A crop potentially more lucrative than wine grapes is taking root in California’s wine countries: cannabis.
The passage of California Proposition 64 in 2016 legalized the commercial and recreational growing of cannabis, and with calls for federal legalization mounting, cannabis farmers are gaining traction. It’s no surprise that many are looking to farm in California’s top wine regions, with their long-established track records for thriving agriculture.
Adding to cannabis’ momentum is that many see it as a bankable addition to agriculture in regions where wine grapes dominate. Startup costs and plantable land prices (relative to region) are comparable for both industries, yet cannabis gives a much faster return and earns significantly more.
An acre devoted to cannabis can easily yield a crop worth in excess of $1 million. In contrast, one year’s harvest from an acre of even the most elite wine grapes, such as Napa Cabernet, typically fetches in the $20,000–$40,000 range, with less prestigious grapes and terroirs falling in behind.
But cannabis isn’t getting a warm welcome from all grapegrowers. Clashes are escalating over natural resources, land use, zoning, crop compatibility and tourism.
With each county left to legislate its own rules, regulations covering cannabis vary greatly. Santa Barbara County has been in the spotlight for unchecked development of cannabis and outcries from residents, many of them vintners. Opponents there cite intense odors, cyclone fences, gun-toting guards and ugly hoop houses (a type of greenhouse using PVC pipe in a bending system, with thin plastic over the top to shield plants from intense sunlight) among their objections.
Cannabis opponents in Napa County point to Santa Barbara County as a cautionary tale in protecting the pastoral image of wine country, resulting in an abolitionist approach there.
Vintners in Sonoma and Monterey counties, on the other hand, appear content to coexist with cannabis cultivation. Sonoma has 126 active permits and strict regulations; Monterey cannabis “grows” are indoor-only operations. Mendocino County, highly regarded for both its premium cannabis and wine, has allowed a sizable legal industry in an effort to relieve the county’s economic straits.
| WINE GRAPES | CANNABIS |
|---|---|
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Legalization: Jan. 1, 2018 Total growers: 5,900 (grapegrowers) Retail value in 2020: $42 billion California’s market share: 81% of all U.S. wine Value per crop acre: $5,000 to $20,000 Annual water usage per crop acre: 65,000 to 160,000+ gallons Harvest: August–October |
Legalization: Dec. 3, 1993 (end of Prohibition) Total growers: 6,235 (active cultivation licenses) Retail value in 2020: $4.4 billion California’s market share: 20% of the nation’s growth Value per crop acre: $1 million to $2 million Annual water usage per crop acre: 1 million+ gallons Harvest: September–November |
Santa Barbara County: The New Frontier
Cultivation: Allowed
Cultivation permits: 1,379
Manufacturing: Allowed
Retail: Allowed
Santa Barbara County holds more than 1,300 state licenses to grow cannabis, making it second only to Humboldt County, in the far north, where wine grapes are not widely grown.
The county embraced cannabis, implementing extremely lenient regulations on how it is cultivated in unincorporated areas. As a result, numerous grows near vineyards and wineries have led to political conflicts and tension among neighbors. Battle lines are drawn.
The Santa Barbara County Planning Commission recently approved a permit for an 87-acre cannabis farm adjacent to Melville Winery in the Sta. Rita Hills, arguably the county’s most prestigious winegrowing appellation, known for distinctive Pinot Noirs and Chardonnays.
If approved, it will account for 69% of the total 1,575 cannabis acres planned for Santa Barbara. By comparison, the AVA has approximately 3,000 acres of wine grapes. Melville and other local wineries have appealed the approval and now ask the Santa Barbara County Board of Supervisors to stop the project.
“There are ultra-premium vineyards a mere 50 feet away and directly downwind from this potential grow site,” says Kurt Ammann, general manager for Melville, noting that they are not against cannabis per se, but are disappointed by the high concentration of it in Sta. Rita Hills.
