In many ways, the cannabis industry in California is experiencing a transitional moment. In October of 2022, the Governor of California, Gavin Newsom, signed 10 new cannabis-related bills. Combined with updated policy stances coming from the federal level, and economic pressures driven by market fluctuations, now is a tumultuous time for the industry in California.

To help us make sense of it all, we talked to Hirsh Jain, a Harvard-trained cannabis regulations expert. Recently, Hirsh has been working tirelessly behind the scenes supporting the rollout of Chorus Compliance. In addition to his role on the Board of Directors at Chorus, Hirsh is the founder of the Ananda Strategy, a consultancy serving many of California’s leading cannabis brands and retailers. He was previously the Director of Government Affairs at Caliva, a California cannabis brand based in San Jose, and prior to that was the West Coast Director of Government Affairs at MedMen.

Hirsh also moderated an onstage panel at MJBizCon 2022, where he led a panel of experts in a conversation about recent reforms in the regulatory landscape of California. We caught up with Hirsh for a quick Q&A to find out what he sees as the greatest threats and opportunities in the California cannabis market.

This interview has been edited for length and clarity.

What are the biggest challenges in the California cannabis market?

The first is taxation. The tax burden on legal California cannabis businesses is very high. There's a 15% excise tax, a 10% sales tax, often up to a 10% local excise tax. And then there's a bunch of hidden taxes that are applied elsewhere in the supply chain. The tax burden is very high and because there's a very well entrenched illicit market, legal cannabis is not cost competitive.

The second challenge in California cannabis is that there's a limited amount of retail access on a per capita basis. California should have 4,000 or 5,000 dispensaries, if it were equivalent to its West Coast peers like Oregon and Washington, but instead it only has 1,000 dispensaries. That lack of retail access means there are huge cannabis deserts across the state and people aren't able to purchase cannabis legally, which is why the illegal market is so strong.

Going forward there are other challenges that the California market will face. California has very strong environmental laws, for example. It's often the leader on things like gas mileage and setting standards for the rest of the country. As many of us know, cannabis cultivation can be very energy intensive. I think there is a universe of cultivators who will potentially have to deal with challenging California regulations regarding energy use and sustainability in the near future.

When it comes to the regulation of the cannabis industry in California, we've gone overboard. What makes California unique is that it's the home of cannabis culture. There's a really well entrenched illicit market here. I think we've neglected how sticky that illicit market would be. In the birthplace of cannabis culture, the legal market is in a very precarious position because of the cultural underground elements of cannabis.

With all the issues facing the cannabis industry in California, where are focusing your efforts currently?

I think there's a few different opportunities across the supply chain. One of them is the delivery opportunity. California recently liberalized its delivery regulations, allowing you to carry $10,000 worth of product in your car, not $5,000. That will allow delivery companies to service a greater geographic area. Essentially, thus far, it's been impossible to make any money in delivery in California. The question now is, with these new more permissive delivery regulations, can these delivery companies get to the economies of scale that allow them to be profitable? Especially as we move towards an ecommerce model, that could that be the way that people are getting their cannabis five years from now — via a delivery.

The other opportunity, as I was mentioning before, is that there are huge cannabis deserts across the state, which is why the illegal market is so large. As a consequence, if you are able to open up a store in one of those underserved areas, it can be a very successful business. Dispensaries recently opened up in Fresno, a town of a half million people, which previously had no dispensaries. Those dispensaries are thriving because they have a massive market to tap into.

I would say the third opportunity is with brands. President Biden's recent announcement suggested that at some point we may have an intrastate market for cannabis. And if that's the case, California brands are likely to be well positioned. So that that's a future opportunity as well.

What impact will consumption lounges have?

Consumption lounges are a hot topic in many places. Many folks know that cannabis lounges will soon open in Vegas, and many have already opened in California. This is fascinating, because it can help normalize consumption and is an example of the broadening of the cannabis economy beyond mere sales, because of its integration with hospitality. That's one other topic we'll be talking about at MJBizCon.

How did you get introduced to cannabis? Is it something you’ve been passionate about for a long time?

Cannabis has been a big part of my life for a very long time. I grew up in the Bay Area where there is a very strong cannabis culture. I started using cannabis probably much earlier than I should have. When I was in high school, I was charged for cannabis possession, which was a very stressful and unnecessarily punitive experience. When I went to college the next year, it strengthened my convictions around criminal defense work. I worked in the Berkeley Public Defenders Office as the cannabis lead for four years, defending students who were accused of cannabis violations by the university, which back then meant that you could get your financial aid revoked. After that, I attended law school and focused on the legal and political impacts of the War On Drugs. Academically, and as part of my legal training, it was always important to me.

Like many people, I watched this growing movement towards legalization with a tremendous amount of interest and was very excited when California legalized adult use cannabis in 2016. I knew I was passionate about the criminal justice work related to cannabis, but as it became an industry, I thought my skills could be applicable there as well. It’s really enriching and fun to work in the space.

Can you tell us about some of the work you’ve done outside of California?

California is a huge market, so I do a lot of work in that market. I also helped write the ballot initiative in Arizona that legalized cannabis in 2020. I have helped entitle a number of dispensaries in Nevada, and have also done work in Louisiana as part of the expansion of their medical cannabis program. I have done work in Virginia, Illinois, and now New York as well.

You are currently serving on the Board of Directors for Chorus Compliance, which is a compliance software solution coming to market shortly. Can you tell us a little bit about why you got involved with that effort?

I have seen so many teams in cannabis struggle to remain compliant with local and state regulations because these regulations are so complex, are always evolving and are really difficult to understand. The consequences of non-compliance for cannabis operators can be significant in terms of fines and in terms of license revocation. Companies have to build out a really robust compliance arm right to remain compliant. The value proposition of the Chorus Compliance tool is in giving people the ability to manage their compliance activities in a more streamlined fashion.

I've seen the pain points up close, which is why I was motivated to work on the project. My role is to help our team tackle this very complex problem of distilling compliance regulations, in order to generate a tool that will be useful for people.

What is the danger of continuing handle compliance with the current methods and tools?

As you scale a company you need to have more and more efficient processes. Breakdown can be catastrophic, right? It's as simple as that. When you were building the plane, maybe you had all of these workarounds, but if you really want to mature into an organization that remains compliant with these very complex rules, you have to have systematized processes and checklists for doing things. That's the evolution that cannabis companies are going to have to make, if they want to succeed going forward.