It’s been nearly two years since California legalized recreational marijuana, and despite promises to curtail the illegal market, California’s black market continues to thrive. In 2018, according to estimates, about 78% of all marijuana sales in California occurred on the black market. That number (and the associated lost revenue for legal marijuana-related businesses and the California treasury) is frightening.
The causes for the thriving black market are many and the solutions unclear. While certain cities like San Francisco and West Hollywood have acted swiftly to issue permits to sell marijuana, other cities like Los Angeles have been much slower. Fewer permitted entities means fewer legal outlets for marijuana sales and a more substantial vacuum for the black market to fill. Los Angeles has tried to limit the black market through enforcement, spending $14 million to shut down illegal dispensaries, conducting city-wide raids resulting in the closure of 108 unlicensed businesses, and levying $20,000 fines for every day an illicit dispensary remains in operation. It is unclear, however, if these measures are having a demonstrable effect.
While some local governments are acting slowly in issuing marijuana permits, others are not issuing any at all. According to California Bureau of Cannabis Control spokesman Alex Traverso, “[o]f all the 542 cities and counties and countries we have in the state, collectively, only a quarter of those allow retail locations.” As we wrote about here, the California Assembly is considering legislation to force more local governments to allow retail marijuana sales within their borders, despite the fact that allowing local opt-outs was a key promise made by pro-legalization advocates.
California’s high taxes on recreational marijuana are another contributing factor. As we wrote about here, California marijuana taxes climb as high as 45%. Combined with the lack of retail stores in many jurisdictions, it is oftentimes more convenient and less expensive in California to buy marijuana on the black market.
To its credit, California acknowledges the problem and is attempting to craft solutions. If it were up to us, such efforts would start with easing the tax burden and streamlining the permitting process so that marijuana would be more accessible and less expensive than it is now. But those are certainly not the only options, and in a market as large as California, even a marginal reduction in the percentage of black market sales could have a significant impact.
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