The Santa Barbara Coalition for Responsible Cannabis, a nonprofit made up of more than 200 vintners, farmers and homeowners, has peppered the county board with lawsuits. The coalition claims not to be prohibitionist, rather meaning to encourage cooperative and neighbor-friendly cannabis businesses. But the group doesn’t see cannabis as a remedy for the county’s budgetary woes, and maintains that the regulatory scheme is tilted in favor of the cannabis industry with economic gain in mind.
Blair Pence, proprietor of Pence Ranch and Winery in Sta. Rita Hills, sits on the board of the coalition. He says victories have been few as they continue to apply pressure through county administrative hearings and the courts. “The latter is not our preferred way to accomplish this, but given the supervisors’ bias towards cannabis interests, it is essential,” he says.
The county board dismissed all but one of a 2020 grand jury’s 19 recommendations for monitoring cannabis, which included regional environmental impact reports, odor abatement tactics, suspension of unpermitted legal operations and implementation of conditional land use permits.
“Many continue to operate as legal non-conforming uses, even though they are anything but legal under applicable statutes,” Pence says, citing that former medicinal cannabis growers have illegally expanded without proper zoning permits and county business licenses.
Pence and other vintners worry about how odor from these grows will affect customers’ ability to smell and taste wine when they visit wineries. As cannabis plants mature and start growing buds, the aromas intensify, and the more plants there are, the greater the stench. “As more and more projects are approved, and a critical mass of cannabis production is achieved, will proximity no longer even matter?” Pence queries.
Odor is a tricky issue. Cannabis, at the state level, does not qualify for protection under the Right to Farm Act, which protects farmers from odor complaints for standard practices such as spreading fertilizer. Instead, cannabis is regulated by laws including county ordinances. Shutting down legal grows due to odor concerns is nearly impossible in Santa Barbara; the county board altered rules and reduced buffers designed by the planning commission, thereby providing broader protection to cannabis farmers from odor complaints.
The coalition has had success negotiating odor controls with enclosed greenhouse operators, but their efforts to engage with open-grow operators have been largely rebuffed.
In the Santa Ynez Valley, to the east, Teddy Cabugos, president of Sunstone Winery, aims to dispel notions that these two crops are incompatible. He was recently approved to cultivate 6.9 acres of cannabis on the winery’s 60-acre property.
“The world and the economy are changing rapidly, and people need to be thinking several years down the road,” he explains. “We’re focused on diversifying the Sunstone brand and capturing new audiences.”
Cabugos ran into a roadblock when several neighbors appealed his project. Fortunately, the appellants withdrew their appeal in March, paving the way for Sunstone to become one of the first wineries in the U.S. to hold a cannabis-growing permit. Reflecting on what’s happening countywide, Cabugos says appeals and lawsuits are holding everything back. “It’s creating animosity, and nobody is talking to the people on the other side of the aisle,” he says.
Cabugos believes his project and others can help demonstrate through education the positives of the cannabis industry: “Cannabis’ newness means growing pains in every region. Our project showed that if we can all listen to each other, express our goals and concerns, and figure a way to try and meet those concerns with solutions, anything is possible.”
Napa County: Not In My Backyard
Cultivation: Banned
Cultivation permits: Zero
Manufacturing: Banned
Retail: Medical dispensaries only
Stephanie Honig, of Honig Winery in Napa’s Rutherford, is president of the Napa Valley Cannabis Association. She worries that Napa has put all its eggs in one basket with ultra-premium wine grapes. With nearly all the plantable land for vineyards exhausted, cannabis may be the only other crop that makes economic sense in Napa, which in addition to its limited size, demands land prices few other crops could return, with estimates in 2019 of up to $250,000 for a plantable acre.
“Cannabis [legalization] is being passed by a landslide everywhere. Why not create an industry that fits within the Napa model and works for us, and not dig our head in the sand?” says Honig.
