Legislative Analyst’s Office calls for taxing marijuana based on potency and dropping cultivation taxes.

California’s struggling cannabis industry didn’t get the recommendation many hoped for — a call to sharply lower the industry’s tax rate — but a long-awaited state report did suggest a marijuana tax overhaul.

The report from California’s nonpartisan Legislative Analyst Office, released Tuesday, Dec. 17, says lawmakers should ditch the way the state currently taxes marijuana and, instead, tax cannabis at different rates based on its potency. Such a tax structure, the report said, would result in stable revenue and discourage cannabis abuse.

To read more about the report, click here

High taxes, outlaw competitors make it tough for legal operators to make a buck

As year two of legal cannabis sales in California comes to a close, shoppers are still more likely to buy marijuana from illicit sellers than from state-sanctioned stores that pay taxes and test their products for safety.

California’s 7,000 licensed cannabis businesses — and the state’s tax revenue — are feeling the pinch.

Prominent cannabis companies that a year ago were growing aggressively have, in recent months, laid off hundreds of workers. They say hefty taxes, onerous regulations and competition from a thriving illicit market are forcing them to scale back operations.

Now the industry, which is already operating under effective tax rates of up to 70%, is bracing for another hit. Starting Jan. 1, marijuana retailers will pay 12.5% more in taxes than they do now, while cultivator taxes will go up more than 4%.

The unexpected move announced last month is being described as shortsighted by many in the industry. Licensed business owners point out that their outlaw competitors — retailers and others who haven’t received state licensing — can sell tax-free cannabis for a fraction of the price.

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Since the state’s recreational marijuana market kicked in, on Jan. 1, the state has issued only temporary business permits to cannabis companies, pending the applicants providing key information and final approval from the communities where they operate.

But with many of those temporary permits set to expire — and with many communities still wrestling with cannabis approval — state regulators hope a second provisional licensing system will buy time to implement a full annual licensing system.

In Santa Barbara, Humboldt and Mendocino counties, all hubs for cannabis cultivation, local regulators simply haven’t been able to keep up with the backlog of complex applications.

“Rushing these (applications) through would be a mistake, as that could lead to real environmental damage,” Humboldt County officials wrote in a statement supporting the provisional licensing program.

“Letting permits expire as applicants run out of time would also be a mistake, as the entire goal includes bringing cultivators into taxing, permitting, and environmental compliance.”

The state’s first stop-gap licensing program was centered on permits that were good for four months. The goal was to give marijuana business owners time to compile the information needed to get annual licenses, including security plans, insurance bonds, business formation documents and fingerprinting for all owners. It also gave the state time to review and verify conditions needed for annual licenses, such as local approval.

But in April, when it became clear that annual licenses wouldn’t be ready before temporary licenses started to expire, the state extended interim permits for another 90 days.

But state law says regulators can’t issue new temporary licenses or extend existing licenses after Jan. 1, 2019.

The state also hasn’t yet issued any annual licenses. Richard Parrot, head of the Department of Food and Agriculture’s CalCannabis division, said that he expects the first annual licenses to be issued sometime this month.

Roughly 6,500 businesses statewide currently hold temporary licenses. Three quarters of those licenses are for cultivation.

Regulators say there aren’t enough resources to process annual license applications for everyone by the end of the year. And once temporary licenses start expiring in January — with all of them set to expire by March 31 — businesses would have to shut down until the state catches up.

That’s where Senate Bill 1459 comes into play.

The bill will let the state issue a new category of provisional licenses through Jan. 1, 2020. Provisional licenses will be good for 12 months, with no option for renewal.

To get a provisional license, applicants will need to hold a temporary license for the same address and business activity. They also will need to have submitted complete applications for full annual licenses. And they will have to comply with the state’s mandated track-and-trace system, which includes software that monitors all legal cannabis products from seed to sale — a move that wasn’t required for temporary license holders.

The state will likely keep issuing temporary permits through the end of the year and then begin issuing provisional licenses as needed on Jan. 1, according to Alex Traverso, spokesman for the Bureau of Cannabis Control.

Sen. Anthony Cannella, R-Ceres, introduced SB 1459 in February. The bill was coauthored by Sen. Cathleen Galgiani, D-Stockton, and Sen. Mike McGuire, D-Healdsburg. And it was backed in the state Assembly by Assemblywoman Anna Caballero, D-Salinas, and Assemblyman Jim Wood, D-Healdsburg.

