California's green rush as recreational marijuana use becomes legal

Across the bay from San Francisco, the smell of melted chocolate wafts through former Apple manager Eric Eslao's??? warehouse in an industrial pocket in Oakland known as the "green zone". Workers are churning coffee beans through glistening liquid chocolate and stacking matte black packages with gold labels and embossed font that read: Defonce.

"We wanted something that felt high-end," says Eslao, who left his plum Silicon Valley job three years ago to become a high-end cannabis chocolatier. "Coincidently the French word for f---ed up or high is defonce."

His $US20 ($25) infused chocolate bars are considered so uncontroversial in California that his mother is a regular consumer, and, for nine months, Westfield was deep in negotiations to have a Defonce store in its glitzy new mall on San Francisco's Market Street.

At the eleventh hour, the Australian mall giant was acquired by French property company Unibail-Rodamco and they backed off, perhaps spooked by the federal government's stance which maintains that marijuana is illegal. But it won't be long before another operator sticks its head out and the rest will rush in, Eslao says. He's already talking to two other malls.

"If we'd approached anyone 10 years ago, we wouldn't have got a phone call or email returned," he said. "I think in California, [marijuana] is going to be as normal as alcohol. We see our product as similar to sharing a bottle of wine with friends."

Eslao is part of a seismic shift rumbling through the US after recreational marijuana became legal on New Year's Day in California, the sixth largest economy in the world.

Demand for Eslao's chocolates multiplied by five overnight as a modern-day gold rush was unleashed, not only creating a new mega-industry but bringing an even bigger one out of the shadows.

One in five Americans can now legally buy weed. Eight states and the District of Columbia have legalised recreational marijuana; a further 22 allow medicinal use and Canada will legalise recreational use this year. In contrast, just 153 patients have been approved for medicinal use in Australia under strict laws introduced in 2016.

New regulations in California allow anyone over 21 to buy and possess up to an ounce of weed or grow six plants at home. Sellers must abide by rules around labelling, dosage limits, child-proof packaging and having premises away from schools.

In California, sales will hit $US5.1 billion in 2019, quickly eclipsing the $US5 billion beer industry, cannabis research firm BDS Analytics predicts. Nationwide, legal marijuana will generate $US18 billion in 2018, according to IBISWorld, which ranked it one of the fastest growing industries.

The green rush hasn't just spawned a dizzying array of products - edibles, drinks, vape pens, designer pot pouches, oils, creams, sports supplements, even nail polish. There are also weed venture capital firms, think tanks, delivery services, university degrees in cannabis cultivation and non-profits working to increase the number of female leaders and ethnic minorities in the industry.

Public support has never been higher. A Gallup poll from October found that 64 per cent of Americans supported legalisation, the most in five decades of surveys. About half of all Americans said they had tried weed and one in 10 said they currently used it. (In Australia, 35 per cent of people over 14 have tried it; one in 10 had recently).

But is California jumping head first into a dangerous experiment, one that will affect the rest of the world?

"Now is the time to stop and ask if we are sure we're moving in the right direction on marijuana," says Kevin Sabet, a former drug policy adviser to the Obama administration who started the anti-legalisation lobby group Smart Approaches to Marijuana (SAM) with Patrick Kennedy, son of Ted Kennedy, the Democrat senator who famously took on the tobacco industry.

The group advocates a middle ground between incarceration and legalisation - not punishing small-time users but focusing on prevention and treatment rather than giving the green light to users.

"My main concern is that we're going towards approving another massive industry that puts profits over public health with mass commercialisation and normalisation," Sabet says. "It'll be that, when you turn a certain age, it's not only time to drink, it's time to consume high-potency marijuana."

'The emperor wears no clothes'

It is little surprise that California has pioneered legalisation. The birthplace of flower power and hippie counterculture is as renowned for its liberal attitude to a toke as its anti-Washington dissidence. Plus, Californian citizens can draft legislative bills by popular vote as they did in 1996 when they became the first state to vote for medical marijuana.

California has pioneered the legalisation of marijuana after citizens voted to allow medicinal use in 1996.

California has pioneered the legalisation of marijuana after citizens voted to allow medicinal use in 1996. Photo: Bloomberg

David Downs, editor of the marijuana news site GreenState, says that, after decades of prohibition, Californians rejected the unsuccessful "war on drugs" and the fear-mongering surrounding marijuana.

"January 1 was this watershed day in California where the cameras were rolling and everyone in the world could see, once and for all, in a big state, the emperor wears no clothes," he says. "Now everyone's like 'this is bullshit, why are people sitting in jail in Oklahoma for this when they're getting rich and getting relief in California?'"

