, and so our prices to produce are going up dramatically. It's squeezing our margins. And then the consumer just vacated in August of 2021, and it carried through the fall. We think the biggest effect was the stimulus checks just stopped coming in. And then people had to start going back to work. So they couldn't sit here with headphones and webcams on and be ripping in between their video sessions with their bosses. So they're starting to go back to work. They're not buying as much cannabis. And then the state comes out and says, "Oh, we're going to raise taxes again." When our retailers started noticing the foot traffic disappear, it was down 31% July to August from the year before. We're like, "Uh-oh, something's got to happen." So we started as a group. When I say we, it's the State of California Cannabis Coalition. It's basically every company is involved. We as a legal industry are very consolidated when it comes to our consumers because we're California, we want to do this right, and we think that we have a chance to capture consumers throughout the whole nation if we do it right. So when we noticed our consumers stop going into the retail and also some of the press was telling us, "These consumers aren't not buying cannabis right now, they're just not buying it from legal retail sources." As a selfish producer, it would've been beneficial for me to have taxes continue going up so I could squeeze out some of the other competitors. But it's not beneficial for us to not have consumers. We have to have some sort of consumer traction. And if they're using illicit markets, then it's really the final straw. And so we're making a plea to Gavin. He's been a champion of Prop 64. He said at the time that we pushed it through it was going to be a process that unfolds over many years and requires sustained attention to implementation. That's a direct quote. And we're calling him out on that because he's made a couple comments over the last couple of years that he was going to help us get back on track. And he just hasn't had the chance or the resolve to address it. At this point it's California's opportunity to be a leader nationwide and develop regulations that can be a model for federal rollout. And right now is just the laughing stock. The only thing growing is taxes and the illicit market, and all the legal operators growth has come to a complete standstill.

Scott Rogowsky: One of the main purposes, the main intentions, of the Prop 64 was to decrease that black market and drug cartel activity. Although then you read only one in three Californians have access to legal weed. So is it just the price? Are there other obstacles that people have to buy? Tell us about the weed deserts in California.

Darren Story: Well, like you said, the voters overwhelmingly approved, but most jurisdictions have failed to establish any sort of program, which would allow, the most important is allow for retail access. That could be either delivery service or brick and mortars. And so, again, I haven't bought weed in the black market since I was like 13, but my understanding is it's a lot easier these days because there's a lot of, quote unquote, delivery services where they're free to advertise on various sources, or just your buddy with a text, and it's relatively easily. And in a lot of those jurisdictions where they didn't develop a program, they thought, "Well, we're just going to say no to weed," even though the voter's overwhelmingly approved it. Marin County's one of them. So are people in Marin county not buying weed? No, they are. Most of them aren't driving over the Richmond Bridge to get it. They're just buying it from, we call it the illicit market because people hate just calling it the black market, because it's a little more smooth. You know, you're not buying it from someone at the street corner, it's a delivery service or whatnot.

 

Nora Ali: It's a legit business, right?

Darren Story: Yeah. Well.

Nora Ali: In the way that it functions. Right?

Darren Story: No license but legit. Yeah, exactly.

Nora Ali: Yeah.

Darren Story: Yeah. So our approach to tackling this problem, these issues with getting our industry back on track is really three pronged. We're trying to initiate legislative change, which would lower taxes or alleviate them, and expand local access to those weed deserts, as you mentioned. And when we say about lowering taxes, remember there's still sales tax on any product that's sold at any retailer in California, regardless of whether it's cannabis or not.

Scott Rogowsky: Hefty.

Darren Story: So there's still going to be taxes. It's just the excise taxes on top of that, which as I mentioned, the burden keeps growing relative to the cost of the product. And it's not sustainable.

Nora Ali: Tell us a little bit more about how the experience has been for you and your employees. There's an article in Wikileaf that noted that you had to lay off half of your staff this year. And you had mentioned that you don't know any farmers who aren't just barely skating by. What has that been like for you and your decision making process around your employees, especially at your farm?

Darren Story: Yeah, it sends ripple effects through the entire community. It's extremely challenging because it's not just my employees, but it's all the vendors that depend on us to be successful. The last few years, there was definitely influx of good feelings and capital as some of these farms got established, and we were doing pretty well. We also grow organic blueberries, so we have some other crops. And we've always tried to diversify our staffs. They can be cross-trained in various skills.

