California Pot Dispensaries Slash Prices in Regulation Compliance Scramble

At The Apothecarium, a pot dispensary in San Francisco, chief marketing officer Eliot Dobris pops open the lid of a small black cylindrical container to reveal an even smaller glass jar inside. It contains a concentrate that's called Lemonade. "It's a wax," Dobris says. "A live resin cannabis extract. It's for dabbing."

The product normally costs $96. But this week, it’s on sale for just $41. That's more than half off.

Dobris says that Lemonade didn't undergo the required purity tests. So it doesn’t meet the state’s new regulations.

"We can't sell it after July 1," Dobris says. "So come July 1, we have to dispose of it."

As a result, pot users around California are getting amazing deals on some marijuana products this week. That’s as dispensaries rush to offload inventory that will no longer meet the tough new regulations that take effect across the state on that date.

To comply, all of the state's 1,100-plus marijuana licensees (which include more than 400 retail dispensaries, like The Apothecarium,  as well as distributors and testing labs) will have to comply with dozens of new rules around packaging, labeling, dosage limits and other standards.

Alex Traverso, the assistant chief of communications for the Bureau of Cannabis Control, says enforcement is happening now, as opposed to six months ago when recreational marijuana laws came into play, to give the young industry a little breathing room. "The reason was just to give the industry some time to use up supply on hand and sort of transition into the new regulated industry," Traverso says.

He also says state inspectors are focusing on educating pot businesses, and aren’t expecting to have to revoke too many licenses. "Most folks have been pretty on the money as far as complying with these new rules," Traverso says.

He says more than 600 inspections have taken place since Jan. 1, with another round to come following July 1. He adds his office is trying to support the industry by issuing guidelines and welcoming feedback in the months ahead.

But some industry insiders say the high costs of compliance will invariably hit consumers’ pockets and lead to a growing, unregulated black market.

"The new regulations are a bit onerous, strict and conservative," says Kristi Knoblich Palmer, president of the California Cannabis Industry Association board of directors and co-founder and CEO at the edibles company Kiva Confections. "We simply can't get through the testing requirements to have our products on the shelves."

Knoblich Palmer says the regulation enforcement comes at a time when California's marijuana industry is already struggling. She says sales are down from last year because of rising product costs caused by the expensive compliance process, and that pot users are increasingly looking to the black market for their needs. "We're losing consumers every day in California to those unlicensed shops because they are beating us on price by as much as 50 percent," Knoblich Palmer says.

Compliance is indeed an expensive business. Not only does The Apothecarium have a full-time compliance employee, but Dobris also says his company will be temporarily out of stock of around 50 percent of its products starting on July 1 as manufacturers scramble to meet the state's requirements. "Some products will only be unavailable for a few days," Dobris says. "For others, it may be a month or more."

Yet Dobris says his company welcomes the new regulations. "We are really looking forward to enforcement because there are still a lot of gray market delivery services that are competing with us without having to spend all this money on compliance," Dobris says. "So we're actually really excited about compliance enforcement because we think we're going to do very well."

And even though prices for pot products are likely to rise, Dobris says they will be safer. "Customers will be able to know that anything they purchase after July 1 has been extensively tested for mold, for heavy metals and for pesticides. So that's one of the real benefits of this tightening of regulations."