Currently, commercial cultivation of cannabis is not allowed in Napa County. Honig and the cannabis association are aiming to change that. The group succeeded in getting a measure to allow commercial sales and cultivation onto the ballot in March 2020.
To show good faith, the association pulled the initiative from the ballot, to give the board an option to act. They haven’t, but, says Honig, “Ordinance is always better because if there is a problem, it can be changed, and initiatives require another initiative.”
Those in Napa who believe wine and cannabis can coexist see cannabis as a great opportunity for additional revenue for land not suitable for grapes.
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State regulations forbid the production and sale of cannabis in the same place as alcohol; however, growing on the same parcel is allowed. The proposed ballot initiative would have capped Napa commercial cannabis cultivation at 100 acres—with a maximum of 1 acre per 10-acre parcel, in zoning districts out-of-sight from the valley floor—and established setbacks from roads, residences, wineries, restaurants and hotels. Fencing and security and a plan for wildlife corridors would have also been required.
When cannabis and vineyards grow in proximity, there is a risk of herbicide or pesticide drift between the two. Cannabis intended for commercial use is rigorously tested for inorganic compounds, so contaminants drifting from a neighboring vineyard could be problematic. For their part, wineries are concerned about the possibility that organic compounds called terpenes might be released by cannabis and their flavors absorbed by wine grapes.
Research from George Sellu, program coordinator and agribusiness instructor at Santa Rosa Junior College, appears to offer vintners some reassurance about terpene drift. In 2019, Sellu examined the potential of hemp terpenes (hemp and cannabis are the same species) to taint wine grapes planted nearby, and found no detectable level of terpenes in the grapes. Sellu noted that it is unclear if a larger hemp field or a processing plant would yield different results.
Pesticide drift is a real danger. Any trace of numerous sprays used by vineyard managers, even organic substances, could render cannabis unsellable. Many vintners still use fungicides, pesticides and herbicides in their vineyards. Damage to cannabis crops that result could open them to immense liability.
While some of the Napa Valley Vintners Association’s 550 members favor cannabis, the organization itself stands in firm opposition. “The feeling I get is that it’s just not going to work,” says Rex Stults, vice president of industry relations for the Napa Valley Vintners Association. “We believe they are bad agricultural neighbors. The list of concerns from the leaders in our industry is legitimate, and what has happened so far in Santa Barbara has been disastrous.”
Stults feels that cannabis retail is a better fit for Napa County than cannabis growing. Currently Napa has no adult-use cannabis retail, and only a handful of medicinal dispensaries.
“It’s wise to provide more access. That’s what people want, but those same people don’t want to see cannabis grown here,” Stults states.
More direct access may be on the horizon for Napa. Napa Valley Fumé, a vertically integrated cannabis operation based in Napa, recently obtained a use permit to occupy an existing building in American Canyon, the county’s southernmost city. Though the county has not permitted cultivation, each municipality has the right to its own regulations for cannabis. If Napa Valley Fumé can add a state license and finalize operating agreements with the city, it can grow and manufacture cannabis within the building and establish a delivery service.
While based in Napa, the company’s existing cannabis is grown in neighboring Lake County. But Eric Sklar, co-founder and CEO for Napa Valley Fumé, is banking on Napa Valley. “I believe Napa can be one of the best regions for growing cannabis in the world,” he says. “It’s not my preference to grow indoors. I’m a farmer, I want to grow outdoors, and because American Canyon is part of Napa, we can proudly put Napa on a label.”
Sklar currently generates 1,800 to 2,200 pounds every year from his 1-acre farm, with a value of $1.5 to $2 million, but believes if growing in Napa, where the climate is better, he can grow higher-quality cannabis, which can sell for more than the current $30 to $40 per one-eighth of an ounce.
Sklar also sits on the board for the association and is a vineyard owner. He believes cannabis and wine can co-exist, and even complement each other, and observes that resistance to cannabis in Napa is mainly philosophical and generational.
