Out of the Shadows — or Back In?

In Illicit Haven, Regulation Flowers

Yet in Humboldt County, despite his mountain-high stress, people like Chad Steelman exemplify a historic experiment that is arguably working in bringing people out of the illicit market and into compliance.

It is happening in a county of 135,000 residents, where illicit weed is both its heritage and pride. While tourism officials once tried to tout the Humboldt creamery and the region’s grass-fed beef and rich oyster beds, a 2010 local banking study estimated that the cannabis economy was worth a minimum of $1 billion and that marijuana farmers spent $415 million in local businesses, accounting for one-fourth of the regional economy. Those were conservative figures, calculated on the theory of law enforcement eradicating a significant share of the cannabis crop. The liberal estimate, assuming the cops were getting a far smaller percentage, was that Humboldt’s marijuana gross was $2.6 billion a year.

Cops and legalization advocates alike long offered sweeping estimates that as many as 12,000 to 15,000 farms were operating in Humboldt, with but a few supplying the medical marijuana market and most wholly illegal. This year, citing mapping data from University of California researchers, Humboldt officials said those numbers were wildly exaggerated, in part because many properties had multiple gardens. Humboldt County planning director John Ford said the actual number of individual parcels of land producing cannabis in 2016 was 2,365 — still a notable increase from 1,536 in 2012.

This is where the new Humboldt narrative begins. It is a budding success story of a notorious region making strides in shrinking its criminal culture and bringing cultivators into regulation.

In an August memo, Ford announced that the county had received 2,376 cannabis production applications — even more than the 2016 farm estimate. Of those, 488 were withdrawn for failing to provide detailed property and cultivation information. Another 450 were identified as improperly starting cultivation without a permit or violating codes by expanding gardens without approval.

Ultimately, Humboldt wound up with 1,144 farms seeking licensure by August as regulated cannabis producers. “In spite of the struggles everybody is having,” Ford wrote, “Humboldt County continues to innovate in permitting of commercial cannabis.”

Steelman can speak to those struggles. He got a permit for a 39,500-square-foot garden — just under the county’s one-acre (or 43,560-square-foot) limit — after submitting to inspections. At the time, Steelman was still stuck with much of his 2017 cannabis harvest. He was looking for dispensary clients willing to pay the commercial going rate of $1,200-a-pound. In anticipation of legalization, Humboldt farmers had produced a flood of weed. Local prices of cannabis had plummeted from nearly $3,000-a-pound in 2009 to $500.

But, just as he was starting, Humboldt County hit Steelman with a $39,500 tax bill — the local levy of $1 per square foot of cultivation — for his largely unsold 2017 harvest. Another payment was due in April 2018 for the first half of taxes on the next growing season. Steelman couldn’t afford the payments or to hire workers. He had to find licensed retail partners, cannabis distributors and — now particularly so — investors to keep him afloat. The anxiety led to anger.

“I feel as if our own supervisors, and our own planning department, are paying us back,” he fumed. “It’s almost as if they have lost the drug war and, ‘Ha, ha, ha, now we’re going to screw you.’”

And yet, as his 2018 fall harvest neared, Steelman had found 90 California dispensaries to stock his cannabis products, marketed under a premium brand called Humboldt Marijuana Co., with lower-shelf selections called Tiny Tokes by Harry Smallz. He had pending applications for three other Humboldt cultivations (ranging from 6,000 square feet of canopy to 23,000) and an extracts processing lab. He is deepening his wager on legal cannabis, even if it’s not calming his nerves.

“I don’t know if I am going to own my jet — or if I’m going to be living under a bridge,” he tells me.

From the Shadows of Choppers

For years, cannabis-growing residents of Humboldt County lived in fear of wind-whipping helicopters of local, state and federal narcotics task forces — the Campaign Against Marijuana Planting, or CAMP — that flew over the mountains like scenes out of “Apocalypse Now.” Neighbors initiated phone trees to warn other neighbors.

