In plain sight: California illegal pot market booming

https://apnews.com/ca7e90e59cab4d2e850d1ad22219ee47?te=1&nl=california-today&emc=edit_ca_20190819?campaign_id=49&instance_id=11749&segment_id=16287&user_id=ad1d38d7aeb88df9a49d1052fc4f5fba&regi_id=4617603

by prostoalex • 7 years ago

32 49 7 years ago

apnews.com

ggg3• 7 years ago

illicit source

Because everyone wants our taxes to crack down on every herb garden in the neighborhood that evades taxes! specially the heirloom tomatoes! those creates multi-generation lost taxes oportunities!

everything that is somewhat not-ilegal will have small scale informal market. Friends grown their own tobacco, roast their own coffee... and all sell a little on the side.

how dense you have to be to think a literal weed would be different?

bigwavedave• 7 years ago

I really wish I could understand what you're saying here, friend. Please revise your comment because your point might be interesting and I'd like to know what you're saying.

liability• 7 years ago

I can't fathom why you got a negative response for this comment. You seem to be precisely right.

Down the road from where I live, there is a family with a veggies stand in their front yard. They sell anything they grow in their modest greenhouse but don't manage to eat. Leave a few dollars in the jar and take a basket of tomatoes, cucumbers, etc.

When cannabis is normalized in your community and people grow it for personal consumption, there will invariably be some left over that gets sold to family, friends, neighbors, etc. These sort of small local transactions are totally outside the purview of any government. The family down the road from me doesn't have a license for their veggie stand, I doubt they pay taxes on the proceeds, and nobody gives a shit because this is the way it has always worked and it's a generally pleasant and agreeable arrangement.

Ericson2314• 7 years ago

Probably the federal ban and lack of access to regular banks explains this too? I assume a lot more capital would flood in otherwise.

codeddesign• 7 years ago

No, they give you the answer in the beginning. High taxes on the legal pot, and extremely low prices on the illegal pot that has flooded the market.

BigChiefSmokem• 7 years ago

I wonder if the boom in illegal pot (driving prices down) is due in part to the oversupply from the legal side, since prices seem to be fixed on that end, mainly due to taxes and overhead. It is a strange structure that has developed.

ksaj5• 7 years ago

Canada is essentially having this same problem. CannTrust is an example of a legal pot company that got caught growing and storing illegal pot.

The same problem applies: the taxes, and basing all the prices on the gram street value instead of allowing for scale, like with street Ounce pricing. Lots of people pay $10 for a dime bag, but nobody pays $280 for an ounce on the street unless it is truly spectacular...

Likewise, since legal weed isn't sold in dime bags, the prices shouldn't be based on dime bags... especially if you are buying a large amount. Even beer pricing works that way (the difference in price between a single can or bottle, and the per unit price of a 24 case is significant.)

jefftk• 7 years ago

I had assumed they the prices were set by the market, and were high because the legal pot market is still very small and at several kinds of disadvantage compared to the illegal one.

Are you saying the prices are instead set by the state? Or are you just referring to taxes?

ac29• 7 years ago

Never been to Canada, but the taxes appear to be a % of sales price, not a per-gram basis: https://www.canada.ca/en/revenue-agency/services/forms-publi...

johnisgood4• 7 years ago

I had assumed they the prices were set by the market

How could this be the case when the Government distorts the market by price controls, subsidies, regulations, and so on?

qes• 7 years ago

There's enough people willing to pay $10/gram for legal weed, and limited enough supply, that there's no impetus to charge less. Why would they?

In my non-legal mid-western state, quality indoor (I suppose you could call it spectacular) fetches $300/oz all day long.

ksaj5• 7 years ago

Well, I guess at least we're cheaper than that since $300 will easily get you 30g at the legal venues. (an ounce is 28g) Still, on the street that is quite a crazy price to pay for it, since an ounce is much close to $200 than 3.

Scoundreller6• 7 years ago

enough people

I think the proper denominator here is kg of product, not number of people.

Yes, the occasional consumers don’t care about 8 or 12$/g, but the heavy consumers do, and they’re the bulk of the market in terms of consumption.

calibas• 7 years ago

It was "legalized" here, and for a little while you could buy local, outdoor grown cannabis legally and cheaply. Then they regulated it so much that everyone but the large operations can no longer stay in business, so in many ways we've gone right back to where things were before it was "legal".

stochastic_monk• 7 years ago

I wonder how much of this is cost. As far as I understand, the prices are quite high because it’s taxed so heavily.

jl2718• 7 years ago

Except that now illegal pot delivery services are venture funded and drag race around my neighborhood in mustangs with pot leaf paint jobs.

kevin_thibedeau• 7 years ago

They should start a pro race series.

Scoundreller6• 7 years ago

At least you can grow your own now.

scruple• 7 years ago

But I could do that before with a medical card, too...

acomjean• 7 years ago

There exists a black market in “tax free” cigarettes is states where they are available (Native American land doesn’t impose state taxes).

