Altered State: California’s Pot Economy

Altered State: California’s Pot Economy

Altered State: California’s Pot Economy

Despite the defeat of Proposition 19, growers in California are expanding a profitable system for cultivating pot.


In the late 1990s, soon after California became the first state in the nation to legalize medical marijuana, Matt Cohen moved to Oakland and began growing pot for a local dispensary. He ran a large buyers’ club for a while, got involved in a lawsuit that arose out of a federal raid and eventually made his way north to the so-called Emerald Triangle, the lush marijuana-growing haven that includes Mendocino, Trinity and Humboldt counties. These days, he lives deep in the ultra-private hills northeast of the town of Ukiah, doing what he loves best: cultivating organically grown cannabis with boutique names like Malawi Epic Blend, Purple Legend and Purple Urkle.

Cohen, 33, has a long ponytail and wears jeans, patterned shirts and pointy leather boots. He lives with his fiancée and their dog in a sprawling ranch house that has an aquamarine-tiled pool and a porch with a barbecue resting atop wooden planks. Potted sunflowers add a splash of yellow. Off to the side flies a large American flag. But for all these laid-back trappings, Cohen doesn’t really have a hippie vibe. Rather, he seems to style himself, first and foremost, as an entrepreneur. His property is surrounded by $10,000 worth of state-of-the-art security sensors, protection for ninety-nine enormous cannabis plants capable of producing perhaps $1 million worth of pot in a good season. The crop, licensed and regulated by Mendocino County, is grown for Northstone Organics, a medical marijuana co-op that serves more than 800 patients in Northern California. Northstone is a paid-up member of the local Chamber of Commerce; along with fifteen other licensed pot-growing sites in the county, it is increasingly considered a pillar of the local business community.

Under the gorgeous night sky of the remote countryside, Cohen, carrying a long flashlight, offers me a tour of his site. There are rows of Super Silver Haze—a prize winner at the High Times Cannabis Cup in Amsterdam, he mentions. KC Jones plants soar up to fourteen feet in the air. Maui Wowie. Kush. LA Confidential. An English clone improbably named Blue Cheese. I can’t decide if they’re beautiful or intimidating. There’s something primeval about them, something Triffid-like.

Cohen talks about Michael Pollan’s The Botany of Desire, nature’s ways of luring admirers in via gorgeous aromas and other aesthetically pleasing adornments. Rub the ripening buds between your fingers and smell the sticky resin, he suggests, stroking his goatee as he talks. There are lemon smells, orange, sickly sweet air puffs and gentle, almost menthol-like timbres. In Cohen’s freezer, in a shed off to the side of the grow area, are an array of edibles, from brownies to peanut butter cookies to cooking oils, some vacuum-sealed, some in simple plastic containers, all with the requisite warning labels. The future of marijuana distribution, he has concluded, lies in packaging: seal the goods well, and you can store them for months, enough to tide a user over from one harvest to the next.

"We want Mendocino to be the Napa of cannabis," Cohen explains in a soft but authoritative basso voice. "Tasting rooms, cannabiseries—like a winery. You have a huge tourism industry in Amsterdam—and there the coffee shops aren’t legal; they’re just tolerated. And growing is underground. Tourism in Mendocino could be bigger than pot tourism in Amsterdam. Sustainable cannabis production, lots of beautiful smells in the air." One day, he imagines, there could be "bud ‘n’ breakfast" inns and boutique mom-and-pop marijuana farms.

Sure, there’s an element of utopianism in all this. But then again, this is the part of the country that saw a generation of ’49ers come to seek their fortune in gold and more recently brought a generation of hippie back-to-the-landers to its hills, and, farther to the south, a flock of dot-com dreamers to Silicon Valley. Today, from the producers’ perspective, there’s no doubt that a modern-day gold rush has been unleashed. The California State Board of Equalization estimated that the state’s medical marijuana industry brought in as much as $105 million in tax revenue last year. As growers like Cohen scramble to capture their share of this booming market, they are fighting to protect their turf as aggressively as the ’49ers did their gold claims in the mid-nineteenth century—and, in the process, determining the shape of the state’s pot economy for years to come.