Nora Ali: Is that common for cannabis farms to have other crops? To sort of have other lines of revenue that aren't maybe tied to all these legal issues, regulatory issues?

Darren Story: Yeah. Not yet. Not yet. But there's a few, and we're hoping to help establish more and set a model. We look at cannabis as a diversified crop offering. Yet still a large portion of our business was supplying other farms with nursery stocks, seedlings and nursery clones. And the cultivators just dried up. A lot of them went away, so a lot of that staff had to leave. I also think that there was a lot of attrition. The excitement has kind of dwindled. Like there was definitely a California green rush, but I feel like the green rush luster kind of wore off last year. So there's been attrition in our industry through layoffs, and also people just rotating out of cannabis and agriculture in particular. We've seen a lot of this, and it's having a deleterious effect on the agricultural communities, which Santa Cruz County is still heavily agriculture oriented.

Scott Rogowsky: So if California is the nationwide laughing stock of the cannabis industry, are there other models that you could look at and maybe just pitch Governor Newsom, and "Let's just try this. It's working for Oregon. It's working for Washington," or wherever else?

Darren Story: Yeah. I don't know. Not yet. Everybody has some issues. Washington starting to address some of their bottlenecks of the track and trace program by doing it themselves in-house. That's not a bad idea. Oregon has a lot of issues as well. They're working on some things. We think we can still set the model. We think the way to do it is to have a long-term approach. It shouldn't be a quick tax money grab obviously, but we have to start somewhere, and we know it's not helping. Now they're having a really poor effect on the consumers. So that's a big problem. In my opinion, I think that this is really going to be a call to New York because I'm not so sure that they're not going to have the exact same problem. They don't have the cultivation yet established that we do, but they have a great farming area Upstate. But the thing is New York gets most of their cannabis from California, and some from Oklahoma. And same thing. If they tax too heavily or they make it overly burdensome for licensed operators to get established, they're going to have the same issues. So this is something I think that California needs to address and tackle and continue to refine until we figure out how to make it so the leverage has turned where it makes sense to be a licensed operator, which it should. Because if we can scale, as a licensed operator you could scale. You can improve your cost of goods and your margin should be able to either increase or you can gain more consumers by lowering your price to the consumer.

Scott Rogowsky: Yeah.

Darren Story: That would be a nationwide thing.

Scott Rogowsky: With the decriminalization of marijuana as well, going from a felony to a misdemeanor. Now there's, what, a $500 fine slapped on these illicit growers that they'll gladly pay to continue operating in the dark.

Darren Story: Yeah. The regulators will tell you. Well, it's more than that, but sure. So the civil penalties can be $500, but they do have the Department of Fish and Wildlife and the Water Board that can come get you for environmental penalties, which can be significant. The problem is there's nothing levied on the landowner or the actual facility. So it's really easy just to set up a shell LLC or something, and that LLC gets hammered with a bunch of environmental fines. But that's not to say I can't just lease that property back out to one of my buddies who starts up the next day. So those fines have no teeth. There are crazy numbers you see, like $50,000 a day. But they're not putting anybody out of business. That's been the frustration of a lot of the local law enforcement officials who are busting the same facility over and over again. And so that's another thing that we think should be addressed. I'm not a big enforcement person. I believe in economics. I believe economics will prevail. There's not a lot of people making bootleg liquor anymore and selling it on the black market just because it's not financially feasible. So I think that's the way to attack it. But I do know that if you are going to do enforcement, the jokes of the fines, as you mentioned, aren't going to matter until the landowners or someone that actually has skin in the game has to start paying it. You know? 

Nora Ali: To that point, since you said economics will prevail and you believe in economics, what are some of the ways to incentivize licensed operators? What are you asking for from Gavin Newsom to give legal growers and retailers truly the most robust chance at survival?

Darren Story: Sure. It's really easy for us. We want lower taxes and more retail access, really expansion into the weed desert. There's a lot of stores that are concentrated in some of the areas, you know, Los Angeles and San Francisco and actually Santa Cruz County. But we need to be able to get into some of the other areas that don't have the access. That's just the biggest lift for us right now. And I really think also helping some of the equity operators. They also were supposed to get rid of a lot of the convictions and that hasn't moved as fast they wanted. So we're really just looking for any sort of level playing field. I don't think it's also a good business model to depend on government for your success, but at least don't make it punitive to be a legal operator.