Wendy Kornberg, 41, grew up in Humboldt County. As a teenager, she was packing grow bags with nutrients to cultivate a dozen plants. She heeded the warnings of the adults. “One of the things that we were always told is that when you heard the helicopters, you ran to the nearest tree and hunkered down and didn’t move,” she recalls.

Now it is technology — these days a silent, unseen intrusion — that is scaring the bejesus out of illicit Humboldt growers. In April, the county signed a $200,000 contract with a satellite firm, San Francisco-based Planet Labs Inc., to share beamed images from space revealing new cannabis gardens the county was unaware of. Seeking mounting fines, local abatement notices quickly follow.

“The satellite continuously compares past and present,” says Kevin Jodrey, a veteran Humboldt County cultivator who runs a licensed cannabis nursery, Wonderland Nursery, along the Redwood Highway south of the town of Garberville. “They send out cease-and-desist notices that [up front] are equal to the cost of permitting — and can go up to $500,000 in fines.”

So now there’s a new kind of panic in the hills. “Humboldt County is leading the charge in eliminating illegal grows,” says Terra Carver, executive director of the Humboldt County Growers Alliance, a trade association helping licensed cultivators to partner with retail and distribution businesses. “Humboldt County’s abatement program, I predict, will be more effective than 40 years of CAMP’s helicopters and guns.” She says the hills are already “quieter now.”

Over eight days alone in July and August, county environmental and planning officers joined Humboldt County Sheriff’s narcotics officers, state agents from the Department of Fish and Wildlife and the Regional Water Quality Control Board in sweeping raids on unpermitted cannabis. The headline wasn’t the number of plants eradicated — more than 80,000. It was the voluminous daily fines, ranging from $8,000 sought for water diversion to $70,000 for hazardous waste.

On three small neighboring farms — totaling just 854 plants (plus 91 pounds of seized cannabis) — authorities on August 16 issued violation notices that sought daily fines totaling $256,000. The fines were for unpermitted stream crossings, water diversion, water pollution, trash near waterways, unlabeled hazardous waste, uncovered waste, lack of hazardous materials business plans, improper storage or removal of solid waste and unpermitted grading construction. The tally didn’t include pending fines for sewage violations and junk vehicles. In arguably the least of their problems, two growers were cited and released on criminal counts of illegal cultivation, conspiracy and possession for sale.

The cost of compliance is also prohibitive. Ask Kornberg, now a licensed producer for Sunnabis Humboldt’s Full Sun Farms. “I don’t miss having to hide,” she says of leaving the illicit market behind. “And I don’t miss people coming to my farm and buying my outdoor light-dep [cannabis] for $1,800 a pound and then hearing them head out saying, ‘Oh sweet, I’m going to sell this for $3,200 as my indoor bud!’”

In her turquoise “I am a farmer” tee-shirt, Kornberg proudly manicures the farm’s 18,000 square feet of licensed plant canopy in southern Humboldt. It is situated on picturesque acreage above Gardnerville, which bustles with growers’ trucks and hitchhiking trimmigrants. As she plucks away yellowing leaves from lushly budding plants, she offers an accounting of her fast-flowering costs. It’s brutal.

Start with the canopy size and its $18,000 in cultivation taxes to the county. Add on the state’s $148-a-pound fee on flowers headed to market. Then there’s $11,000 for Kornberg’s county permit application, $2,275 for her annual fee, $6,075 in state fees for two “specialty cottage” grower licenses and $4,820 for a “small outdoor” license. Next, there’s her Fish and Wildlife streambed alteration fee ($1,500), her plot engineering and erosion control plan ($20,000) and the engineering fee for a rainwater retention pond ($6,000). Her farm will have to pay $50,000 to $100,000 for the pond construction and to alter five miles of craggy roads to county standards for a 100-year storm. The venture is seeking investments pay for a $150,000 to $200,000 commercial grade processing and packaging facility required within two years. And, oh yes, there’s $8,000 in lawyers’ fees. In the regulated market, you can’t live without lawyers, Kornberg tells me.