“They’re worried about hurting Napa’s name, but it already appears on soap, auto parts, olive oil, and other products. People know the difference,” Sklar says. He believes it’s best to take things slow as the association attempts to get people comfortable on a small scale. “We never want to have farmers vs. farmers. We want to be partners and complement each other.”
Honig doesn’t want Napa to look back with regret. She says it’s not about choosing between weed and wine. “We’re not deviating from what we’re doing; we’re trying to complement wine with things customers are going to be looking for.”
Honig argues Napa’s influence this way, “If Napa can make 4% of all wine in California, why not also make 1% or 2% of the state’s cannabis? That adds to the Napa name.”
Sonoma & Monterey Counties: Recipes For Success
| Sonoma | Monterey |
|---|---|
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Cultivation: Allowed Cultivation permits: 126 Manufacturing: Allowed Retail: Allowed |
Cultivation: Allowed Cultivation permits: 477 Manufacturing: Allowed Retail: Allowed |
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Aaron Keefer spent the past decade as the culinary garden lead at famed restaurant The French Laundry. Now, his Sonoma Hills Farm, situated within the newly appointed Petaluma Gap AVA, may be a model for responsible and sustainable cannabis farming in wine country.
“Sonoma has created a space for agriculture in general, and cannabis has been accepted as another piece of that,” says Keefer. Sonoma County is more than twice the size of Napa County, covering 1,768-square miles, so its 60,000 acres of vines don’t need to share tight quarters with cannabis. Sonoma currently has 126 active cannabis cultivation permits and has capped grows at 1-acre. Regulations are stringent, including environmental and land-use studies, avoidance of ecologically sensitive and residential areas, and setbacks from property lines, residences, schools and more. Vegetation and fencing are required for screening.
Keefer farms more than just cannabis; he also raises chickens, cows, pigs, fruits and vegetables, all organically. For Keefer it’s all part of a sustainable lifestyle. “We’re just farming,” he jokes, citing initial concern from neighbors. “When people think of cannabis, there’s a stigma, but the cannabis culture that was, is not what most people are into,” he says, highlighting an increase in property values since he arrived. Keefer wants to normalize cannabis as a plant and aims to be a cultural and educational intersection of small farm cannabis and traditional agriculture.
Keefer wants to be a voice to educate consumers who want to know how their cannabis is grown. “You can grow the same strain indoors in Los Angeles next to a freeway or here in Petaluma; the strain is still the same, but the product tastes different,” he says. He hopes to incorporate tourism into his business, allowing customers to further connect with his brand. “Direct sales through tasting rooms have helped protect wineries and can be equally integral to protect small cannabis brands and farmers.”
Monterey County, like Sonoma, is vast—3,771-square miles, with 45,000 acres of grapevines, nearly half devoted to Chardonnay. It’s also among the top five counties in California in terms of cannabis cultivation licenses, yet there is little friction here.
Kim Stemler, executive director for the Monterey County Vintners & Growers Association, says a collaborative effort in defining what worked best for the agricultural community has resulted in a harmonious relationship. Save for a few outdoor pilot programs, county regulations require that all cannabis is grown indoors.
The nearest vineyard and cannabis operations have 5 miles between them, helping avoid conflicts. Indoor cannabis grows have found vacant space in warehouses from a defunct cut-flower industry. “Because of this, cannabis is largely grown in Salinas Valley, closer to municipalities, while most of the vineyards tend to be on benchlands,” Stemler says.
Outdoor pilot projects far from civilization are under way. The hope is that the data will show that the two crops can coexist. “I think by nature of who we are, as a small community of family-owned farms; all of that stuff makes a difference in how we work as a county,” Stemler says.