Most major cannabis industry groups and unions also supported the bill, including the California Cannabis Industry Association and California Growers Association. So did several counties and the League of California Cities. No one was on record opposing the bill.

SB 1459 passed the Senate 33-4 and the Assembly 73-1. Gov. Jerry Brown signed the bill into law on Sept. 27.

It’s been a mixed bag for other cannabis regulations that made it to Brown’s desk before the state’s legislative deadline of Sept. 30.

Brown vetoed a bill that would have let dispensaries give free cannabis to qualified medical patients. The Governor said the bill conflicted with Prop. 64.

He also refused to approve a bill that would have let schools set their own rules about allowing minors to take medical marijuana on campuses. Brown said he felt the measure went “too far” and that he remains “dubious” about young people using cannabis for “all ailments.”

Brown also vetoed a bill that would have allowed owners of licensed marijuana businesses to deduct expenses on their personal income taxes, since federal tax laws currently prevent typical deductions for business costs. Given the blow that bill would make to the state’s general fund, Brown said in his veto message the issue is better handled through the budgeting process.

Brown did sign Assembly Bill 1793, which will force the state to automatically resentence or expunge criminal records for everyone in the state based on newly reduced penalties for marijuana crimes.

Brown also signed a bill that lets licensed labs test samples of cannabis meant for personal use for anyone 21 years and older. Previously, labs were only allowed to test samples for licensed businesses, medical marijuana patients and their caregivers.

Brown signed a bill that protects the personal information of anyone buying recreational marijuana in California. The bill says businesses can’t disclose customers’ personal information to third parties without the customer’s consent, and they can’t discriminate against customers who refuse to give that permission.

“Cannabis users will finally have their personal information protected in the same manner as other medical information,” said Assemblyman Evan Low, D-Silicon Valley, who authored the bill.

Brown also approved a bill that will expand options for where marijuana festivals and other temporary events can take place. And he signed a bill that will let veterinarians discuss medical cannabis for pets.

Other major marijuana bills that died before making it to Brown’s desk this legislative season included a bid to temporarily reduce the state’s marijuana tax, another to protect medical marijuana patients from being fired from their jobs, and a bill that would have established a state-run bank to handle cash from the cannabis industry.

Marijuana odors have triggered lawsuits against cannabis companies. They’ve also led residents to try to block commercial operations from coming to California and the other eight states where recreational cannabis is legal and, increasingly, big business.

Odor has sparked some neighborhood friction, too, as marijuana smoke drifts from one apartment or yard to the next.

There are products on the market that claim to test for smells, block all odors from wafting out of indoor operations, and even help control the stench of outdoor marijuana farms.

Long before legalization, the cannabis industry grew accustomed to working underground — making growers and processors and distributors pretty good at hiding the smells associated with their businesses. While that might ease the possibility of odor-related friction, it doesn’t foster industry-wide communication about new ideas for tackling the issue, even as new anti-odor technologies are coming to market.

Only now — with odor control an area that’s both problematic and ripe for technical solutions — are marijuana entrepreneurs starting to share ideas about their industry’s stink factor.

“That’s probably the biggest hurdle now, for everybody involved, is knowing what’s available as best practices, and what’s feasible,” said Dana Pack with Fogco, an Arizona-based company that makes systems to neutralize unwanted smells.

Cities can mandate odor-control systems for home growers, or as a condition for approval of marijuana-related business permits.

But some in the industry note that odor requirements aren’t yet universal, and that odor control is yet another element of the marijuana business in which regulators aren’t keeping pace with the spread of legalization.

“The licensing agencies are still in a learning curve,” said Chuck McGinley, technical director of St. Croix Sensory, a lab in Minnesota that tests for odors and makes products that help others do so in the field. “This is a very young industry.”

Neighbors fight back

Residents claim the stench of weed disrupts their quality of life, lowers their property values and causes problems for people with respiratory issues such as asthma.

In June, after the city of Palm Springs issued what might be the first permit for a cannabis lounge in Southern California, the owner of a spa next-door threatened to leave town.

Since January 2016, the South Coast Air Quality Management District — which monitors air quality issues for most of Los Angeles, Orange, Riverside and San Bernardino counties — has received 11 complaints of odors allegedly created by marijuana growers, dispensaries or processing facilities, according to spokesman Sam Atwood.*

Santa Barbara County and cities in its boundaries have received more permits to grow marijuana than any other county in California. Now residents of the beach town Carpenteria say they’re stuffing pillows under their doors to block odors coming from nearby cannabis farms.