* * *

That struggle reached a fever pitch this year as California considered Proposition 19. The landmark ballot initiative proposed creating a locally regulated market for recreational pot for adults 21 and older; providing legal protections for those growing marijuana in areas of twenty-five square feet or less; and establishing mechanisms for local governments to tax sales of the crop.

Prop 19 was the brainchild of Oakland-based marijuana mogul Richard Lee, who drafted the legislation and pumped nearly $1.5 million into the Yes on 19 campaign. The effort reflected his financial interests, of course—as a large grower, he stands to benefit enormously from legalization. But it took off in large part because it also reflected the popular mood. A recent Gallup poll found that a historic high of 46 percent of Americans favor legalizing the drug. And many politicians, following their constituents’ lead, have also made it clear that they don’t view marijuana use as a particularly heinous activity. Fiscal concerns have likely boosted prospects as well: a recent study on legalization by the RAND Corporation’s Drug Policy Research Center estimates that the state could see tax revenues in the $650 million to $760 million range, rising perhaps to $1.5 billion with increases in demand. At the same time, law enforcement costs would decline by several hundred million dollars per year as the state absented itself from the business of anti-pot enforcement. All tempting numbers for a state as cash-strapped as is California.

In the months leading up to the midterm elections, many legalization advocates were convinced they were on the cusp of a historic victory. Through October most polls put Prop 19 ahead. But in the final weeks of the campaign, after Attorney General Eric Holder announced that the government would continue to "vigorously enforce" federal drug laws in California even if the measure passed, support dipped below 50 percent. Deepening the problems for proponents, young voters, who were expected to help secure victory by coming to the polls in big numbers, weren’t enthused by the election.

On November 2, with a low youth turnout and the electorate disproportionately made up of elderly, culturally conservative voters, marijuana legalization went down to a seven-point defeat. In areas like the Central Valley and, more crucially, the conurbations of Southern California, large numbers of elderly voters shied away from the Yes on 19 campaign. Many of these aging boomers fervently support medical marijuana laws, but they aren’t quite ready to make the leap to full legalization. "Why it lost," argues Stephen Gutwillig, the Los Angeles–based state director of the Drug Policy Alliance, "is pretty pedestrian: it always faced the enormous structural challenges posed by a midterm election, by the typical midterm electorate."

But there’s another factor that contributed to the campaign’s defeat, one that reflects an essential and increasingly significant split within the community of California growers. As John Geluardi documents in his new book Cannabiz, old-timers, who had viewed their growing activities as part of a larger back-to-the-land organic movement, felt blindsided by younger, less eco-conscious, more aggressive growers infatuated with the quick profits to be made using hydroponic techniques and raising pot plants indoors year-round. As a result, some of the most vocal opponents of Prop 19 weren’t politicians opposed to marijuana use but small growers and medical marijuana advocates, many of them elderly, who felt that the initiative was intended to corporatize marijuana, a Trojan horse that would pave the way for a market takeover by the "Oakland oligarchs." Windows to their Linux, Budweiser to their microbrews. Richard Lee is as loathed by many growers today as were the Campaign Against Marijuana Planting (CAMP) enforcers of the Reagan era, so brilliantly portrayed by Thomas Pynchon in his book Vineland.

In Mendocino and Humboldt counties, only 47 percent of the electorate voted in favor of Prop 19. "Most were voting no on this out of fear—conspiracy theories that are out there that R.J. Reynolds is buying up the land," says Cohen, who supported the initiative but who knows many people in the industry who voted no. "There’s this consensus among these underground growers that once it’s legalized the prices will drop so much they won’t want to be in the business."

