How California Can Overcome Its Cannabis Challenges

California’s cannabis industry is projected to reach $5.1 billion by the end of 2019, according to BDS Analytics, but unexpected challenges have slowed progress. These challenges range from excessive regulations to sky-high taxation. Investors looking for opportunities in the state may want to look at companies that are actually working to solve these challenges rather than simply building out a massive cultivation footprint.

In this article, we will take a look at some of the challenges facing the state and how High Hampton Holdings Corp. (CSE: HC) (OTC: HHPHF) (0HCN.F) is solving those problems while opening the door to significant long-term growth potential. The company is building a 257,000 sq. ft. cannabis production facility on its 10.8 acre site in Coachella that will house third-party operators that it helps navigate the complex legal framework, while acquiring cannabis manufacturers and distribution companies that could add value to its network.

Unexpected Challenges

California legalized adult-use cannabis with the passage of the Adult Use of Marijuana Act, or Proposition 64, back in November 2016. The state began issuing licenses to cannabis businesses at the beginning of the year.

Since then, the state’s cannabis industry has been underperforming expectations since legalization. According to the California Department of Tax and Fee Administration, the state brought in just $93.1 million in cannabis taxes during the third quarter of 2018. It’s a significant increase from the $80.2 million in second quarter taxes, but well below forecasts made by the Legislative Analyst’s Office (LOA), at just ~$400 million for the year.

The problem isn’t that Californians aren’t using cannabis: Researchers found that more than one-in-ten Californians use cannabis (12.88%), which translates to more than five million regular customers for the state’s cannabis businesses.

The biggest challenge in California has been encouraging unlicensed cultivators to meet regulatory requirements and license their businesses. According to WeedMaps President & General Counsel, between 85 and 90 percent of the industry that existed last year wasn’t licensed. The California Growers Association released a report earlier this year highlighting that less than one percent were licensed by the state by mid-2018.

The problem is that strict regulations and high costs deterred independent cultivators from entering the legal market and may have pushed them into the black market. These growers have likely continued to supply demand without paying taxes.

Solving the Challenges

High Hampton aims to help small growers navigate the complexities of the legal market. The cultivation of cannabis in California requires both municipal and state permits to operate, and many growers under the old regime don’t meet the standards for these new certifications. Most licenses are instead going towards well-capitalized startup companies that have limited practical experience growing cannabis and few existing customers.

High Hampton’s wholly-owned CoachellaGro asset consists of a 10.8 acre property located in the Coachella Cannabis Zone. The company intends to build out the property into a full service 257,000 sq. ft. cannabis production facility that serves third-party, state-licensed medical marijuana operators. The approach could help bring more legal supply onto the market and accelerate the legal cannabis industry’s tax revenue and overall growth.

On May 3, the company announced that the project was awarded a Conditional Use Permit (CUP) and it quickly entered an active construction phase. The company then announced that it retained Vertical Construction Co. as a full-service builder that would ensure that it’s built to GMP-certified standards, and hired Aurora Cannabis Inc.’s (TSX: ACB) (OTC: ACBFF) Aurora Larssen Projects Inc. to design the facility specifically for cannabis cultivation.

The company has simultaneously acquired numerous cultivation and distribution operations that can provide economies of scale to the operation. For instance, it recently completed the acquisition of Mojave Jane LLC, a licensed manufacturer of premium cannabis extracts and concentrates in California. The move could provide cultivators at its Coachella project with the ability to create higher value products that can then be sold through its distribution channels.

Looking Ahead

High Hampton Holdings Corp. (CSE: HC) (OTC: HHPHF) (0HCN.F) represents a compelling investment opportunity in California’s growing market. By providing expertise to independent growers, the company hopes to bring more of these companies into the legal fold to reduce the likelihood that they remain in the black market, drive tax revenue for California, and seek out significant opportunities to create shareholder value.

For more information, visit the company’s website at www.highhampton.com.

Disclaimer

The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: http://www.cannabisfn.com/legal-disclaimer

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.