Here at Higher Origins, we specialize in working with small California cannabis farms. Over the years we’ve helped them from everything to compliance and branding to sales and packaging. We’ve built brands, got products on shelves, hosted events, and built a multi-functional platform from the ground up, all in the interest of helping small farms to survive and thrive in an industry that seems increasingly designed to limit their path to market and make profitable participation inaccessible.
It’s a litany of complaints you’ve heard from us and anyone else on the bottom half of the California cannabis industry before: prohibitively high licensing fees, labyrinthine application processes, incomparably high taxes levied at every level of jurisdiction, an artificially and regulatory restricted supply chain packed with rent-seeking middle men, arbitrary enforcement, low quality track and trace software, detached regulators…. I could go on but my comma key is wearing out. The point is, the complaints from small operators in this industry aren’t just sour grapes from people who are getting out-competed in a market, they are very real economic observations from experienced professionals, rooted in the regulatory structure imposed by the State of California.
Now, after years of seeing our friends, neighbors, and clients bet the literal farm against the stacked deck of the system, we’ve reached the conclusion that it is time to put our best foot forward to try and change the industry itself. Higher Origins is getting into politics and proposing a legislative solution that we feel will help balance the scales for small farms.
Introducing the California Small Farm Direct To Consumer Pilot
California should establish a three-year Direct-To-Consumer (DTC) pilot program, allowing qualifying cultivators who own 10,000 square feet or less of cultivation to sell farm-origin, tested, final-packaged cannabis products to California adults through compliant intrastate common carriers. Farm eligibility would be based on aggregate beneficial ownership and canopy. Independent evaluators would measure social, compliance, and economic impacts before any expansion.
How Would This Help?
We think this legislation can directly address many of the problems currently plaguing small farms. Here’s a rundown:
First and foremost, it gives small farms an alternate path to market that bypasses the current artificially extended supply chain. Small farms are almost exclusively reliant on State mandated wholesale distributors to sell their cannabis, and with wholesale distributors generally paying below 500$ a pound regardless of quality, especially for outdoor, this is not economically viable. On the consumer side, those same pounds once packaged and branded can command over $3,000. This represents a massive revenue extraction from small farms and their communities. While small farms are technically allowed to vertically integrate with their own manufacturing and distribution, this is usually financially out of reach because their main source of capital for such expansion is cannabis sales- which is failing. This pilot would allow small farms to directly capture the retail value of their product without having to subsidize the distribution and manufacturing sectors.
The main reason the State agreed to legalize cannabis in the first place was the promise of tax revenue. The disproportionately high rate of cannabis taxes since then has only reinforced this. Those taxes come from retail sales, and this pilot provides a clear path to increased sales, particularly in jurisdictions with limited or no access to legal retail. Over half of California’s jurisdictions have no retail locations, and this pilot would massively increase access for people in those jurisdictions, and product choice for consumers Statewide. More access equals more sales equals more tax revenue for the State.
This pilot splits the difference of authority in jurisdictions that prohibit retail sales. Those local governments can still prohibit and regulate licensing, zoning, retail, and cultivation in their jurisdiction, while their constituents get State-level access to cannabis commerce.
Increased access reduces the reliance on the illegal market. By the State’s own admission, only around 38% of the sales in California are legal. This pilot would help move that number in the right direction. Reduced demand for illegal cannabis shrinks the illegal market, reducing environmentally destructive illegal grows, human trafficking of illegal farm labor, and the Taxpayer-funded costs of enforcement and the penal system.
Giving small farms an option to retain a fair share of the revenue for their crop benefits farming communities, especially rural ones. Most small farms are in more rural areas, which have less economic activity than the urban areas that consume the majority of their cannabis. More local profits generate more local tax revenue and stimulate local economies. Rural areas often receive more State funding per capita than urban ones, and any dollar that stays local is a dollar that the State doesn’t have to subsidize and administrate.
Small farms are a huge source of cannabis genetic diversity. The vast majority of genetics available on the market today were bred in small operations. Larger operations often source large shipments of clones originally bred on small farms, focusing more on volume output to meet trends in consumer demand rather than genetic diversification. Genetically diverse crops are more resilient against disease, insects, climate change, and drought pressure, all things well documented as threatening California agriculture. As one of the world’s foremost agricultural economies, it makes sense that California should support the key genetic producers for one of its most famous cash crops.