For 55-year-old Syreeta Lux, chair of the Humboldt Medical Marijuana Advisory Panel and the matriarch of a family with three generations involved in the Emerald Triangle pot culture, Prop 19 would have been a mixed blessing. On the one hand, Lux, whose great-uncles were Chicago bootleggers during Prohibition, thought it would have been good to bring growers in from the cold and put them into the tax and Social Security system. On the other hand, she was terrified by the implications of legitimacy.

"I would like to see the best practices of what is already going on in the industry be highlighted and become examples for the rest of the state and country," Lux says. An ideal pot market, she thinks, would be one in which small-scale growers would have a single license for growing, processing and retailing, and could get tax credits for embracing sustainable, environmentally conscious methods. But Lux feared that Prop 19 would have created a rather different situation in which trimmers’ wages would decline from the current rate of $18 per hour to $8 (the recent Teamsters’ move to unionize pot workers might well have stood in the way of such a wage cut) and family growers, no longer able to make a decent living, would instead have to rent themselves out to agribusiness.

* * *

"We thought it was important to air the issues now," says Richard Lee. The campaign, he adds, "achieved a lot of our objectives by making people take the issue seriously. That’s the first step to getting people to pass it in the future. We’ve got a lot of new allies: unions, civil rights organizations. We see it as a good start."

Prop 19 did indeed help forge an impressively broad coalition. And even in defeat, the campaign significantly advanced the national debate about marijuana. A large number of Californians bought the arguments that pot ought to be taxed and that legalizing the drug would deal a more powerful blow to the bloodthirsty cartels running marijuana up from Mexico than would the enforcement activities of the US and Mexican governments. If pot is big business, many concluded, far better to do away with the violence associated with it and render the industry licit—as occurred following the renormalization of the alcohol market in 1933.

In many ways, though, the "good start" Lee refers to occurred years ago. Prop 19 also highlighted the dirty little secret that California and an increasing number of other states are well on their way to creating an above-ground, sophisticated marijuana cultivation and distribution system. The participants in this system do not behave as if they are engaged in criminal transactions on the black market. It is, says Lux, a "gray market," straddling the boundaries of licit and illicit. To a large degree, as long as the participants don’t cross certain informal lines, neither do law enforcement agencies or district attorneys. That new reality was reflected in Governor Arnold Schwarzenegger’s signing of a law, at the height of the Prop 19 campaign, that makes possession of marijuana no more serious than a parking ticket. It was also reflected in a proposed bill, introduced by State Assemblyman Tom Ammiano, that was intended to create a statewide taxation and regulation infrastructure for the sale of cannabis in the event Prop 19 passed.

Increasingly, as cities and counties look to tap into the tax potential of this gray market, large producers are discovering that they have a seat at the table. Even with the defeat of Prop 19, the Oakland City Council is poised to approve four mega-grows, each with about 5,000 hydroponic lights; the council would charge each mega-grow an annual fee of $211,000. Before the election, rumors were doing the rounds in Humboldt County that the big growers of the region had formed a cartel to lobby the county to approve a series of three-acre grows—far larger than the twenty-five-square-foot grows ostensibly permitted by the proposition—the produce from which they would, of course, pay hefty taxes on.

Prop 19’s defeat might have postponed this process, but it hasn’t really neutralized it. Because of the rise in medical marijuana use and the increasing political clout of the dispensaries, as well as growing public acceptance of marijuana, California’s pot industry isn’t about to be delegitimized anytime soon. The outcome of the closely contested election for state attorney general, in fact, makes expansion even more likely: Los Angeles District Attorney Steve Cooley, who ran for state attorney general on the GOP ticket, wanted to rein in the medical marijuana industry; his opponent, San Francisco DA Kamala Harris, showed no such enthusiasm for a new antimarijuana campaign. Harris’s narrow victory should provide medical marijuana advocates space to develop their industry over the coming years.