Has legalization increased demand in general?

erikpukinskis• 7 years ago

Surely it has, the increased advertising alone would increase demand.

ddoolin• 7 years ago

How can/does a consumer know if the shop they are visiting is illicit? I believe the shops I patronize operate legally, or at least for the most part - the prices are still much lower than the black market prices where I came from. However, the problem seems to lie with the shops, not their patrons.

tomc1985• 7 years ago

The shop probably looks and operates like they did a few years ago, instead of how they should be currently (glass containers for everything, everything sold as eighths, no bulk discount)

siempreb• 7 years ago

Maybe if legal weed would be certified 100% non-poisonous, organic, etc.. there could be more traction for legal. The government should be able to enforce this.

deepakhj• 7 years ago

My friend’s farm in Mendocino is 100% organic. He grows for Flow Khana.

gumby• 7 years ago

True on the supply side too. I have a home in Calaveras county where pot farms were banned by referendum (“you wouldn’t want one next to your vineyard, would you?”). Funding for the referendum came from...the illegal growers who didn’t want the competition.

https://www.abc10.com/article/news/local/aftermath-of-a-ban-...

dumbfoundded2• 7 years ago

So I work in this industry.

A few of the problems:

- Taxes and really tough regulations. As mentioned by the article, taxes are stupid high, upwards of 40% in some counties in California (CA).

- Lax enforcement. The risk of growing illegally has diminished significantly. Other non-legalized states provide a giant market. People grow at scale where it's safer in CA/OR/WA and then send nationwide.

- The transition has been more or else outright reckless. Before 2018 in CA, most dispensaries and growers operated under medical licenses. Regulations were pretty relaxed. Taxes were low. Customers just had to spend $25 and 20 min on a website to get a medical card. On Jan 1, 2018, something like 85% of dispensaries went out of business. They couldn't handle the change in regulations. Everything from taxes, building renovations for security/fire, re-zoning. Lots of problems. Do you think these people just gave up? They had customers and supply chains and then you take away their legal way to sell. You also took away enforcement for selling illegally.

- Time. Weed was 100% underground (or at least medical) before 2018 in CA. Now it's like 75% underground. It's going to take time for the transition to happen. Like if you're in college and you buy weed from a friend. It's good stuff and he sells it cheaper than the dispensaries, are you going to stop? Probably not. You were doing it before it was legal. Why change now? Most new customers use dispensaries. You have to provide the existing people a reason to switch.

wpietri• 7 years ago

Yeah, time/inertia strikes me as a huge one. I'm impressed that the business is already 25% legal; that sounds like a huge transition to me.

I don't know the specifics of the regulation, and I'm sure there's a lot that can be improved. But I'm ok with toughness in general. The weed stores in my area are clean, orderly, well-run businesses. I'd love to see the liquor stores brought up to a similar level, as some of those are sketchily-run trouble magnets.

johnisgood4• 7 years ago

http://reason.com/reasontv/2018/04/02/californias-new-recrea...

California's Legal Weed Is So Heavily Taxed and Regulated That the Black Market Might Survive

I am not surprised by this.

Scoundreller6• 7 years ago

The same thing is happening in Canada too, particularly in the provinces that are taking their time in distribution network setup (looking at you Ontario).

TaylorAlexander• 7 years ago

Yep. I buy from dispensaries but I wish I could just buy it from a friend. Taxes are like 25%. The municipalities absolutely took advantage of weed smokers as a constituency with little political representation to cash in on legalization. It places a huge cost on operating legally. As someone once said, marijuana isn't fully legal in California until its as regulated as basil or oregano.

jlarocco• 7 years ago

Any thoughts on why it went so badly compared to Colorado?

I think your first and third points are the key to it. CO has lower taxes, and as far as I know, when rec dispensaries were legallized it didn't change much for the med businesses. Dispensaries that wanted to sell recreational had some extra work to do, but they were able to keep their med business going while they added rec.

dumbfoundded2• 7 years ago

A few thoughts:

- CA is just a much bigger state. You have a more diverse population, more diverse interests. Everything gets harder with scale. For example, in many CA counties, growing became illegal where it was previously medically legal. I talked with farmers in Nevada County who couldn't grow anymore. Farmers in Humboldt loved this and tried to create Agricultural Associations (I forget the specific legal name). These were legally mandated dues you would have to pay if you were a farmer and then Humboldt tried to give themselves all the board seats and solidify their position over Nevada County. I'm going a bit deep into the weeds here but I'm trying to demonstrate how complicated and messy the interests are with larger states. CA is also actively preventing the hemp industry from developing in the same. Cannabis seems to be the industry pushing hardest against hemp in CA. Crazy, right?

- The laws were poorly written. Too much was left up to counties. Counties that were frankly totally unprepared for writing regulations and enforcement. The equivalent is dry alcohol counties.

- The underground market was much more developed in CA than in CO prior to legalization. CA/OR/WA supplied much of the US. Even supplying itself, CA developed complex supply chains before legalization. These don't just go away.