In Colorado, three years ago, owners of residential property sued a marijuana farm that was set to open next-door, claiming cannabis-related odors would ruin their horse rides and harm their property values. The lawsuit cited racketeering laws, typically used to prosecute organized crime rings, since marijuana remains illegal under federal law.

A federal district court initially dismissed the Colorado claim, but an appeals court in 2017 cleared the case to move forward. That paved the way for a number of other lawsuits that raise racketeering charges while also citing odor and other nuisance concerns, and similar suits have been filed in Massachusetts and Oregon.

Some of those suits have been settled or dismissed. Others are pending, raising concerns within the industry about how state-legal marijuana programs might be upended by legal battles that often start with simple complaints about smell.

Solutions are out there

Most odor control solutions for the marijuana industry involve tweaking products that are already used by landfills, wastewater treatment plants and other businesses that generate offensive smells.

The most common fix is to add carbon filters, or “scrubbers,” to ventilation systems. As air passes through, odor molecules bind to the activated charcoal. As long as everything is properly installed and maintained, McGinley said the air that comes out of the vents should be virtually odorless.

But carbon filters have to be replaced often, making them pricey for large operators. Carbon filters also rely on a lot of electricity, making them less than ideal for many environmentally conscious greenhouse owners. And, of course, air filters can’t do anything about the smell generated by outdoor farms.

That’s where fog systems might come into play.

These systems involve placing nozzles at the spot where air from a grow operation will be expelled. The system mixes water with an odor-neutralizing chemical and forces that mixture through the nozzles at high pressure. The water instantly evaporates, leaving the chemical in the air to attract and neutralize any cannabis smells.

“The idea is to build a barrier of fog between the odorous air and community,” said Pack with Fogco.

Such systems don’t need to be in constant use, so Pack said energy use and maintenance are “a fraction” of what’s required to use carbon filters.

Mark Stanley, a vice president with Palm Springs-based MicroCool, which also makes a fog odor-control system, said marijuana growers are showing enough interest in his company’s products that it’s hard to keep up with demand.

Pack, of Fogco, said that while greenhouse operators are his company’s biggest clients, his company also sets up systems to control odors from outdoor farms. They line the perimeter of the farm with nozzles, which they can turn on when plants are flowering and monitors show that wind speed and direction might carry the scent to neighbors.

Some online grower forums recommend “ozone generators,” which can disrupt smells by converting oxygen into ozone. But the California Air Resources Board advises against using the devices with people around since, to remove odors, they have to create ozone molecules at levels that aren’t safe for humans to breath.

Local law rules

With such a wide range of techniques available, Santa Monica-based cannabis attorney Michael Jensen said it’s key to write odor-control regulations that leave room for innovation.

Currently, California law doesn’t do much to address odors, requiring only that marijuana businesses limit emissions from generators and from the solvents used in the extraction of certain marijuana compounds. Otherwise, state agencies overseeing cannabis have said odor control is a local issue.

Most California jurisdictions ban all marijuana businesses. And many cities and counties that do permit them simply include a line or two in their regulations that say marijuana odors can’t be noticeable.

Los Angeles’s marijuana regulation rules run 33 pages, only three sentences of which address odor control. The rules state that air vented from marijuana businesses must be filtered so that odors can’t be detected outside, or in adjoining sites, by a person with a “normal sense of smell.”

Long Beach requires businesses to submit odor control plans when they apply for local permits, and the system must be certified by a licensed engineer.

Local authorities are also the go-to source for complaints about marijuana odors.

While it’s legal in California for adults 21 and over to consume marijuana, and grow up to six plants at home, residents bothered by the smell can report it as a nuisance to their local code enforcement office. If the neighbor lives in an apartment, under a homeowner’s association or has a landlord, residents might have better luck reporting complaints through those entities, since they can ban smoking and cultivation in their units.

Enforcement challenges

Odor complaints are tricky to investigate, according to Alan Abbs, executive director of the California Air Pollution Control Officers Association. Smells tend to dissipate quickly, and the offensiveness of certain smells can be subjective.

One way to remove some of that subjectivity is to use devices called field olfactometers, which offer science-backed data about the intensity of odors.