* * *

In the fourteen years since California voters passed Proposition 215, legalizing medical marijuana and, in effect, decriminalizing pot use for millions of Americans, California’s cities and counties have struggled with how to regulate the industry and shape the market. Some officials passed tough restrictions, trying to drive the nascent industry out of their jurisdictions. Others tried to ignore the issue, hoping that medical marijuana was a fad that would run its course and disappear. In Los Angeles, a sort of anything-goes pot mania developed, forcing city leaders to try belatedly to curb the hundreds of dispensaries that had sprouted up around the city, many hardly bothering to disguise their pot-pimping interiors with a medical facade. (By 2010 an estimated 500 dispensaries were operating in LA.)

A few areas, like Oakland, Berkeley and, most recently, Mendocino County, moved aggressively to establish broad regulatory structures, hoping to bring in large amounts of tax revenue by becoming medical marijuana–friendly. Oaksterdam University, a somewhat seedy and decidedly nonacademic institution in downtown Oakland run by Richard Lee—its entrance is guarded by beefy, tattooed young men who look more like bouncers than university service employees—flourished, as did a rising number of huge dispensaries cum marijuana clubs. Proponents stated the goal of Oakland becoming the nation’s cannabis capital.

At first, under Presidents Clinton and George W. Bush, the Office of National Drug Control Policy threatened to close down the dispensaries and to prosecute users and sellers alike. Sometimes—in actions that bore similarities to the aggressive sweeps of the Reagan-era CAMP—they made good on their threats with heavily publicized raids and trials. More recently, however, under President Obama, the feds have toned down the rhetoric, letting more and more states go their own way (medical marijuana use has been legalized in fifteen states and the District of Columbia, and several others are considering it).

As growers gained limited legal protections, they began to grow more and sell more openly. Psychologically, even if not according to the letter of federal law, the industry began to come in from the cold, its producers and consumers asserting their "right" to dabble with a substance that until recently was as little tolerated by the courts and political establishment as cocaine, heroin, meth and the other illicit chemicals catering to Americans’ narcotic fancies. For politicians in many districts, the marijuana industry became an important friend.

Prices plummeted in the wake of Prop 215, from about $5,000 a pound for high-grade cannabis to about $3,000. Had Prop 19 passed in November, some growers predicted, the prices would have continued to collapse, sinking to $1,000 or even $800 in coming years. That was enough to push many growers into the No on 19 camp. But others were quick to point out that lower prices have, at least in the past, been offset by a huge increase in the volume sold. After medical marijuana passed, more Californians, protected by the designation "patients," were smoking ever more pot, no longer fearful of law enforcement sanctions; and, say producers, an increasing surplus of the state’s weed ended up on the black market elsewhere in the country.

A study by researchers at Humboldt State University found that before Proposition 215 the per-capita energy usage rates in Humbolt were consistent with the state’s average. These days, the authors found, the rates far exceed the state average. The spike, they postulate, has to do with the explosion in the number and size of indoor grows in the region in recent years. Humboldt pot was morphing from being an eco-conscious fringe crop to being an ecologically devastating agribusiness. In Emerald Triangle towns like Garberville, local businessmen quietly asserted, upward of 80 percent of the economy was kept afloat on cannabis dollars.

In the erstwhile counterculture Mecca of Venice Beach, one storefront dispensary after the next set up shop. In the antechambers, marijuana "recommendations" were filled in for any and all "patients" willing to part with a few hundred dollars for an instant (and implicitly guaranteed) diagnosis offered up by a "kush doctor." Elsewhere, the new trade was somewhat more discreet but just as prevalent. Marijuana produce distributors and co-ops began advertising online, many, like Northstone, offering door-to-door delivery service.

* * *

Today, California has more than 300,000 registered medical marijuana users. These residents puff openly, hold conferences, share recipes. They talk about the "right" to marijuana. And they are backed by a network of drug reform groups, from the Drug Policy Alliance to NORML to the Marijuana Policy Project, more than willing to go to court to defend these "rights."

