DESERT HOT SPRINGS, CALIF — Upscale marijuana brand Canndescent opened its first commercial marijuana farm here in 2016 in a former auto body shop. The pungent facility has been refurbished into a modern factory. On the walls, blown up photos depict attractive models and flatscreens track everything from climate conditions inside the building to the fastest trimmers.
The facility is a relatively modest 11,000 square feet, but with a new greenhouse opening imminently and an indoor facility in the works, the company expects to have more than 100,000 square feet of grow space — roughly two football fields — by the end of 2018.
Forests of wind turbines surround this sleepy city, largely ignored by the tourists who flood nearby Palm Springs. But in 2014, Desert Hot Springs became the first city in California to legalize commercial cannabis growing. New construction sites in town attest to the optimism which accompanying the fast growing new industry.
And Desert Hot Springs isn’t alone. A few small communities in the southern California desert have thrown open their doors to ambitious new cannabis companies. The enormous quantity of cannabis they anticipate producing promises to reshape the California market as the world’s largest recreational cannabis industry prepares to open in January.
California marijuana growing is often associated with the rugged forests of the state’s far north, but to a number of companies, a better proposition is small cities in the desert wastelands east of Los Angeles. Desperate for tax revenue and jobs, and with inexpensive land to spare, desert cities can welcome immense industrial-scale marijuana farms on attractive terms. And it seems to be working; a handful of towns have approved millions of square-feet of growing space, and it’s starting to come online.
“There’s a real concern” about the competition, said state Senator Mike McGuire, who represents California’s northern coast, including the marijuana heartland of Humboldt County. Without being able to compete at scale, he said small growers in his district will have to rely on marketing to emphasize their location in the country’s most celebrated growing region.
While key markets like San Francisco, Oakland and Los Angeles have taken their time ironing out rules about tax rates, minority ownership, and supporting small farmers, desert cities like have created the most inviting economic climate in the state for major players to move in and grow big. And these grows stand to be grandfathered in for state permits when the recreational market opens next year. Even before they open, they’re poised to control huge swaths of the market.
“The desert is an ideal climate,” said Leith Pederson, president of Sunniva, a Canadian company building a nearly 500,000 square foot grow — about five times the size of Canndescent’s build out — in Cathedral City, Riverside County.
In the desert, he said, the company expects to save money on energy costs by using both sunlight and artificial lighting. The lack of humidity may reduce the risk of crop blights like gray mold and powdery mildew, which regularly ruin harvests further north.
Emerald Triangle cannabis has an allure derived in part from its roots in the plant’s outlaw past. By contrast, the effort to finance, build and operate enormous desert grows all but requires grounding in the mainstream business world. Canndescent CEO Adrian Sedlin has an M.B.A. from Harvard. The company’s burnt orange motif is a nod to the French luxury brand Hermès. Its Instagram feed could have been torn out of glossy fashion magazines.
Adelanto, a small town of just over 30,000 in San Bernardino County which has long depended on the prison industry, has opened tracts of its desolate industrial zone to cultivation. One project under construction is slated to be 25 percent larger than Sunniva’s. Dozens more companies are at various stages in the approval process.
Adelanto’s land rush has also attracted outside scrutiny.
Last month, FBI agents arrested mayor pro tem Jermaine Wright and charged him with accepting a $10,000 bribe from an undercover agent to grant favorable treatment to a fictitious marijuana business. Wright also confessed to engaging another undercover FBI agent to burn down his sandwich shop so Wright could collect an insurance payout.
The criminal complaint against Wright states that the charges against him grew out of a “public corruption investigation” in Adelanto, and that after he confessed to the arson plot, he agreed to cooperate with the investigation including wearing a surreptitious recording device if asked by the FBI. Adelanto officials have distanced themselves from Wright, and no other charges have been made public.
Other small desert towns welcoming the industry include California City, east of San Diego, and Needles near the Nevada and Arizona borders.
The desert towns offer growers another technical advantage. As a way to foster small and medium-sized cannabis businesses, California was expected to hold off on licensing grows larger than one acre until 2023 at the earliest. But in the emergency regulations released in November, the state allowed farmers to hold multiple one-acre permits, and says it will allow local governments to decide how large a grow can be.
For small desert cities which struggle to attract employers and grow their tax bases, there’s an incentive to go big. And it already appears to be paying off. Canndescent is required to hire 20 percent of its workforce in Desert Hot Springs. CEO Sedlin said in the last year Desert Hot Springs has built a new city hall and hired two new police officers, though the city does not earmark cannabis taxes for specific purposes.
Some longtime cannabis watchers are skeptical of the desert play.
“I don’t think [mega-grows in the desert] should be permitted,” Dale Gieringer, state coordinator of California NORML, the pro-legalization group, said. “We along with many others sent a strong message to protect small scale and outdoor grows,” he said. “We’ll see what happens.”
Gieringer says California doesn’t need new growers, since the state already has more than 30,000 already and the vast majority of their product gets illegally shipped out of state. That presents real challenges. California is estimated to produce 13.5 million pounds of weed annually and consume only about 20 percent of it, according to estimates from analysts at New Leaf Data. It’s not clear where small growers will fit in when vast quantites of industrial weed come online at the same time as a regulated market will make it harder to ship product out of state.
“We’d rather have the current growers brought into the legal market,” Gieringer said.
Growing in the desert, however, presents its own set of challenges; cannabis grows can suck up huge amounts of electricity and water and neither is abundant.
Since many of the grow facilities occupy previously vacant land, they do not have the power connection they need. In an email, energy utility SoCal Edison said it accepts requests from cannabis growers as it does from other large commercial facilities, but declined to provide exact wait times.
Canndescent is building its own small solar plant to complement its grid power.
Plus, nobody seems to know exactly how much water is available to desert grows. Individual companies like Canndescent and Sunniva speak of it in terms of their own responsible usage and recycling efforts. Pederson said the Sunniva site has access to a well permitted to draw 800 gallons a minute, but with recycling anticipates using only a small percentage of the allowance, even at peak capacity.
Canndescent’s Sedlin says a properly managed grow consumes less water than an office of equivalent size, but there’s no guarantee all grows will be so efficient. “I suspect as more grows pop up there will be issues,” Canndescent operations manager Jason Pecache said.
For those who hope to see small growers thrive in the legal market, the huge desert projects are both inevitable and a source of some alarm.
Kevin Jodrey, a longtime Humboldt grower, says initially the desert grows will flood the market. But in the long term, he predicts they will struggle under the cost of lighting and cooling massive desert facilities. “As time goes on, I don’t think these operations are going to sustain unless they reach a level of efficiency that’s never been reached,” he said.
Hezekiah Allen, executive director of the California Growers Association, whose membership is largely smaller growers, suggests some of the desert growers will specialize in growing marijuana for processing into extracts — becoming bulk “oil fields” — rather than focusing on high-quality raw flower buds with big visual appeal.
As the legal market takes shape, Allen also suggested some of the huge producers could stumble on other areas of the market, like distribution. “It’s not like you can take it to the street corner and sell it,” he said. “Moving that much product is going to be quite a feat.”
Small growers, Allen said, will have to focus on appealing to customers with sound environmental practices, organic-style growing and “appellations,” essentially an attempt to mimic the ‘Champagne’ designation on sparkling wine. “These are things California consumers care about,” he said.