McGinley’s lab makes a field olfactometer called the Nasal Ranger. It looks like a telescope with a mask on the skinny end and a rotating dial on the fatter end. Users adjust that dial, then hold the Nasal Ranger up to their nose and breath in. Carbon filters purify some of the air. Then, based on the dial’s setting, the device mixes the filtered air with the air coming in from outside before it gets to the user’s nose. The more dilution required to get rid of the smell, the stinkier the outside air would be.

Denver has set odor standards for marijuana and other stinky businesses based on the measurements tracked by the Nasal Ranger and similar devices. But for now, many California cities and counties rely on repeated complaints as evidence of a problem.

In Santa Barbara County, for example, if county authorities get three odor complaints from a business in a year, the company must take steps to fix the problem. And if the business doesn’t stop the stench, the county may revoke local permits.

“There’s going to be a tough learning curve,” Jensen said. “Time will tell whether this becomes an issue.”

*An earlier version of this story misstated the number of recent complaints to South Coast Air Quality Management District related to marijuana odors due to incorrect information provided to the Orange County Register. The story has been updated.

Failures have been triggered by inaccurate labeling or contamination from pesticides, bacteria or processing chemicals.

Those testing requirements and results have left some retailers with severely limited inventory over the past few weeks, as cultivators and product manufacturers scramble to get compliant products to market.

There was a big gap at the beginning of the month with the supply of marijuana buds in particular, according to Nick Rinella, chief operating officer of Verdant Distribution, a Long Beach-based independent cannabis distributor.

The new testing requirements have also created backlogs at busy labs.

The state has licensed just 31 testing labs, most located in Northern California, and many of them aren’t yet taking customers. As a result, Rinella said cannabis safety tests are taking between one and two weeks.

And this week the first cannabis product was recalled from store shelves because it doesn’t meet new standards regarding pesticide levels.

While that’s concerning, in the short term, industry experts believe it’s also a sign that California’s cannabis industry is maturing and starting to look like other regulated markets, such as alcohol and food.

Wrong labels

California launched legal recreational marijuana sales and imposed new rules for the cannabis industry on New Years Day. But state regulators gave businesses a six-month grace period to comply with some rules, including a requirement that they could only sell products that had been tested for safety by a licensed lab.

That grace period ended July 1, and the state says since then labs have tested 5,268 batches of marijuana, about 20 percent of which failed to meet state standards.

Those numbers would likely be higher if companies weren’t paying for independent lab tests before putting their products through the official supply chain, according to Verdant Distribution founder Brian Blatz.

“Smart brands are pretesting first, then testing again in the labs,” he said.

More than two thirds (68 percent) of the cannabis batches that failed in state tests did so because of inaccurate claims on the labels. Specifically, labels often over-state the amount of THC — the compound in cannabis that makes people feel high — that’s actually in the cannabis, according to Bureau of Cannabis Control spokesman Alex Traverso.

While that’s not necessarily a safety hazard, it can lead consumers to overpay for products that aren’t as strong as advertised.

Pesticides trigger recall

Nearly one in five of the failed tests (19 percent) were related to pesticides. In some cases, the cannabis tested for traces of pesticides that are totally forbidden; in others, it tested with higher levels of pesticides than the amount deemed safe by state law.

Los Angeles-based company The Bloom Brand announced Wednesday it was recalling four vaporizer cartridges with cannabis oil that doesn’t meet state standards for safe levels of the pesticide Myclobutanil.The fungicide is commonly used on food crops, such as grapes and almonds, but is believed to be unsafe when heated — a process that’s common for marijuana smokers.

The Bloom Brand cartridges were sold to 100 stores throughout the state between July 1-19. It’s not yet clear how the products got to market after July 1 with unsafe levels of Myclobutanil.

“We are working closely with (state cannabis officials) to remedy this issue and expect clean, compliant products to be back on shelves in three weeks,” the company said in a press release.

Some marijuana is testing positive for pesticides that cultivators never used, according to Micah Anderson, president of the Southern California Responsible Growers Council, a cannabis trade group. He said product from several growers who’ve taken over former vineyards, for example, failed initial tests because the soil was contaminated, with stricter limits on pesticides allowed in marijuana than in wine.

“For growers, this will definitively be the biggest challenge they face,” said Cliff Yeh, co-founder of Encore Labs, a cannabis testing center in Pasadena.

There are 60-plus banned or regulated pesticides. Growers can pass the majority of the limits on the pesticide guidelines, Yeh said, but if they fail on a few the whole batch is considered a failure.