Scott Rogowsky: That sounds like maybe they should have subsidized you in the first place. Right? Just to help things out, to get things going. Really to unroll this the right way, so they can truly come out with rock bottom prices for the market to drive out those illegal growers. And then gradually over time you can hike the taxes like Netflix raising their prices every year or so. We're not going to stop watching Netflix. We're just going to pay the extra dollar, you know?

Darren Story: But the content's getting better. Right?

Scott Rogowsky: Well, those strains are getting better.

Nora Ali: Strains got to get better.

Darren Story: Yeah, exactly.

Scott Rogowsky: What's your favorite strain right now, Darren? What are you rocking with?

Darren Story: Well, the best for us has been GMO Garlic Cookies, which is a misnomer. It means garlic mushroom onion. It's not GMO. We're organic producers, but it's just been stable. It grows very well for us. The consumers like it. We also have one we launched called Kim Kardashian, which has a similar profile.

Nora Ali: Do you partake in the naming of these? It's great names here.

Darren Story: Yeah. It's California. It's a group effort. It's just crazy.

Nora Ali: It's kind of the best part.

Darren Story: Believe me, we've just had many, many hours of entertainment thinking of this stuff, or just asking.

Nora Ali: Your branding is very beautiful. I commend you on that. Well, I think we'll leave things there. Darren, this has been fascinating and we wish you the best of luck. Darren Story is the CFO of Coastal Farms and co-founder of Strong Agronomy. Thanks so much for joining us, Darren.

Darren Story: Yeah. I appreciate you guys having me on. Hopefully we get this right, and we roll it out, and we make California model for the rest of the nation, and everyone wins.

Scott Rogowsky: Well now it's time for Quizness Casual, the Business Casual quiz. We're going to throw it back to Keegan Hamilton who educated us on how broken the California cannabis industry is for a little quiz, all about the wonderful world of weed. And Nora, of course you are going to be teaming up with Keegan on this collaborative contest. Okay, you ready for this one?

Nora Ali: Can't wait.

Keegan Hamilton: Fire away.

Nora Ali: Counting on you, Keegan.

Scott Rogowsky: Keegan, your beat is drugs, crime, and prisons. So you know this stuff pretty well. Are you yourself a consumer of the California legal weed industry?

Keegan Hamilton: I have indulged in the past, I can't lie about that. I work at Vice, for God's sakes.

Scott Rogowsky: And Nora, I know you're a big pothead just toking up a storm over there.

Nora Ali: Don't say that. Mom, if you're listening, he's joking.

Scott Rogowsky: I'm joking, of course. She plays the violin for crying out loud. Okay, here we go. Qumero number uno, which of the following is not an industry recognized marijuana strain: bright burst, white gushers, kick flip, or purple swish?

Keegan Hamilton: I'm consistently stunned by the dizzying array of names that people come up with. This is like anything is possible. You can say anything, any combination of words and I'd be like, "Yeah, it's probably a strain." What was the first one again?

Scott Rogowsky: Bright burst.

Keegan Hamilton: Bright burst.

Scott Rogowsky: Not Breitbart.

Nora Ali: Not Breitbart.

Keegan Hamilton: Bright burst strikes me as the one that I just have a hard time seeing a weed grower being like, "We're going to call it that."

Nora Ali: Okay. Done. Locking it in. Bright burst. Are we right, Scott?

Scott Rogowsky: Well, white gushers is a slightly indica dominant hybrid created as a phenotype of the infamous gusher strain known for its insanely frosty appearance. Kick slip is an evenly balanced hybrid. It's perfect for anyone who wants a quick boost before they settle and relax for the rest of a lazy evening. Purple swish is an indica dominant hybrid created through crossing the classic purple urkle with a superpowered rare dankness number two strain. But bright burst is nothing. It's not the name of a marijuana strain.

Nora Ali: Yay. Wow.

Scott Rogowsky: You got this one right.

Nora Ali: Keegan. 

Scott Rogowsky: Blue burst however is. Blue burst is. But bright burst and Breitbart are not strains. So Congratulations. You're one for one, Keegan. And pulling that one out. He's all about thinking like a marijuana grower.

Nora Ali: He's a thinking man.

