Despite cannabis proponents’ promises to eradicate black market weed, illicit grows and deals are doing just fine in California. In fact, the illicit markets may rake in almost triple the cash that the legal market has.
According to a new market report by BDS Analytics, a cannabis data firm, California is set to sell a record-breaking $3.1 billion in legal weed this year. That’s significantly more than the state sold in its first year of legal sales, at $2.5 billion.
But California’s illicit weed sales are estimated to reach $8.7 billion this year, nearly three times the amount sold through the state’s complicated — and pricey — licensing system.
“The illegal market is competitive because legal marijuana is so expensive to produce under Prop. 64,” Dale Gieringer, director of Cal NORML, told the LA Times. Cal NORML supported Proposition 64, the state bill that legalized adult-use weed, though the organization did not give its backing to every regulation in the bill.
Why is legal weed so expensive to produce in California? First, there are licensing fees for every legit pot operation. Cultivators can expect to drop anywhere from $200 to $8,600 per year for a license just to grow weed. Retail stores must also purchase annual licenses to sell, which can range from $100,000 to $300,000 a year depending on the store’s overall volume of business.
And that’s just for licensing. Cannabis entrepreneurs must also fork out cash for regulatory consulting, attorneys’ fees, accountants, non-stop lab tests for product safety, and construction companies to ensure their properties are compliant with the state’s strict building codes. The cost to start a legal cannabis business can easily reach $1 million based on these factors alone.
Gallery — Shit Tons of Weed That No One Is Smoking But Cops:
On top of all these costs, licensed weed businesses cannot make standard tax deductions like other industries can. Since they cannot make tax write-offs, their tax rate is well over 90 percent, so financially gouging the consumer remains part of the legal industry’s best interests, unfortunately.
Speaking of taxes, for the consumer, there’s the added cost from state taxes. California taxes legal weed under a tiered system, so each plant grown is taxed during cultivation, then it’s taxed again at the point of sale.
All these costs add up to some expensive-ass weed which many retail shoppers say is vastly inferior in quality compared to black market weed. Yet, instead of changing the regulations to place the legal market on equal footing with illicit operators, the state decided to take a hardline approach (as if that worked in the past) and ramped up law enforcement actions against black marketeers. Earlier this year, California’s Governor Newsom even called in the state National Guard to raid illegal pot farms and storefronts.
“Unless the state acts to lower the taxes and lower the regulatory load, they are making the illicit market participants happy campers by keeping them in business,” said BDS Analytics’ principal analyst and managing director, Tom Adams, to the LA Times.
BDS Analytics predicts that California’s legal weed market may grow past $7.2 billion in 2024, but illicit sales will still be right behind, at $6.4 billion the same year.
“Any market in the world would be ecstatic about a 23 percent growth rate,” Adams said. “That is fabulous for any industry to have that kind of growth.’’
The only other US state that has surpassed the $1-billion mark in annual legal weed sales is Colorado, which became the first state to launch recreational pot shops in 2014. Not surprisingly, black market weed is doing just fine in Colorado, as well.
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