Other contaminants

Around 6 percent of lab test failures since July 1 have been due to microbial impurities, such as mold and bacteria. The most common microbes showing up are the fungus aspergillus and the bacteria e.coli and salmonella, all of which can develop in marijuana if it isn’t properly stored with careful controls for humidity.

Another 5 percent of failed marijuana samples have involved concentrated waxes and oils that tested positive for residual solvents, such as ethanol, butane and isopropanol. Those chemicals are used to extract THC and other active ingredients from marijuana plants.

Some additional marijuana testing requirements will be phased in Dec. 31.

Starting in 2019, all marijuana products will need to be tested for heavy metals and mycotoxins, toxic substances that can come from mold. Products will also need to be tested for levels of terpenoids, the organic chemicals that give marijuana its distinct aroma and play a role in its effects. And marijuana-infused edibles will have to be tested for moisture content, to make sure they’re not breeding grounds for bacteria and mold.

And more as yet unspecified adjustments are expected, with the state still crafting permanent industry regulations. But just three weeks after the latest testing requirements took affect, Rinella said shelves at marijuana shops are starting to fill back up with product deemed safe for consumers.

Profit margins for most licensed cannabis companies remain thin as they struggle to make it through turbulence that comes when a gray market is fully legalized, Blatz said. But the producers that do survive are competing to see who will be the first Anheuser-Busch of cannabis.

“Because the market is still maturing, there’s not really brand loyalty yet,” he said. “But it’s coming.”

While the wine and marijuana industries are similar in some ways, blending those worlds isn’t always easy. Winegrowers and cannabis cultivators increasingly square off over customers, land and workers. And lingering stigmas have kept some of the state’s wine-growing regions from being open to the newly legalized marijuana market.

Now it seems Temecula Valley Wine Country is on track to shut out the cannabis industry. Opposition from local winegrowers and government officials is making it unlikely that marijuana businesses will be allowed to operate in one of the most important agricultural and tourism regions in Riverside County.

“My fear is that you would see vineyards pushed out and there would be outdoor cultivation with chain-linked, barbed-wire fences,” said Danny Martin, board president for the Temecula Valley Winegrowers Association.

“We want to be the Temecula Valley Wine Country. We don’t want to become the Temecula Valley Weed Country.”

The message is clear, according to Micah Anderson, president of the cannabis cultivation trade group Southern California Responsible Growers Council.

“Wine is socially acceptable here,” Anderson said. “Cannabis isn’t.”

Ordinance carves out Temecula Valley

Though passage of Proposition 64 in 2016 made it legal in California for adults to consume cannabis, the law also gives cities and counties the authority to regulate most other marijuana activities within their borders.

All marijuana businesses are currently banned in unincorporated Riverside County. However, county leaders are considering an ordinance that would be among the most permissive in California, allowing businesses to grow, manufacture, test, distribute and sell marijuana products in most of the county’s unincorporated areas.

But, as proposed, the Riverside County ordinance would block marijuana businesses from two key areas — residential areas and the Temecula Valley Wine Country. The popular wine-tasting destination has a few dozen wineries spread over more than 17,000 acres of county-controlled land, just east of Temecula’s city limits.

Riverside County Planning Department staff said via email that cannabis cultivation is “not compatible” with the long-term planning for that area, which they said provides a “significant tourist attraction” and “economic benefit” to the region.

Supervisor Chuck Washington — whose district includes Temecula Valley and who once invested in an area winery — also opposes cannabis cultivation in the area because he doesn’t believe it would “further the goals” of the region, according to his chief of staff, Jeff Comerchero.

In a June 20 letter, Martin told Washington that the Temecula Valley Winegrowers Association board supported a ban on all commercial cannabis activities in wine country and asked the Board of Supervisors to “continue to deny all inconsistent land uses within this special agricultural area in our county.”

County staff said the first listed goal for the wine region is to “encourage agricultural cultivation.” Cannabis cultivation is an agricultural activity, Anderson said, with growers licensed by the California Department of Food and Agriculture. And cannabis, he added, should be treated as an agricultural product by local regulators.

But Martin insists that adding cannabis-related businesses in Temecula Valley Wine Country would be inconsistent with the existing zoning plan for the area.

Lessons learned

The wine and cannabis industries have coexisted for decades in places such as Mendocino and Sonoma counties, pointed out Josh Drayton, spokesman for the California Cannabis Industry Association.