While at least some of the medical benefits attributed to the drug are real—the pain and nausea relief that marijuana affords patients suffering from cancer, Parkinson’s, AIDS and a range of other serious diseases is well documented—the rhetoric around it is rather self-serious. At the 707 Cannabis College, hosted in a small building down a little alley in Garberville, just south of the Avenue of the Giants redwood groves, a NORML staffer lectures an aging audience on the medical uses, down through history, of marijuana. There are interesting trivia points—Queen Victoria was prescribed pot for her menstrual cramps; Robert Louis Stevenson was a fan; Indians used hashish to counter muscle spasms and to treat rabies and tetanus—and there’s also a huge amount of earnestness. Cannabis, in this world, is no longer about illicit pleasure, hedonism, fun. Rather, it’s about curing aches and pains, medicinal rights. This isn’t the pot of Easy Rider or Cheech and Chong; instead, it’s a public service announcement, full of bureaucratese, somewhat dour, deliberately antihedonistic.

In San Francisco, at the end of September, the fabled Cow Palace arena—host to most every large rock music act over the past half-century—even held an International Cannabis and Hemp Expo. Vendors were selling every drug-growing, drug-ingesting invention under the sun; lawyers, bail bondsmen, security system specialists and insurance agents were hawking their wares to growers; and doctors set up shop inside discreet blue-curtained cubicles to sign marijuana recommendations that would allow hale-and-hearty-looking young "patients" access to a smoke- and reggae-filled "Proposition 215 area" adjacent to the parking lot. Sealing the deal, extraordinarily scantily clad "promotional models" lured customers to part with their money at the various booths. It was pot-meets-Vegas glitz.

It was also confirmation of many small growers’ fears that as the pot economy scales up, the eco-values on which it was once based will be lost in the mix, their communities overwhelmed by kitsch tourism catering to weekend stoners who come to have a good time and take some photos before heading home to Levittown.

"How can we hold on to the values that we have had?" asks Lux. "The people who came as part of the back-to-the-land movement were exiting from the mainstream. Now what’s happening is forcing a counterculture industry into the mainstream, and it’ll have to play by mainstream rules. Everybody is freaking out about it."

Her friend Charley Custer—who runs the Tea House Collective, a group of growers determined to resist the indoor-grow business model—agrees. Wiry and tall, decked out in Buddy Holly spectacles, a red-and-brown checked shirt and jeans with a turquoise-buckled belt and a red bandanna poking out of the back pocket, Custer sips his herbal tea, picks at a plate of onion rings and talks about the organic outdoor-grown pot he has cultivated for a generation.

"As Louis XVI so rightly observed, ‘All change is inherently bad,’" he says, half-serious, half-joking. "We didn’t move here to modernize; and I say that as a leftist activist." For Custer, a onetime community organizer on Chicago’s tough South Side, Humboldt’s "precious, ancient, herbal botanical" is at risk of being lost to "corporate captivity," what he describes as "the Babylonian prison of lights and monocultures, bug sprays and industrial pollution." Yes, he says ruefully, a lover pondering a vanishing love, Humboldt’s back-to-the-landers were, and are, generally of privileged backgrounds. But they managed to create something unique, and that something, he fears, would likely be swept away by legalization.

Following the demise of Prop 19, it’s likely that the pot economy in California will settle back into the odd but familiar equilibrium of the gray market. Despite Richard Lee’s optimism that a Prop 19–like initiative will pass in 2012—and despite a poll released immediately after the election that found that 31 percent of those who had voted no on Prop 19 favored some form of legalization or reduced penalties but didn’t like specific language in the measure—the defeat suggests that, absent a change of heart at the federal level, full legalization may not be on the immediate horizon. Yet that doesn’t mean the drug is being pushed back into the closet. In the wake of Prop 19, growers will return not to the darkness of the underground but to the dim lights of the shadows—still vulnerable, in theory at least, to federal raids but increasingly tolerated and even wooed by local and state politicians. The market is in place, and no one in California is talking seriously about tearing it down.

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