Several studies say there is conclusive evidence that marijuana helps treat chronic pain, chemotherapy-induced nausea, epilepsy seizures and muscle spasms related to multiple sclerosis. No overdoses have been recorded and a study in the Journal of Clinical Psychiatry found that it was less addictive than tobacco (but more addictive than alcohol).

Further, a small peer-reviewed study in Illinois found that marijuana reduced patients' dependency on prescription drugs. The authors said it was evidence that marijuana could contribute to reducing opioid use in the US, where a national opioid epidemic saw 64,000 people die in 2016 - more than car crashes and guns violence combined.

Then, there is the money. Taxes on marijuana vary from 35 to 45 per cent in California and, by 2021, the state will rake in $US1.4 billion in taxes and generate 146,000 jobs, BDS Analytics predicts. The reduction in criminal justice costs are estimated to be in the tens of millions.

The honey pot will spread far beyond state borders too: Lesotho has legalised cannabis cultivation, opening up a potentially lucrative export market for African countries. Australia also approved the export of medical marijuana this month, saying it wants to become a major player in the $55 billion global market, although exports will likely go to Canada rather than California, which already grows seven times more cannabis than it needs.

Big businesses are seeing the money to be made. Beer giant Constellation Brands Inc, which sells Corona, has invested in a marijuana beverage company and Chris Burggraeve, former marketing chief for Budweiser, has joined the advisory board of GreenRush Group, a San Francisco start-up aiming to be the Amazon of weed. "When consumers want something, you ignore it at your peril," he told Bloomberg, adding that weed would be the new craft beer.

Several big businesses are rushing to enter the market, describing recreational marijuana as the next craft beer.

Several big businesses are rushing to enter the market, describing recreational marijuana as the next craft beer. Photo: Bloomberg

But critics fear the industry could end up looking like Big Tobacco 2.0, with operators focused on getting people addicted and targeting the young.

"I'm not so worried about the mum-and-pop shops, I'm worried about the massive business, the Wal-Marts of marijuana," Sabet says. "Many of these industry heads are essentially funding political campaigns and lobbying. It's not the hippies or the civil rights activists driving this. It's the button-up, Wall Street, Silicon Valley types which I think surprises a lot of people."

Mixed messaging offers a silver lining

Adolescent use of marijuana can be harmful - the National Institute on Drug Abuse cites controversial estimates that about 9 per cent of people who use marijuana will become dependent on it, rising to about 17 per cent of those who started using it in their teens.

Several studies show that teen use can affect brain development but a government-run survey of 37,000 young people in Washington State found no increase in teen use since recreational marijuana was legalised in 2012.

A report by San Francisco's public health department summed up the reality: legalisation is a new phenomenon so it's hard to know what public health issues might arise. The key is good regulation, it said.

For now, mixed messages from the federal government has made the big players skittish about getting involved completely. Four days after California legalised adult use, federal attorney-general Jeff Sessions, a long-time opponent of legalisation, rescinded an Obama-era policy that discouraged federal prosecution of marijuana-related crimes in states that had legalised the drug.

The federal stance means marijuana business owners have difficulties using banks, which are regulated under federal law. But there is a silver lining: by scaring off the big companies, it has given small players a better run and held off the kind of full-blown capitalism that the most pot veterans have spent their lives railing against.

City councils are doing their part too, gearing regulations to prioritise small businesses and ethnic communities who were disproportionately punished in the war on drugs. Oakland has gone so far as to discuss mandating that pot businesses hire people with criminal records as a kind of "restorative justice".

Veteran weed campaigner Steve DeAngelo, chief executive of Harborside dispensaries, make the first sale of recreational marijuana to attorney Henry Wykowski on  January 1.

Veteran weed campaigner Steve DeAngelo, chief executive of Harborside dispensary, makes the first sale of recreational marijuana to attorney Henry Wykowski on January 1. Photo: AP

Steve DeAngelo, founder of the Harborside dispensaries in Oakland and San Jose and co-founder of Arcview, a company that connects investors with weed entrepreneurs, was deliriously elated on January 1 but he says there is now "a battle for the soul" of the industry.

The legendary cannabis activist sees businesses coming on board for money and marketing cannabis as just another vice to get high on rather than, as he calls it, the most powerful plant on the planet.

"I make it a point of describing cannabis as a wellness product," he says. "I define wellness really broadly. It includes cancer and chronic pain but also waking up your creativity ... enhancing the sound of music or the touch of your lover's skin."

He knows the world is watching what happens next. "California is the laboratory of the future," he says. "Now is our time."

This story California's green rush as recreational marijuana use becomes legal first appeared on The Sydney Morning Herald.