But now that the state is licensing cannabis businesses for the first time, he said marijuana farmers can come out of the shadows to fight for the same rights and business opportunities wine growers have worked to secure.

“I think the cannabis industry has learned a lot from the wine industry,” Drayton said. “A lot of the challenges they have faced, and found solutions for, are guiding forces for our industry.”

That includes trying to brand cannabis products with appellations of origin. Meaning only marijuana grown in Humboldt County can have that label, just like only wines grown in Napa Valley can boast that origin.

Mom-and-pop wineries have also found creative ways to compete with bigger, corporate vineyards, Drayton said — a struggle that’s just starting for smaller and medium-sized marijuana growers. Transferable strategies might include tax incentives for small operators, boutique tours, paired dinners directed by sommeliers and direct-to-consumer sales that give owners a chance to sell the stories behind their products.

In Temecula Valley, Anderson said cannabis farmers would love to have tasting rooms just like the vineyards do. The county could permit such spaces, known generally as cannabis lounges, but hasn’t chosen to include that option in the proposed ordinance.

Competition is fierce

The industry overlap does pose some common challenges.

Labor costs are going up for growers of wine and cannabis, even as the size of the labor pool is shrinking, Drayton said, with the Trump administration’s immigration policies squeezing things even more.

“The wine industry has struggled with labor for a while,” said George Christie, president of the Wine Industry Network trade group. And with the growing cannabis industry able to offer some workers more money and better working conditions, he said, wineries are feeling the pinch.

Also, in many parts of the state, agricultural land is limited. And once a city or county votes to allow marijuana businesses, land values typically skyrocket, a phenomenon that has already forced out some wine growers.

In early 2017, San Francisco-based cannabis distributor Flow Kana announced it had purchased 80 acres in Redwood Valley that were once home to the Fetzer family winery. The company is transforming the property into Flow Cannabis Institute, which is being billed as a “one-stop facility” for marijuana processing, storage and distribution.

Ampelos Vineyard and Cellars in Lompoc said in its June 24 newsletter that they were moving after their landlord of 12 years got a “high offer” for their property from cannabis producers.

“Sad to see how this new business is rolling into the valley and taking over land and buildings,” wrote Ampelos’ owner Peter Work.

Those threats have come up during the Wine & Weed Symposium, a conference Christie’s group will host set for its second year in Santa Rosa on Aug. 2. But Christie said a “much larger percentage” of the conference’s roughly 500 attendees — including a number of “older, conservative wine industry people” — is interested in hearing about opportunities available in cannabis.

Christie sees overlap not just with business models between the industries, but also with the type of people they attract. Wine growers, he said, are typically hard-working, passionate, strategic entrepreneurs who aren’t afraid of a challenge. He sees many of the same qualities in cannabis entrepreneurs, he added, and nothing of the stoner stereotype he once expected.

“As that stigma sort of erodes,” he said, “there are more and more people in the wine industry that are kind of open to what opportunities this may bring.”

There are already wine growers in the Temecula area who are experimenting with small marijuana grows, according to Anderson. And he said there are many more entrepreneurs waiting on the sidelines, hoping the county will open the region to licensed marijuana businesses.

Laws limit overlap

The trend of literally mixing these two worlds by infusing wine with cannabis was becoming fashionable a couple years ago, with singer/cannabis entrepreneur Melissa Etheridge touting a “wine tincture” in her line of Etheridge Farms products.

Then California issued the first draft of its still-evolving rules for the marijuana industry. Those regulations included a strict ban on products that mix alcohol and cannabis and severely limited public events where marijuana is consumed, such as the wine and weed pairing dinners that had begun popping up everywhere.

Since cannabis remains illegal under federal law, wineries could also be jeopardizing their federal licenses if they start making or selling cannabis products on the same property.

“There are a bunch of people that thought they were going to go that road,” Anderson said. “That left a lot of broken dreams.”

Some companies, such as Hermosa Beach-based Rebel Coast Winery, are navigating the regulations by making cannabis-infused wine that’s alcohol-free. And event companies are trading infused dinners for tours that stop at both wineries and cannabis businesses.

Such ventures show that it doesn’t have to be a “zero sum game,” Christie said, where either the wine or the cannabis industry wins. And in Anderson’s view, they also show that marijuana entrepreneurs will work with any reasonable regulations that are thrown their way, including rules that he says could mitigate whatever safety, aesthetic or odor concerns neighbors might have.

