California’s Legal Pot Industry Is Still Failing Miserably

It’s been more than five years since the Golden State passed Prop 64, but legal sellers are still getting badly beaten by the illegal ones—and sometimes they’re the same people
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When California voters legalized recreational marijuana with the passage of Proposition 64 in November, 2016, pot users and those who service them looked forward to a kind of weed renaissance in which dangerous dealing in dubious strains would be a thing of the past. Five years later, users and providers alike have seen that dream wrecked by an unconscionable bureaucracy, outlandish taxes and fees, crushing competition from the black market, and more taxes.

Today, the state’s illegal marijuana market is worth an estimated $8 billion, roughly double that of legal sales, the Associated Press reports. And there’s little reason to think that’s going to change.

A grower north of Sacramento who has one the nearly impossible-to-get licenses to sell cannabis says that between the wholesale price of cannabis buds dropping as much as 70 percent since last year and taxes up to 50 percent in some places, his customers will turn to underground buying whether he meets them there or not. So he does what he must.

“We basically subsidize our white market with our black market,” the cultivator tells the AP.

“It’s not too hard,” the grower says, to evade the state’s vast, computerized “seed to sale” tracking system. There are few on-site inspections to verify records, and plants vary widely in how much they produce, allowing farmers to get creative in what they report. In fact, the grower says some legal operations unload as much as 90 percent of their crop on the illicit market.

Kristi Knoblich Palmer, co-founder of edibles-maker KIVA Confections, says it’s not the fault of growers and consumers that this particular California dream is dying fast.

“To have this system that now appears to be failing, having people go back into the old-school way of doing things… it does not help us get to our goal of professionalizing cannabis and normalizing cannabis,” she tells the AP.

“Licensed players are the good guys,” Knoblich Palmer adds. “Yet it just never feels like we’re being treated like we’re on the right side of history.”

Even when rural growers try to play it straight, legally selling their wares in even the most liberal of cities can be a profitless gamble. In Los Angeles—if you have the magic, the cousins, the celebrity clout, or whatever it takes to score a license here—real estate costs, attorneys, licensing fees and inspections can run you $1 million before you sell your first honest ounce of Sour Secret.

Further stymying the legal dealer is a saturated market that has seen wholesale prices plunge from $1,000 a pound a year ago to $300 today. And with the “cultivation tax” on that $300 pound running as high as $150, what’s a seller to do?

When Prop 64 passed, then-lieutenant Governor Gavin Newsom predicted it would be a “game changer.”

Last month, about two-dozen industry leaders sent Newsom a letter telling him what they think of his game.

“The California cannabis system is a nation-wide mockery,” they wrote, “a public policy lesson in what not to do. Despite decades of persecution by the government, we have been willing and adaptable partners in the struggle to regulate cannabis. We have asked tirelessly for change, with countless appeals to lawmakers that have gone unheard. We have collectively reached a point of intolerable tension, and we will no longer support a system that perpetuates a failed and regressive War on Drugs.”

They point out that two-thirds of California cities have no legal dispensaries, since local bureaucrats still authorize sales and production within their little fiefdoms. The cannabis leaders say retail shops must expand to more areas if their industry is to survive. They also want the cultivation tax lifted immediately, as well as a three-year holiday from the excise tax.

Instead, the California Department of Tax and Fee Administration just went ahead and raised the cultivation tax by almost five percent, to an astonishing $161 per pound—despite a healthy $31 billion state budget surplus.

Tom Adams, chief executive officer of research firm Global Go Analytics, looked at the numbers, and perhaps the state lawmakers should as well.

“When you have quality, price and convenience working against you, that’s a challenge,” Adams tells the AP. “The illicit market has all three of them.”

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