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Marijuana Industry Struggling As Black Market Sales Nearly Triple Legal Sales In California

Legal vendors are facing higher taxes and layoffs

By Evan Symon, November 27, 2019 4:06 pm

Estimates for 2019 Marijuana sales recently released by the state of California show that legal marijuana will have over $12 billion in sales. While seemingly high, only about $3 billion is to come from legal marijuana sales. The rest of the nearly $9 billion comes from black market sources, and it is causing massive problems in the still-fledgling marijuana industry.

Some customers simply want variety that stores don’t provide

“There’s a lot of reasons that people in government fail to see,” said Victor ‘Vic’ Kendall, who helps manage a cannabis dispensary in Los Angeles. “It’s often cheaper to buy it from the guy who is growing it at a few farms up north. Plus you get more variety from them, who like you said, are the ‘black market’. They grow so many more strains than we do and they get different types of customers.
“Not many people know this, but a lot of older customers, above 50 and 60, actually buy this way because they find that marijuana is a lot more stronger than it was when they were young. Even our least potent strains can’t compare to what was around 50 years ago, so they go there.
The people on the black market simply aren’t going away though. Many were growing and selling before it became legal, and nothing changed for them. And that’s been hitting us hard. We had to have layoffs here for the first time ever a few months ago because of sales falling. Customers who haven’t come in for a while we called and they said they found someone else for a better price, and that always means a classic dealer or a connection they have.”

The fight against lowering marijuana taxes

Assemblyman Rob Bonta. (Kevin Sanders for California Globe)
Taxes play a major role in making legal marijuana more expensive than non-legal weed. When Proposition 64 was passed in 2016 it automatically raised taxes based on inflation, which made legal marijuana prices go up even higher. 
With high prices partially fueling the downturn of legal marijuana outlets, some lawmakers have tried to change the laws through legislation. Assemblyman Rob Bonta (D-Oakland) has been the most vocal lawmaker in Sacramento, writing up two bills in the past few years to lower the marijuana tax. But other lawmakers, not wanting to see a decline of a new revenue stream, have voted no against passing them. His last bill, AB 286, never made it out of the Assembly and fizzled out in May, despite the tax reduction only being temporary.
“This short-sighted move ignores the realities that licensed businesses are at the breaking point, with many struggling to survive,” said Assemblyman Bonta of the most recent marijuana tax hike, reiterating his stance on lowering the taxes.

Cutbacks and high costs

And much like Kendall’s dispensary, many marijuana outlets across California are cutting back employees. Some familiar with the industry have called it an ‘epidemic’ of layoffs. Meanwhile black market sales continue to thrive, especially in places such as Riverside County. While the legal industry has around $3 billion in sales, raids alone of illegal grow houses were estimated to be at a $1.5 billion value.
“It’s not surprising,” explained budtender Annie-Lee Schultz, who worked on a variety of marijuana farms in Northern California before working at a marijuana store. “Many people thought that the dealers would go away overnight, but they simply haven’t. It’s still the cheaper option, you can get way more types, and there’s way less overhead.
I mean, there’s a lot of costs when it comes to opening, say, a shop that sells marijuana or edibles. And that has scared many away from going that way. They make way more money when it’s all under the table.”

Too few places to legally sell

The lack of available places to buy marijuana legally especially in less populated areas, also contributes to the large black market.

“A lot of cities put strict limits on the number of stores that can sell marijuana products,” said Kendall. “Some cities that don’t have stores also put places under review for a license forever. And there are commercial property landlords who refuse to rent out to those people when they know what business it is, but then disguise it as just losing out to another renter.”

“I know a strip mall in LA where the same owner has given the same excuse three times to a vacant store in the past few years. It remained vacant for two years. He would rather lose money that rent to a marijuana shop.”

“That’s a big part of the problem. You can blame the black market, and they’re a big problem, but you also need to blame people who are skirting the new law like that.”

Despite resistance, change is finally coming due to decreased tax revenue

With the state now lowering projected marijuana tax revenue for the next fiscal year, first steps to a more regulated and reformed system seem to be happening. Marijuana industry leaders are setting up meetings with those in the government, including the Governor, to go over the issues. Lawmakers have hinted that more marijuana industry regulations will be coming up as bills in the next session. And more marijuana stores are expected to open in 2020 to push out more black market dealers.
Whether it will be enough is the big question.
“I hope so,” said Kendall. “We need it. People are literally leaving the legal stores for the not-so-legal secondhand ways.”
“Now that a big chunk of incoming tax money is at stake, they’re doing something.”
“At least there’s hope for us yet. We can’t afford to lose any more hard working employees.”
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Evan Symon
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7 thoughts on “Marijuana Industry Struggling As Black Market Sales Nearly Triple Legal Sales In California

  1. It is time for the Cannabis Industry to stop playing patty-cake with the State, demand that the we the voters get what we demanded through the proper channels, and it is time to demand that all the immoral taxes and fees charge need to end. This isn’t about Cannabis for fun, this is also about the medical choice to use Cannabis, and the most important, the Right to put in our bodies what the hell we decide…not the State.

  2. Anyone buying black market marijuana is smoking cancer causing chemicals too and not pure MJ. So those searching for a high or trying to use the black market to help their medical issues are going to pay the price eventually. Stop the high taxes and let people have safe medical MJ.

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