“This year, we’re going to be in the red for sure,” she says. “We’re seeking investors from inside and outside the county. Because there is going to be no other way to do it.”

Yet Kornberg believes Sunnabis’ future is sunny. She isn’t so confident about other farmers, those hesitant to embrace licensing or late to the game. “You need to have a really good brand and a whole team of people to get you from cultivation to sale,” she says. “If you didn’t start thinking about the legal market before, it’s a little late now.”

“You need to have a really good brand and a whole team of people to get you from cultivation to sale … If you didn’t start thinking about the legal market before, it’s a little late now.” -Wendy Kornberg, Humboldt County grower

On the upside, Humboldt County supervisor Estelle Fennell says, “I can tell you that what I hear from the regulated market is that the prices are good, and business is booming for people who have all their ducks in a row.” But she hesitates on whether she thinks Humboldt’s illicit market will diminish. “With enforcement, I think you’re going to see less of a illicit market. I could be wrong. I probably am wrong.

“The downside is difficult to witness,” she continues. “A very significant percentage of growers have not come into the legal market. Are they going to continue to operate around the edges? People say it’s the fees. I think it’s more. The whole concept of working with the government is huge — and it’s difficult for people.”

Last summer, Tom Lackey, a retired highway patrol captain and pro-regulation Republican Assembly member, complained the state was taxing growers back into the illicit market. Along with Oakland Democrat Rob Bonta, Lackey, of Palmdale in Southern California, co-sponsored unsuccessful legislation to suspend the state’s $9.25 an-ounce-of flower cultivation fee for three years. The failed bill also sought to cut the state’s 15 percent excise tax — paid by consumers at dispensaries — to 11 percent.

“I don’t think we’re doing a good job,” Lackey tells me. “Let me remind you: There’s a lot of money at stake here right now. I would submit the total amount is in the billions, not millions.” He says illicit cannabis “costs the people who are trying to go legit a lot of revenue. Unless they can find a reason to get into this legitimate market, they’re probably not going to.”

Hezekiah Allen, executive director of the California Growers Association and a former Humboldt cultivator, says challenges of the legal market are massive. Small growers promoting niche brands are competing for shelf space with the Budweisers of bud — multi-acre, venture capital-backed greenhouse operations licensed in the Salinas Valley or giant grow-light warehouse complexes in the Mojave Desert town of Desert Hot Springs.

There is a bigger problem: California, with 39.5 million residents, may be the largest marijuana market in the U.S. but is woefully short on places to sell it. Oregon, with 4.1 million residents, had 574 licensed retail dispensaries in September. Colorado, with 5.6 million people, had 520. The Arcview Group’s ebullient California forecast had assumed 3,000 licensed dispensaries, plus another 7,500 non-storefront delivery services in 2018. By the start of September, through nine months of legal adult use sales, California had issued licenses to 417 dispensaries and brought only 126 delivery services into the regulated system. The Bureau of Cannabis Control sent closure notices to another 600 unlicensed retailers, some still operating under California medical marijuana collective rules due to sunset on January 1, 2019, others as illicit-marketeers in plain sight.

The California picture is muddled by sweeping bans in marijuana-wary cities and counties. A survey by the Orange County Register this year reported that that only 144 of 482 California cities and 18 of 58 counties allow cannabis businesses of any kind, and fewer than 20 percent of jurisdictions permit retail sales. Alex Traverso, director of communications for the Bureau of Cannabis Control, says the agency is intensely working to get more retailers licensed and convince local governments that the legal cannabis climate is beneficial and safe. “We have been clear that we want to be issuing as many licenses as we can,” he says. “We are aware of how the supply line works and that in our state we have a large number of growers and a large amount of product. Where does that go?”

Allen has a good idea: into the illicit market and far from the restrictions and regulations of the Golden State.

“We’re not actually giving people in the shadows the opportunity,” he tells me. “And our products are leaving. The best weed is going to New York first and Chicago second. It hasn’t changed.”