Nearly two months after California’s regulation of marijuana, only a small share of the tens of thousands of cannabis businesses have joined the system — threatening the state’s shift to a regulated market and the promise of a billion-dollar tax windfall.

Fewer than one percent of the state’s 68,120 cannabis growers have been licensed, according to a new report published on Monday by the California Growers Association, the state’s largest association of cannabis businesses.

Growers can’t meet the cost of complying with regulations, or are prohibited from growing because of local land-use policies, according to the report, “An Emerging Crisis: Barriers To Entry In California Cannabis.”

“Without broad participation, legalization will look a lot like prohibition,” with many illicit growers, it concludes. “The current system will not achieve its goals without fundamental and structural changes that allow small and independent businesses to enter into compliance.”

The state’s Bureau of Cannabis Control was closed for the President’s Day holiday and unable to comment.

“Taking Humboldt, Mendocino, Trinity, and Sonoma — four leaders at the local level — we can estimate that only about 47 percent of growers in the county were eligible for permits,” the report states.

Local growers

According to the association’s executive director Hezekiah Allen, Humboldt County by comparison is doing well.

“As much as it will be challenging for some folks in Humboldt to hear, Humboldt County is doing quite a good job,” he said comparing the county to the other 12 California counties that are issuing permits.

“There are entire regions of the state with no path forward [for growers].”

But that doesn’t mean Humboldt County’s ordinance and permitting process is perfect, he said.

“The most challenging issue that Humboldt County is facing is on the land use impact and particularly the pre-existing impacts,” he said.

Speaking from his own experience buying land, Allen said expecting small growers, who are already struggling to get by and come out of the black market, to clean up 30 years’ worth of legacy impacts from logging is unreasonable.

“But expecting them to do it overnight without support from the state [is impossible],” he said.

Allen suggested giving small growers up to five years to clean up their property could allow for more permitted grows and a healthier landscape. He said the difference here is “getting things done versus getting things done now.”

“Giving folks a couple of years to bear those costs is critical,” Allen said.

He said another thing that could be changed is the wait time from initial application to receiving the permit.

“The more we reduce that, the better off we will be,” Allen said.

He said large growers might be able to wait longer but that’s not the case for small growers.

“They’re farmers. If they miss a harvest it’s not like missing a paycheck, it’s like missing 12 paychecks,” Allen said.

His last suggestion was to create a unique permitting process catered to the smallest group of growers, whom he refers to as “cottage growers.”

“Consider that segment of the growing community as separate,” Allen said.

He said the smaller impacts of these grows justify a less rigorous process.

Cannabis is primarily grown by small farmers on 2,500 square feet in cultivation, or one-twentieth of an acre. These small growers face the toughest hurdles in complying with regulations, according to the report.

Other counties

Monterey County, for example, is issuing licenses to high-tech greenhouse growers, mostly owned by well-funded outsiders, on the edge of urban Salinas — but is rebuffing small traditional farmers on parcels in the more remote reaches of the county such as Big Sur and Carmel Valley.

As of Feb. 7, merely 534 of the state’s growers, or 0.78 percent, are licensed, according to the new report.

“It’s all about access to capital,” said Kaiya Bercow of Santa Cruz County’s Utopia Cannabis, which has received licenses for cultivation and manufacturing.

“If you are a cannabis operator, you have limited bank access. And you are in a business that is least likely to get external funding, because of risk,” he said. “Investors are hesitant to take legal risk and financial risks.”

Utopia Farms has invested hundreds of thousands of dollars over 18 months to be compliant with local and state licenses, he said.

“It’s what you’d expect when applying to be a business in California,” said Bercow. “However, cannabis has not developed with that process. Most, if not all, cannabis producers in California started without having to apply. They never built a team; they don’t have those internal skills. So they must either hire new employees, learn that new skill set or pay costly consultants.”

Only 13 of California’s 58 counties have passed an ordinance to allow and regulate commercial cannabis activity as of February 2018. An additional six counties are likely to pass a ordinance in the near future and 14 counties are studying the issue with the intent to make a decision in 2018. The survey found that 25 counties have a ban on commercial cannabis activity with no clear plan to reconsider the issue.

The state’s 2016 legalization measure, Proposition 64, set rules for the cultivation and sale of cannabis. Three state agencies are seeking to rein in decades of a freewheeling illegal system.

It downgraded the punishment for growing or possessing large amounts of unregulated marijuana from a felony. In Colorado, in contrast, possession of large amounts of unregulated cannabis remains a felony.

The report urges California to review cannabis regulations and reduce barriers, “or else a staggering number of businesses will fail, while staggeringly few enjoy significant growth.”

“Many of the best growers — the most dedicated and passionate artisans who can add tremendous value to the state marketplace — are the ones being left behind.”

Hunter Cresswell contributed to this report for the Times-Standard.