- The culture. Smoking weed in CA seemed much more widely accepted when it was illegal than it did in CO. For actual people, most didn't really notice when weed became legal. If you wanted to smoke it, you were probably already smoking it. Of course, it was a huge delta for the industry but the average person doesn't care much. As an example, I used to work in the tech industry as a software engineer. One time a coworker visited from another office out of town, bought some weed, had some left over, and gave it to me by leaving it on my desk overnight. I came in the next morning, my room and desk smelled like weed. I made a joke about it and no one cared. I've smoked weed with my boss's boss on the roof of the office building. When I started a cannabis company, I visited my old office and brought samples. People went outside to try it at like 11am. The culture is just so insanely different.

mindslight• 7 years ago

Alternative interpretation: Government's ability to dictate what people put into their own bodies continues to falter.

Essentially the state was lured into removing the blanket illegality, from a desire to take a large cut of those prohibition-era street prices. But that blanket illegality was the primary thing maintaining the high prices! Now a veil of prima facie legality gives the free market operations a new avenue to cut costs.

Let's hope this trend continues. Simply giving up on "the war on drugs" is a better outcome than boot-kissing "tax it" distributors entrenching another corporatized regime like for alcohol.

bgentry• 7 years ago

The situation in California is substantially worse than most people are aware. Many of the large well-funded operations have also been severely disrupted since adult use legalization. Most of the blame belongs to the CA bureaucracy which has completely bungled the rollout of legalization.

CA took so long to issue annual licenses that many cannabis businesses' temporary licenses were going to expire before they received annual licenses, and the state's own authority to issue temporary licenses was going to expire before they could fix the situation (July 1). The result would be that the vast majority of the state's legal cannabis businesses were at risk of finding themselves without a license.

To fix this, the state regulators had to petition the legislators to pass an emergency resolution giving them the authority to issue a "provisional" license, which is basically a mix of a temporary and an annual license (including all of the track-and-trace requirements of a full annual license). Yet even after doing this, the state failed to issue provisional licenses for a huge fraction before July 1. Even as of today, many businesses which were operating in full compliance and with every intention of following the rules are operating without a valid license due to this gap, though I think the state has finally almost finished issuing provisionals.

Another major aspect of this is that as each licensee gets their provisional license, they must begin tracking all of their inventory operations on the state's cannabis track-and-trace system, powered by Metrc. The state is woefully unprepared to train licensees about all of the requirements of this system, and there are gaps between what the rules say and what the system actually allows you to do. Third party software providers that integrate with Metrc (like us, Distru) are also in the dark on much of this, because Metrc has only minimal documentation, is full of bugs, and doesn't offer a complete sandbox/test environment. The only way to really figure out some aspects of the system is through trial and error with live customers. We're much further along on this than most (this was my 3rd implementation of a Metrc sync engine so it's robust enough to deal with many of their issues); but there are still edge cases that are impossible to handle well.

When there is a major bug in their software (such as the GET endpoints for transfers straight up not working when they should) Metrc does not fix the problem. When there are gaps between the regulations and Metrc, Metrc won't answer and says to "talk to the state". The state won't answer (likely because they don't know) and sometimes says "talk to Metrc". We're doing our best to help our customers and train them on things the state isn't prepared to just so our customers can keep operating, but the unfortunate reality is that our hands are often tied.

The above is just a glimpse, but there are so many more issues. Banking is of course a huge problem until congress acts to fix it. Operators often have to pay their taxes by driving giant bags of cash to one of the few state offices, or to an authorized bank branch. One of our customers brought their giant bag of cash to pay their taxes directly into the state's bank account at Bank of America, and the bank's fraud systems shut down the state's bank account temporarily as a result. Add to this the regulatory variations at the local levels where most cities and counties are still outlawing the industry, and the absurdly high taxes some are trying to impose, and it's no surprise that things are going so poorly.

California could have followed the proven playbooks that other much smaller states had successfully used to roll out their regulated industry; instead we are almost 3 years into the adult use era and it is still a complete shit show.

---

Obligatory footnote: Distru is doing well in spite of this environment and we're confident we will help our customers through it. All of the above is really an opportunity, and we've been building out a world class team to help solve these supply chain problems. If you find this industry as fascinating as I do, and want to work on software that makes a huge impact on the industry, please reach out :) blake [at] distru or https://www.distru.com/careers

cmrdporcupine• 7 years ago

Basically the same scenario in Canada. The black market hasn't gone away in the slightest. And that was the stated aim of legalization, and one of the arguments against just decriminalizing possession was that legalization would put curtains on the black market trade. But I don't think the official channels will ever compete with the cost structure of the black market.

That said, it is a bit ridiculous at this point, alcohol is more regulated than cannabis in Ontario. I have a 6 acre property and a 1 acre vineyard, but if I were to try to make and sell wine to the general public I'd be raided by the police and sued into oblivion by various regulatory agencies. There's a huge pile of regulations that I can never meet: insufficient acreage, wrong grape types, wrong part of the municipality, wrong dimensions for property, etc. etc.

And yet it seems like there's a new illegal weed dispensary popping up in my area every week, and enforcement against them is lax.

masonic• 7 years ago

Longtime CA DF&W officer John Nores has written and spoken extensively on the problem of illegal grows, the largest generally operated by Central American gangs.

http://www.johnnores.com

In plain sight: California illegal pot market booming

Related Stories