Mendocino County: Deep Roots, New Look
Cultivation: Allowed
Cultivation permits: 819
Manufacturing: Banned
Retail: Allowed
Mendocino County was considered one of the state’s premier cannabis territories even before legalization. The county is home to one-third of the renowned Emerald Triangle, an 11,000-square mile region that also includes Humboldt and Trinity counties. As part of the counterculture movement in the 1960s, young people from the Bay Area flocked here for pastoral life. Growing cannabis proved lucrative, and today the Emerald Triangle produces more cannabis than any other place in the U.S.
[article-img-container][src=MagazineArticles/2021/063021/cannabismendo_063021_1600.jpg] [alt= Small cannabis farm in Mendocino, Calif. ][end: article-img-container]
Grows once tucked among the region’s dense redwood forests are now creeping into the valley floor. But the presence of illegal growth remains an issue. “The majority of the cannabis [in Mendocino] is still not legal,” says Jake Fetzer, third-generation winemaker and proprietor of Masút, a Pinot Noir and Chardonnay producer in the mountainous Eagle Peak, Mendocino County AVA.
Fetzer thinks federal legalization should help by taking the black market out of the equation. “It’s hard to compete with guys that don’t follow the rules,” he notes, pointing to water resources, which is a big issue in drought-afflicted California.
Estimates show that an acre of cannabis uses more than 1 million gallons per year, compared with approximately 100,000 gallons per acre for wine grapes. Fetzer reports seeing dozens of water trucks journey into the hills, particularly mid-year once the creeks start to go dry. “In some cases, they take district water and pull it into the middle of nowhere; but, the water issue here is bringing the grows closer into the valley.”
As a result, cannabis and grape farmers are increasingly finding themselves in close proximity. For now, there has seemingly been little animosity, with even older grapegrowers learning to tolerate the unsightly hoop houses and occasional smells.
“From my house looking down on the valley, I can see where vineyards once stood, and hoop houses are in their place,” laments Gregory Graziano, owner of Graziano Family Wines, whose family has been growing grapes since 1918 and who is saddened to see vineyards turned to cannabis.
Mendocino stands in stark contrast to Napa and Sonoma in terms of land prices and luxury reputation. Demand for the region’s grapes is waning, and the average price per ton is just $1,493, compared with Napa’s $4,591. Large portions of grapes from its 17,000 acres under vine sell to large entities outside the region. During these difficult times, some small farmers see salvation in cannabis.
“Some growers are desperate and have planted cannabis in the hopes of possibly keeping things going,” says Graziano. Others are selling or leasing property to cannabis growers.
“In many ways, it’s become a depressed economy here, with few people willing to take a risk on making their own [wine] label, and reliant on larger wineries to buy grapes,” says Fetzer.
Cannabis and grapes also compete for labor, as the cannabis harvest coincides with the grape harvest, peaking in October. Both Graziano and Fetzer have seen workers leaving vineyard jobs to go trim cannabis. “We’re having trouble finding labor because the cannabis farmers can pay more for less strenuous work,” Graziano explains.
With regard to tourism, however, cannabis and wine might be complementary. Chris Vardijan and Misha Frankly, co-founders of Mendocino Experience Cannabis and Wine Tours, parlayed their background in the wine tour business to serve tourists hoping to get a firsthand look at the state’s premier cannabis region.
“When cannabis became legal, we saw the parallels [to wine tourism] and made a quick pivot,” says Frankly. “There is deep generational farming and knowledge, much like with wine.”
On a typical tour, guests visit dispensaries, farms and cannabis processing facilities. On-site consumption permits for cannabis are extremely limited, but the few Mendocino County locations with licenses can offer sampling.
“Bringing people in is always a good thing,” says Graziano of tourism in the area. “Those that know the [wine] industry don’t have a problem with people visiting cannabis farms, and maybe they’ll visit wineries as well.”
What Will Customers Reach For?