Small farms, especially ones from rural areas, are the most likely category of operator to revert to the illegal market. Rural areas are much harder for the DCC to enforce, and usually have decades of cultural history in the pre-legalization cannabis industry. Limited enforcement and deep local knowledge of how to operate illegally, coupled with a legal market designed to shut them out, makes opting for the illegal market an attractive option for rural legal operators. For those who have bet everything on the legal industry and are still broke, a deep sense of betrayal and resentment against the State is also a strong driver for the decision to enter the illegal market. A pilot like the one we are proposing would stabilize these legal operators and reduce their contribution to the illegal market.
How Would this Work?
The benefits of this pilot are pretty straightforward, but actually making the program work requires careful legislative design and consideration.
This proposal does not come out of nowhere, it builds on past legislative action and State precedents. The initial inspiration for this legislative push is AB 1332, a bill introduced by Assembly Member Ahrens and championed by Jeff Nordahl of Jade Nectar Farms, which would have created a pilot allowing certain micro businesses to ship medical cannabis directly to medical patients through common carriers (companies like UPS, FEDEX, OnTrac, couriers, etc). This bill gained unanimous legislative support, but was ultimately vetoed by governor Newsom who argued that since the bill would only enable two eligible businesses to ship, it was not enough benefit to justify the high DCC costs of implementation and administration. Additionally, Newsom highlighted the bill’s limitations on certain products as a complication, but specifically did NOT object to the use of common carriers to ship cannabis within California.
We see 1332 as a guideline for the structure of our pilot.
We have greatly increased the scope, from 2 micro businesses to roughly 13% of the state’s cultivation capacity.
Our larger scope is designed to generate more legal sales, therefore boosting State cannabis tax revenues and offsetting the implementation costs.
We frame this pilot as a triple benefit of expanding legal access, competing with the illegal market, and stabilizing licensing, all three of which are central to the mission of the DCC
We retain the limited framework of a time-bound pilot subject to ongoing review, research, and legislative iteration.
In addition to adapting our structure based upon the lessons learned from 1332, we’ve considered the following:
The pilot would be limited to owners of 10,000 square feet or less of cultivation. Specifically, this considers total beneficial ownership of cultivation across different businesses. Safeguards against larger operators indirectly participating in this pilot are a necessity to prevent market capture.
Only cannabis grown on the licensee’s eligible cultivation can be shipped DTC.
For Track and Trace, the DCC would implement a simple METRC flag for eligible farms, similar to the one that already exists for the Microbusiness Retail-Non-Storefront activity. Sales would be recorded as a hybrid of the current Consumer Sales record and the Transfer Manifest, recording consumer information, delivery information, and the final outcome of the shipment.
Common carriers and payment processors serving direct to consumer farms would have to have their policies and current contracts with farms on file with the State for auditability.
DTC shipments must follow established online ID and age verification, adult signature and ID verification at delivery, and all other safeguards California already mandates for shipping controlled substances.
Shipped cannabis must be packaged to retail-ready standards, the same as products sold in dispensaries.
Consumers can only order the legal daily limit of cannabis for direct shipping. (1 oz for recreational, 8 oz for medical).
The pilot would extend for 3 years before requiring re-authorization by the legislature.
Annual transparent reporting on the economic, social, compliance, and revenue aspects of the pilot would be legislatively required, conducted by independent researchers or California public Universities.
The Legislature may establish certain benchmarks that must be achieved before the pilot can be re-approved.
What Challenges Would This Face?
We’re not under the illusion that our logical arguments and limitations will make this pilot sail through the legislature. There are some very thorny questions that this bill has to face and work around. Learning the boundaries and legal structure of these obstacles is the main focus of our research and work at the moment. Here are the main issues we’re considering:
Payment processing is always a mess in cannabis. There are some players that offer online payment options for cannabis, which is a necessity for this pilot to allow consumers to pre-pay for their weed before it gets shipped. The problem here is cost, compliance, risk, and access. Small farms will need to set up a payment processor and a web store, and if that is financially inaccessible for them either due to cost or risk, they won’t be able to access the DTC market and will miss out on the economic benefit. The legislation may have to include some extra provisions to ease this burden.