Scott Rogowsky: Thinking like a hybridizer, right? Crossing these strains together. Okay. Here it is. Q2: Which of the following historical figures is known to have grown hemp. John Lennon, George Washington, Van Gogh, or Mark Twain?

Keegan Hamilton: It's GW on the farm.

Scott Rogowsky: You know this one straight up.

Nora Ali: He just knows the answer. Okay. Locking it in. George Washington,

Keegan Hamilton: Hemp was big in colonies back in the day. Hemp was a key product.

Scott Rogowsky: That's why they call it money earning Mount Vernon. Money earning Mount Vernon. George Washington cultivating hemp in Mount Vernon for industrial uses. He did in fact do it throughout his lifetime. Okay. You're two for two, Keegan, and this is impressive.

Nora Ali: Wow.

Scott Rogowsky: We're on a good streak here with our guest, Nora. We've got some smarties here. But can you name this last one? Can you get this right? Q3: What is the name of Jay-Z's marijuana brand? Carter cloud? Bloom room? Monogram? Or Ivy?

Nora Ali: Not Ivy. It can't be Ivy.

Keegan Hamilton: Isn't his child named Ivy? It would be weird to name it that.

Nora Ali: Correct. Blue Ivy. Yeah, no. Yeah. Why don't we know this? We should both know this, Keegan. It's Jay-Z, for crying out loud.

Keegan Hamilton: Carter cloud, I guess. I don't know.

Nora Ali: I feel like that's one that our production team would make up and try to trick us with.

Keegan Hamilton: Monogram sounds very Jay-Z. Like he's like trying to project classiness without saying that it's actually expensive.

Nora Ali: I was feeling Monogram.

Keegan Hamilton: There's also like a little a play with the gram in monogram, and like grams of weed. 

Nora Ali: Right. Clever.

Keegan Hamilton: I like it.

Nora Ali: Let's do that. Okay. Let's lock it in. Monogram.

Scott Rogowsky: Monogram, monogram, monogram. You're right.

Nora Ali: Yay!

Scott Rogowsky: Jay-Z's new luxury marijuana brand is called monogram.

Nora Ali: Woo-hoo.

Scott Rogowsky: He was actually criticized for selling singular joints called the OG hand roll for $50 under the monogram brand. So there you have it.

Nora Ali: Wow.

Scott Rogowsky: It is expensive, but you're getting that class that you talked about, Keegan. It's all about projecting that upper echelon taste with Monogram. Well, Jay-Z may be a businessman, but you're a quizness man, Keegan. Congratulations on getting three for three here.

Nora Ali: Wow. A rarity.

Scott Rogowsky: Sweeping the quiz, Quizness Casual. Thanks for playing and thanks again for our great chat and your great reporting.

Keegan Hamilton: Thanks for having me, guys.

Scott Rogowsky: We love hearing from our BC listeners. So please hit us up. We're working on an upcoming episode about the business of hip-hop and we'd love to hear your thoughts. Are you a hip-hop head? Can you recite all the bars to Sugar Hill Gang's "Rapper's Delight"? That would be impressive. We'd love to hear it. So send us an email at businesscasual@morningbrew.com or DM us on Twitter @bizcasualpod, that's B-I-Z casual pod, with your beats.

Nora Ali: You can also leave us a voice memo on our website, businesscasual.fm, or give us a ring and leave us an old fashion voicemail. Our number is 868-62-295-1135. And as Business Casual grows, we are excited to get to know our listeners old and new. Drop us a line, and don't forget to leave your name and where you're calling or writing from, so we can hear from you in a future episode.

Scott Rogowsky: Business Casual is produced in a greenhouse outside of San Bernardino by Katherine Milsop and Bella Hutchins. Additional production, sound design, and toking by Daniel Markus. Alan Haburchak is the director of audio of Morning Brew. Sarah Singer is our VP of multimedia. Music in this episode from Daniel Markus and The Mysterious Breakmaster Cylinder. If you like what you heard, please follow Business Casual on Spotify, Apple Podcasts, or wherever you go for that dankness. And we'd love it if you give us a great rating and review.

Nora Ali: Thanks for listening to Business Casual. I'm Nora Ali.

Scott Rogowsky: And I'm Scott Rogowsky.

Nora Ali: Keep it business.

Scott Rogowsky: And keep it cannabis.