California’s Multimillion-Dollar Pot Farms Are Going Up in Smoke
Talk about a buzz kill: In addition to charring acres of wine country north of San Francisco, California’s sweeping wildfires are also destroying cannabis farms in and around the state’s Emerald Triangle.
For many producers, the financial losses include not just harvest-ready crops, but recent investments in infrastructure to comply with licensing regulations in preparation for recreational marijuana legalization next year.
“The fires are hitting in an area of California that’s probably the predominant outdoor cultivation site in the country,” said Robert Frichtel, CEO of General Cannabis Corporation. “It has ideal growing conditions — the same reason they grow wine grapes in that region,” he said. “It arguably produces some of the highest-quality cannabis in the country.”
Hezekiah Allen, executive director of the California Growers Association, said it was impossible to know at this point how badly production had been affected, since evacuees from many fire-ravaged areas were not yet being allowed back to their farms.
“The basic reality here is we don’t know. What we know is bad, and it’s going to get a lot worse,” he told NBC News. On Thursday, Allen said he had confirmed that seven growers among his member base had lost their crops, worth between $3 million and $6 million at wholesale; by Friday morning, the number of members with lost crops was up to 21, and the aggressive spread of the fire led him to fear the worst.
“I wouldn’t be surprised if, when all is said and done, the number is as high as 100,” he said.
Areas just south of the Emerald Triangle have not been spared, either. In Sonoma County’s Glen Ellen, NBC News Bay Area reported that farms — including crops, equipment and buildings — had been destroyed.
“It’s pretty devastating,” farmer and dispensary founder Erich Pearson told NBC. “I think there’s a lot of small farmers who’ve invested their life savings… for a lot of them, it will be gone.”
The fires hit the growing regions at the worst time of the year: The cannabis crop — which is grown outdoors in this part of the state, as opposed to in greenhouses or other protected structures — would have been either ready to harvest within weeks or recently cut and undergoing the drying process.
Even plants spared the flames have been exposed to smoke and ash, which can impart a disagreeably smokey taste or even introduce potential contaminants.
Smoke-damaged pot can be processed to extract oil that can be used in edibles, tinctures, and other preparations, but the cannabis flowers themselves are what command the highest premium, Frichtel said. “They can look at doing some things with concentrates… but the oils don’t sell for nearly as much as the flower product coming out of that area of the country.”
Nobody Has Insurance for Their Crops
Compounding producers’ challenges is that the vast majority of these losses are uninsured. “None of the confirmed losses had any insurance on their crops,” Allen said.
There is no commercial crop insurance available for marijuana as there would be for, say, wine grapes or tomatoes. “We just want normal crop insurance like everyone else,” Allen said, explaining that pot’s outlaw status under federal law has historically deterred insurers from undertaking the kind of microclimate research and other risk assessment measures that would be typical for other agricultural product insurance.
“People are working right now on appellations reports to help us create a better sense of risk assessment,” said Daniel Garcez, a commercial cannabis insurance and risk assessment specialist.
“I think the underwriters are figuring it out. Our goal was to have endorsed policies by next planting season,” Allen said.
But these calculations come too late for farmers facing the flames today.
While a handful of insurers write policies that cover equipment and buildings on cannabis farms, one insurance expert estimated that fewer than 10 percent carry insurance.
“They’ve been underground for so many years,” said James Nelson, president of New Growth Insurance.
Many farmers were also waiting to find out what would be required once Proposition 64 is implemented. A majority of Californians voted last year in favor of this resolution, which will allow adults 21 and older to buy marijuana for recreational use starting in 2018.
“A lot of the farms don’t have coverage because they were waiting for their state regulations and local regulations to fall into place,” Garcez said. “They were being patient, they’re taking the risk of the investment. This situation with the fires is just destroying everything.”
Brand New Buildings Also Going Up in Smoke
The upcoming legalization adds to farmers’ woes in another way: To comply with the thicket of state and local regulations, many spent the last couple of years upgrading their facilities — investments that are now literally and figuratively up in smoke.
“This couldn’t hit at a worse time because a lot of these property owners have just spent a lot of money going through the licensing process… trying to get compliant before the first of the year,” Frichtel said. “They probably have invested with the expectation that this crop would help recoup a lot of those expenses,” he said.
“It acts as a multiplier effect on the expense,” said Kristin Nevedal, chairwoman of the Humboldt County-based International Cannabis Farmers Association. “A lot of farmers have invested in water storage tanks, and a lot of times those are plastic or have plastic liners… those are ruined. Water lines buried underground might be melted — they’re usually PVC or poly, and they’re not terribly deep. So the infrastructure may be a loss for the farmer as well,” she said.
Cannabis cultivators are bracing themselves for the worst while they wait to return to their farms, Allen said. “This is going to be a very expensive disaster when the smoke clears.”