That’s something he hopes Riverside County will take into consideration as officials write the playbook for how wine and weed will mix in Temecula Valley.

“We all want to be good neighbors,” he said. “Give us options, don’t just shut us out.”

The issue will be decided when the Riverside County Board of Supervisors takes up the proposed cannabis ordinance sometime later this year.

Cannabis retailers soon may be able to deliver marijuana anywhere in California, no matter what city or county rules say.

Also, it’s likely that medical marijuana patients will be allowed to buy edibles infused with cannabis that’s more potent than currently permitted under state law.

And on another front, the rules for what companies can and can’t say when advertising cannabis products soon could become more strict.

All three shifts are among the new rules listed Friday by state regulators in their long-awaited draft of permanent regulations for California’s cannabis industry.

The permanent regulations will replace the “emergency” rules under which the multibillion-dollar industry has been operating this year. The public has 45 days to comment — in writing or at one of 10 hearings to be held soon throughout the state — on the proposed permanent cannabis rules before they’re adopted by regulators.

This is the state’s fourth round of developing regulations for the cannabis industry.

Rules first were drafted for the medical marijuana sector, but those had to be scrapped after Californians voted to approve recreational marijuana in November 2016. The state released its first round of emergency regulations for both sectors in November 2017, then made some changes as they extended those emergency rules this May. But the goal is to get final rules in place by the end of the year.

“This is about seven months of listening, going to meetings and events and all of these town halls and summits, and hearing what people had to say about how the emergency regulations were working or not working,” said Alex Traverso, spokesman for the Bureau of Cannabis Control, which oversees marijuana retailers, distributors, event promoters and lab testers.

Many of the changes simply clarify the laws that regulators already laid out, Traverso explained. He said that’s true, for example, of what seems to be a big change to cannabis delivery rules.

Emergency regulations said cities couldn’t stop marijuana delivery services from using public roads. But that was interpreted by some city attorneys to mean that even though municipalities  couldn’t prevent licensed deliveries from passing through their jurisdictions, they could ban them from actually making stops in their towns. The recommended permanent regulation — included in 136 pages of rules issued Friday by the bureau — clarifies the law this way: “A delivery employee may deliver to any jurisdiction within the State of California.”

Given that most California cities still don’t allow retail cannabis sales, any expansion of delivery services figures to make cannabis more accessible to more people, said Hezekiah Allen, executive director of the California Growers Association.

The bureau’s updated rules also include tougher guidelines for cannabis advertisers and packaging. Retailers will no longer be able to promote free products, for example. And there are stricter rules about marketing products in ways that might appeal to kids.

In its separate list — 111 pages of draft permanent rules — for companies that make marijuana products, the Department of Public Health’s Manufactured Cannabis Safety Branch is proposing to loosen one rule that figures to benefit medical marijuana patients.

Emergency rules say edible products must be in packages with no more than 100 total milligrams of THC, the chemical in cannabis that can make people high. The rules out Friday suggest letting patients with doctor’s recommendations for medical marijuana buy dissolving “edibles,” such as lozenges or mouth strips, that have up to 500 milligrams of THC.

The Department of Food and Agriculture’s CalCannabis division, which oversees cultivators, also issued 68 pages of new rules that don’t include a change favored by growers.

The department didn’t add back in a 1-acre cap on grow space per farmer. That cap was floated in state environmental documents, but dropped in emergency regulations. The California Growers Association in January sued the state over that change, saying it was needed to give small- and medium-sized growers a chance to compete in the new market.

Many licensed retailers say they’re struggling to stay afloat. So Traverso said most of the other changes included in the rules released Friday are technical tweaks aimed at making compliance easier, including loosening a number of rules for distributors and easing a couple lab testing and labeling requirements.

That should reduce the number of products that Allen said have “unnecessarily” failed state tests undertaken since new requirements kicked in July 1.

“There is a lot more work to do, but this is a historic step in this process,” Allen said of the new regulations.

The three state agencies regulating cannabis will hold public hearings over the next 45 days. Visit Cannabis.ca.gov for times and locations for all 10 hearings.

Stephen Gieder, executive director of Humboldt Green — a cannabis consulting and business service organization — said he wants to put on a family-friendly celebration of cannabis and local marijuana culture where adults can consume cannabis products, but local regulations won’t allow for that type of event at fairgrounds — the only places cannabis events can take place.