Participation of common carriers is critical. While we can say that we’ve heard unofficially of at least one carrier who would be open to this, large scale participation is an open question. Carriers moving cannabis would be exposed to significant regulatory risk, which may make their services prohibitively expensive for farms or consumers, or keep them from shipping cannabis altogether. Any support for common carriers that can be built into the pilot legislation would be extremely helpful to ensure that farms have a variety of carriers to choose from.
The administrative cost may be massive. While we are striving to keep the implementation model of this pilot as simple and as in line with current practices as possible, the fact is that cannabis regulatory implementation in California, especially anything to do with the DCC or METRC, is extremely expensive and time consuming. For the much more limited AB 1332, the DCC estimated a cost in the hundreds of thousands. Since this program is larger with more moving parts, the cost is expected to be greater. The hope is that the sales tax revenue from this pilot will offset its implementation cost, however that is an open question that depends on the DCC and the ultimate success of the program. An additional problem is that the State often charges very expensive licensing fees and requires costly legal work to approve cannabis related business. If this same model is followed for the pilot, it may have a chilling effect because struggling farms may not be able to afford the cost of entry.
This pilot may have to contend with Federal Law. On one hand, State cannabis industries are already illegal, but on the other, an escalation into shipping, even intrastate, is likely to garner more Federal attention. If California proceeds with this pilot, it will be ahead of every other state with a tested shipping model that could be adapted to interstate Schedule-3 medical shipping, or in the event of full legalization, recreational shipping. This first mover advantage would be excellent for the State to invest in. However, the legislation may require some specific protections to be added to protect participating carriers.
Pushback from retail groups. Previous legislation in California that would have expanded DTC options was strongly opposed by many retail groups with the argument that allowing farms to reach consumers directly would cut into retail profits and put budtenders out of a job. The reality we have experienced after years of trying to get small farm cannabis on retail shelves is that small farm cannabis makes up an extremely small portion of what retailers sell, especially at any retailer with more than a couple locations. The 13% of statewide cultivation that would fall under this pilot is so under-represented on retail shelves that if it was sold DTC, it would have a negligible effect on retail profit. The inverse argument is also true: if small farm cannabis is such a valuable product category to retail, then why aren't they fighting harder to support small farms? At the current rate, we're going to lose the vast majority of small farms in the State by the end of the decade. Retail has to pick one and act with intention on it: small farms are either indispensable resources that drive sales and need to be saved, or a largely ignored category that has a minimal effect on retail income. They can't have it both ways.
How Is Higher Origins Promoting This Pilot?
We’re still in the early days of this political push. Over the next few days and weeks we will be releasing more information about the specifics of how the bill will work, along with further research and evidence to bolster our arguments. This is an iterative process. As we develop this bill, do more research, talk to more people, and better understand the political landscape, we will adapt our approach and documentation. This is the first time we have undertaken a political project like this, so there is much to learn and organize. Once we assemble a reasonable proposal and fine tune our arguments, we will begin the process of building a coalition, working with connections in Sacramento and the greater State political landscape, and promoting this far and wide. We’re very excited to embark on this process, and welcome any input, support, or access!
How Can I Help?
Spread the word! Share this article and any of our proposal documents everywhere!
Reach out to your State legislator (look them up here) and tell them to support the pilot.
Send us your story! Are you a small farm or a consumer who lacks legal cannabis access? Tell us about it! Hit us up at [email protected]
Put us in touch with your political connections. Do you know a lobbyist, consumer advocate, cannabis industry leader, political organization, or politician? We’d love to talk to them and make our case.
Give us data, feedback, and let us know your positions on this pilot, for and against! The more feedback we get, the more accurately we can tweak our proposal to fit the needs of the industry and help small farms.
Buy from small farms that list their products on Higher Origins. We only make money when our customers make money, and political action is unfortunately expensive. Tell your local retailer to carry products from the Higher Origins Marketplace.
We consider it a privilege to fight for direct consumer shipping for the farms that have been most damaged by the current market regulatory model. We still believe that the California industry can be fixed, and is worth fixing. There’s a lot of work to do to move this forward, and we will keep you posted as we move through the process!
Keep fighting the good fight!
-The Higher Origins Team
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