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Pacific Coast Business Times: A budding industry: Tri-Counties becoming hub for marijuana production

January 04, 2019
Santa Barbara, California – Published 1/4/2019
By Marissa Nall & Annabelle Blair

The Central Coast is emerging as a California leader in the cultivation of craft marijuana.

Leading the way is Santa Barbara County, which has become a major producer of cannabis. New regulations taking shape at the state and federal level could allow for expanded uses of hemp and cement the region’s reputation for high-end products.

Tourists drawn to Central Coast wines and craft breweries may also find themselves visiting for the cannabis.

The Central Coast has logged more than 1,500 temporary licenses in 2018, held by some 90 organizations, clustered mainly in the cities of Buellton, Carpinteria and Lompoc, according to data from CalCannabis, a division of the California Department of Food and Agriculture.

Nearly 30 retailers have also been granted licenses across Goleta, Grover Beach, Lompoc, Ojai, Port Hueneme and Santa Barbara, joined by two dozen distributors, a testing company, and a handful of small businesses that have active licenses with the state. The city of San Luis Obispo announced it will open applications for up to three retail storefronts and 70,000 square feet of total cultivation, among others, on Jan. 7, having approved a fee structure and permitting criteria.

Meanwhile, a statewide effort to create appellations that would indicate precise growing regions, standards and varietals of cannabis products could help the Tri-Counties develop its budding brand, even as the 2019 Farm Bill provided the first federal move toward legalization of cannabidiol, or CBD, products.

Future of Hemp and CBD

The Agriculture and Nutrition Act of 2018, referred to simply as the Farm Bill, removed hemp and non-psychoactive hemp CBD from the Controlled Substances Act and allowed states to develop their own regulations for its production, so long as they meet certain federal reporting requirements.

A statement swiftly followed from U.S. Food and Drug Administration Commissioner Scott Gottlieb, outlining the agency’s intent to enforce the products under Federal Food, Drug and Cosmetic Act rules, paying particular attention to health and dietary claims made by producers of CBD products.

“Given the substantial public interest in this topic and the clear interest of Congress in fostering the development of appropriate hemp products,” the agency plans to hold public stakeholder meetings on how to market the products and “make these legal pathways more predictable and efficient,” the statement said.

As it builds its regulatory strategy, the FDA will “continue to evaluate and take action against products that are being unlawfully marketed and create risks for consumers,” Gottlieb said, adding that “At the same time, we recognize the potential opportunities that cannabis or cannabis-derived compounds could offer.”

Hemp production had already been legalized in all but three states at the bill’s passage. Recreational cannabis was legal in 11 states, 43 have allowed medical marijuana uses, 17 have provisions allowing for medical CBD and 13 have passed some form of decriminalization laws, according to information published by NORML, the National Organization for the Reform of Marijuana Laws.

Though it’s a very different product than what is grown at Carpinteria greenhouse operation Autumn Brands, “the hemp being part of the farm bill is a huge first step, recognizing some of the benefits of this plant,” said CFO and company namesake Autumn Shelton.

“I think it’s only a matter of time,” before cannabis is legalized or de-scheduled entirely, she said. “It’s not if, it’s when.”

That said, the actual rollout of products under the regulations will be a long time in coming, said Jason Kallen, owner of City Boy Farms and executive director of NORML’s SLO chapter.

“All it did is give them the ability to start regulating, and now they have to put regulations together,” Kallen said. “People kind of made it seem like the farm bill opened it wide up for hemp, but it’s more complicated than that.”

Ideally Situated

A formal appellation system may also take some time, but Central Coast growers have already begun marketing under their county of origin and said the system could convey some of the same brand benefits as that of the wine industry, with which it shares soil and a temperate climate ideal for growing the two cash crops.

“It’s exciting to see so many growers flourish and really take ownership of this crop,” Shelton said.

Yet, it’s not a one-for-one comparison, she added. Regulators will have to decide how granular to make the growing regions — such as mountainous or coastal varietals — as well as how to include potted, hydroponic or indoor plants.

“There are going to have to be some alterations to how a normal appellation program might be set up,” she said, but “being able to designate and say where the product comes from is really important.”

If it wants to cash in on the brand with tourism the same way the wine industry has, Santa Barbara County will also have to hammer out new rules for tours, Shelton said, including the current 24-hour delay in purchasing that could hinder sales to day trippers and cruise ship passengers.

“I think that’s the future,” she said. “I think there’ll be a day where there’ll be certain tours that can be done on the farms. We just need to make sure everything remains secure. I think we would like to do that one day and bring in the tourism so people can really understand and appreciate this plant.”

Sited between the Bay Area and Los Angeles and San Diego markets, the Central Coast is ideally situated to take a leading role in the industry, Kallen said. Moreover, a firmly established agricultural community slashes startup costs compared to other regions and cuts down on time to market for many growers.

“It might be a little while off, but I definitely think the future of cannabis is in Central California and not in the Emerald Triangle,” he said, referring to a growing region in Northern California. “The Central Coast is already very heavily invested into general agriculture. That infrastructure is already in place.”

Santa Barbara County permits accounted for around 10 percent of California’s commercial sales in 2018 related to cannabis farming, production and research and development, Radius Group Commercial Real Estate Partner Brad Frohling reported at a 2019 real estate and economic forecast.

That has translated to a significant boost in property values that meet the appropriate criteria in both North and South county areas, he said.

While Lompoc, San Luis Obispo, Carpinteria and Goleta have warmed up to growing the crop, a lack of CRE spaces for manufacturing and testing cannabis products is problematic for continued growth, said Kerry Mann, an agricultural broker specializing in cannabis and hemp at Pacifica Commercial Realty.

Sales are limited to within the state, and most of the Central Coast’s products are consumed locally, Kallen said. But, with only around 700 retailers licensed statewide, compared to thousands of cultivators, “It’s going to take municipalities issuing retail sales, because you have to get the product out to the people.”

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