“The fairgrounds themselves are the obstacles. Both fairgrounds are unwilling to hold cannabis events this year due to some of these policies,” he said.

An updated county cannabis ordinance that took effect this month authorizes the use of the county fairgrounds in Ferndale for events that include cannabis sales to and consumption by people 21 years of age or older. These events would be subject to the approval of the Humboldt County Fair Association and city of Ferndale.

“It would need to be 21 and over, it’s kind of like going into a bar,” Humboldt County Planning and Building Director John Ford said.

But a Ferndale law and terms in the fairgrounds lease agreement make Cannifest at the Humboldt County Fairgrounds an impossibility for now, fair general manager Richard Conway said.

“It’s a no smoking facility per our lease with the county and the second piece of that is there’s a city ordinance about anything cannabis related within 1,000 feet of a school and we actually share a property line with a school,” he said.

On top of that, the fair leases the infield of the race track to the high school for use by its track, baseball and softball teams, Conway said. When asked, he said the fair association hasn’t taken a stance for or against marijuana or cannabis events.

So that leaves Redwood Acres Fairgrounds in Eureka where Cannifest 2017 took place.

“Since we held the first one we’ve kind of grown into a business incubator,” Redwood Acres CEO Cindy Bedingfield said.

She said the fairgrounds hosts martial arts businesses, boy scout troop meetings, an RV park, youth horse boarders and other businesses.

“In order to have [cannabis events] it needed to be 21 and over and a certain distance from some things,” Bedingfield said.

When asked, she also said the fairgrounds isn’t taking a stance against marijuana.

So in order to host a cannabis event at either local fairground it would have to be strictly for people over 21 without any consumption or sales, Gieder said.

“Imagine having a wine makers expo where no one tastes wine,” he said.

This isn’t the sort of celebration of cannabis Gieder’s looking to throw.

“We really feel Cannifest has more legs outside of Humboldt County, outside of California even,” he said.

Gieder said he’s been researching parks in Pennsylvania and Ohio as possible Cannifest venues. But he added he hopes to have a Cannifest in Humboldt County again eventually.

“We’re still looking to make it happen,” he said.

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The decision came after a few dozen people spoke in support of the festival, citing the economic benefit Chalice brings to the community, its solid safety record and an opportunity to help move newly legalized cannabis culture “out of the shadows.”

“There’s a lot of jobs that are going to be lost out there, a lot of revenue that’s going to be lost out there,” said Adelanto Mayor Rich Kerr. Fair officials have said last year’s event generated $33 million in local spending.

But Victorville officials insisted that their city code prohibits cannabis sales and events, and that they can’t change the rules without going through a formal process.

Councilwoman Blanca Gomez suggested having the planning commission review the city’s entire cannabis ordinance, but no one on the council seconded her motion.

Gomez said she and other council members can’t comment on the festival because Chalice organizers filed a lawsuit against them earlier this month. State officials, also named in the lawsuit, sent a letter expressing a similar position.

The festival has been held at the fairgrounds in Victorville since 2016 under the state’s once-loose medical marijuana laws. City Manager Keith Metzler told the council he believes the festival can still happen this year as it has in years past, and that he doesn’t believe the argument that they’ll lose significant revenue without city approval.

However, California laws that kicked in Jan. 1 that legalize the recreational use of marijuana also limit marijuana-themed festivals to county fairgrounds and require organizers to get permission from local authorities before they can get a state permit for cannabis consumption and sales.

After the San Bernardino City Council denied approving permission for April’s High Times Cannabis Cup festival, vendors said the event — held without sanctioned sales and consumption of cannabis — was a “ghost town.”

Chalice is still slated to take place in Victorville next month, with music acts including Ludacris and Bone Thugs-N-Harmony. But Ryan Heil, who helps produce Chalice, said vendors with contracts valued at more than $1.1 million are already threatening to pull out. And he expects a 60 percent loss in revenue without city approval for marijuana consumption and sales.

Here’s Cannifornian coverage of the 2017 Chalice festival:

Ice Cube, Thievery Corporation, Cypress Hill to headline Chalice cannabis festival

Chalice festival takes cue from Coachella with weed-inspired live art

These photos show you what it’s like to be at Chalice 2017

Glassblowing on display as artists make pricey pipes at Chalice cannabis festival

Who makes the best marijuana flowers and concentrates? Chalice 2017 judges weigh in