A Venn diagram for current cannabis buyers and wine buyers probably shows little overlap, but that is more of a function of the immaturity of the cannabis market. Cannabis has been legal for a short amount of time, and consumers are still discovering it. So it remains unclear how many consumers will trade a glass of Chardonnay for one of cannabis’s many forms, or elect to sample both.
Francis Ford Coppola Winery sees cannabis as a way to engage a different audience. In 2018, the winery partnered with Humboldt Brothers, an organic, sun-grown cannabis farming company, to launch a limited-edition Coppola-branded cannabis product. Sold in high-end dispensaries throughout California, the tin canister, shaped like a 375ml wine bottle, included rolling papers, branded matches, a glass pipe and three different strains grown by Humboldt Brothers.
“The idea was to bring a trusted brand to people who are visiting dispensaries and say, ‘Here’s a brand that you know from wine, and here’s what we know about cannabis,’” says Corey Beck, CEO and winemaking chief for the winery.
Cannabis beverages are a more direct competitor to wine. They include de-alcoholized wine or beer infused with the cannabinoids THC and CBD, creating a low-dose drink comparable in effect to a glass of wine for its intoxication level. Currently, beverages account for just 5% of total cannabis sales but they are seen as a good introduction to cannabis, with great market potential, illustrated by Constellation Brands’ 2018 $4 billion investment in Canopy Growth, a Canadian cannabis company.
The range of products available for cannabis consumers—from those focused on medicinal benefits to connoisseurs of specific flavors and qualities—casts a wide net. Wine lovers may relate to the connoisseurship aspect. As cannabis becomes more recreationally accessible, people with high-end tastes may spend their dollars across multiple segments. For now, though, future market share is difficult to predict.
Projections about California’s cannabis industry are challenging. Only a third of the state’s cities and counties have an ordinance allowing recreational cannabis. While more are planned for the coming year, the growing pains in California wine country show us that there are both synergies to be developed and potentially more conflicts in store.
In Napa, many believe it’s not a matter of if but when. “The question is whether or not Napa will want to get in and be a leader,” says Sklar, citing that if the board doesn’t move on adopting a cannabis ordinance, the association will start gathering signatures for another ballot measure. “These opportunities were put in place when the legislative body doesn’t act in favor of the public,” he adds.
Sonoma’s Keefer believes the county has seen positive growth and will soon expand its regulations from a 1-acre maximum, to allow 5% or 10% of the land. “Its hard to compete when neighbors are doing more,” he says, referencing Lake and Mendocino’s more lenient regulations. And wineries like Coppola and Sunstone demonstrate a bridge between the two worlds.
One of the biggest challenges facing legal growers is the illicit market, where growers can charge less without paying taxes. There’s a 15% excise tax and 7.25% sales tax on retail, plus local cannabis business taxes that can be as high as 15% in some cities in California. Additionally, there’s a $9.65 per dry ounce cultivation tax. All said and done, customers end up paying 20% to 40% more than the product’s actual value.
Another challenge, especially for small growers like Sklar and Keefer, is healthy competition. But Sklar believes there may be a falling out or consolidation due to some businesses’ inability to scale.
The roadmap for cannabis has many potential destinations. If federal legalization takes hold, the U.S. cannabis industry is anticipated to garner $100 billion by 2030 (BDS Analytics). California is likely to control the lion’s share due to its geographics and population size. “California supplies more than half the country’s wine, and the majority of numerous other types of crops, and I think it’s eventually going to be both the biggest producer and consumer cannabis market in the world,” says Sklar.
California-grown cannabis is projected to boom over the next few years and account for 20% of the nation’s growth in the product by 2025. California leads all states, with $4.4 billion retail sales in 2020, representing about 27% of all legal sales in the United States.
Beck believes the best way for the wine industry to answer cannabis’ robust push is to innovate, including creating new products and experiences, as Coppola has done.
“What we do in California will help set a precedent as other states open,” says Beck. “We want to be as close to it as possible, and that comes through education, so we can make better decisions about how to run our business.”
