BAY AREA POT ECONOMY COULD GROW

Oakland's new medical marijuana ordinance permitting four
"large-scale" growing facilities could be a game-changer for Bay Area
cannabis cultivators as the new businesses' economies of scale could
allow them to drastically increase production and lower the price of
certain strains of cannabis.

Berkeley growers hoping to take advantage of Berkeley's ballot measure
authorizing six permitted growing locations - capped at 30,000 square
feet each - will now have to take into account competition with
Oakland's four facilities, which have no size limit.

While some growers fear the proposal will run small cultivators out of
business, others argue that it will encourage smaller growers to
cultivate exotic strains of cannabis or cater to those willing to pay
a higher price for local, organic, high-quality pot.

Though there is no specified size range in the text of the resolution,
a city report regarding Oakland's cannabis community said proposals
were expected to range from 20,000 to 200,000 square feet per site.

Oakland's proposal has few substantial guidelines for the facilities
because, unlike Berkeley, Oakland is only required to place the
taxation portions of the proposal before voters in the November election.

With proposals already on the table for facilities exceeding 100,000
square feet and city reports estimating Bay Area demand would require
175,000 square feet of space, Oakland could easily provide cannabis
exceeding total Bay Area demand.

Ryan "Indigo" Warman, academic adviser to GroPech, a start-up company
that plans to apply for one of the four Oakland permits, said the
company is not only open to supplying dispensaries across the Bay
Area, but also across the state.

"We're planning on starting small and scaling up," Warman said,
referring to the company's intent to occupy a 50,000-square-foot building.

Warman said while large-scale operations may lower market prices, they
will not bankrupt small growers.

"There's concern within the community," he said. "I think there will
be some fluctuation in the marketplace, and I don't think it's going
to be as bad as everyone thinks."

Steve DeAngelo, executive director of Oakland dispensary Harborside
Health Center, said industrial growers may be limited in their
cultivation to certain strains that do not require the expertise of an
experienced grower, which could create a space in the market for
smaller growers.

"What you're going to see is that the market is going to become more
segmented and more differentiated," he said. "It's really important
that ... we make room for master gardeners."

He added that the center carries a wide variety of strains to meet the
needs of different patients.

Though Oakland's dispensary sales' rose 40 percent last year,
according to the city report, DeAngelo said the city should not expect
the trend to continue.

"All dispensaries that I know of have seen falling sales or sales are
leveling off," he said. "More and more jurisdictions are allowing
dispensaries to open up and the available pool of medical cannabis
patients is being split."

Ada Chan, policy analyst for Oakland City Councilmember Rebecca
Kaplan, said that city requirements for the facilities will likely be
decided before the November election, adding there would be an
emphasis on health and safety standards.

The Berkeley City Council has already said it will require growers to
adhere to certain environmental standards, such as growing organically
or providing energy offsets, potentially raising costs for growers.

"Any one or more of those requirements could have impacts on what the
prices will be," said Berkeley City Councilmember Kriss Worthington.
"It's a question of how much are you concerned about the social
responsibility of each component and how much you're concerned about
the price."

Previously, neither city had legally allowed for any commercial
cultivation. Berkeley's residential cultivation cap was a maximum of
200 square feet, while Oakland's was a maximum of 96 square feet.
Despite these guidelines, dispensaries in both cities were providing
patients with thousands of pounds of medical cannabis.

Oakland's dispensaries, for example, provided 6,000 pounds of cannabis
to patients in 2009. Because Oakland precludes commercial cultivation,
where the product comes from is a "don't ask, don't tell" situation.

"That is why we've ... taken (regulation) on," Chan said. "Do we want
to pretend that there are little elves that show up every night after
the cobbler goes to bed and fixes the shoes for him?"