Marijuana

Thanks to Heavy Taxes and Regulations, California's Legal Cannabis Sales Fell After Recreational Stores Opened

The market's performance is falling far short of predictions.

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Lucy Nicholson / Reuters / Newscom

State-licensed sales of recreational marijuana began a year ago in California, and so far things are not turning out quite the way officials expected.

While "state officials estimated there would be as many as 6,000 cannabis shops licensed in the first few years," the Los Angeles Times reported last week, "the state Bureau of Cannabis Control has issued just 547 temporary and annual licenses to marijuana retail stores and dispensaries." The New York Times notes that legal cannabis sales totaled $2.5 billion in 2018, which is about $500 million less than in 2017, before the first recreational shops opened. Marijuana tax collections amounted to $234 million at the end of September, which suggests the total for 2018 will be less than half what officials predicted and less than a third of the $1 billion annual haul they were expecting within a few years.

What went wrong? Nothing really surprising. California is regulating and taxing the hell out of cannabis, which makes it hard for legal suppliers to compete with the state's longstanding, extensive, and highly developed black market.

To begin with, marijuana businesses need local as well as state approval. Retailing is allowed in just 89 of California's 482 cities and just six of the 88 municipalities in Los Angeles County. State law permits home delivery, which should provide a way around local bans, but the Bureau of Cannabis Control has yet to finalize a proposed rule that says deliveries are allowed in towns where storefronts are prohibited.

Even when there is no local ban, would-be marijuana merchants need permission from the local government as well as the state, a dual licensing system that doubles the regulatory headaches. Licensees are subject to the Medicinal and Adult-Use Cannabis Regulation and Safety Act, the Bureau of Cannabis Control's regulations, and whatever additional rules the local government imposes.

"The cannabis industry is being choked by California's penchant for over-regulation," Dale Gieringer, director of California NORML, told the L.A. Times. "It's impossible to solve all of the problems without a drastic rewrite of the law, which is not in the cards for the foreseeable future." Cannabusinesses are also hampered by a shortage of banking services, since financial institutions remain leery of serving customers who deal in products that are banned by federal law.

If they manage to get licensed, comply with all the relevant regulations, and find ways to pay expenses and process sales, marijuana merchants still must contend with black-market competitors who are not subject to those regulations or to state and local taxes, which can add 40 percent or so to the retail price. Among states that have legalized recreational use, California has the second highest taxes, bested only by Washington, where the total rate can be as high as 47 percent. By contrast, Alaska collects $50 per ounce from growers, while Michigan's legalization initiative calls for a 10 percent retail tax.

"Because we are up against high taxes and the proliferation of illegal shops, it is difficult right now," the owner of a pot shop in Wilmington told the L.A. Times. "We expected lines out of our doors, but unfortunately the underground market was already conducting commercial cannabis activity and [is] continuing to do so."

Despite their avowed desire to displace the black market, legislators and regulators acted as if it did not exist. "There's always been a robust illicit market in California, and it's still there," industry analyst Tom Adams told The New York Times. "Regulators ignored that and thought they could go straight into an incredibly strict and high-tax environment."

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  1. It’s pretty telling that the cost of compliance is greater than the cost of the risk of getting caught selling it on the black market.

    1. What they should do is outlaw the black market.

      1. Holy shit, you are a genius!!! (I wish that I had thought of this idea first… But that’s how a lot of genius ideas work… They are SOOO oblivious, but only AFTER someone else thinks of them first!).

        Hey, how is THIS for an additional follow-on genius idea… Let’s NOT outlaw the black market, but instead, just SAY that we did, and regulate and tax the LIVING SNOT out of the black market??!?!

        Hey, now we’re cooking with gas!!!

  2. I know a bunch of growers out here, and they universally scoff at any idea of going legit. The carrot is rotten and the stick is dusty from disuse.

    1. Things really were better before legalization on a number of different levels. The pot market was very efficient and good at self regulation without intrusive government.

  3. Amazing anyone would want to live there anymore who is a non-leftie!

    1. The areas without a lot of people are quite nice.

  4. Team Blue state that is ignorant of economic realities. This is my surprised face.

  5. Despite their avowed desire to displace the black market, legislators and regulators acted as if it did not exist.

    “You mean we can’t walk through walls? Really?”

  6. Comrades, surely this can be fixed by Central Committee.

    A few more regulations and the people will want to buy the marijuanas at the peoples marijuana supply store.

    1. Oh no. You can be assured that they will come after the growers, distributors, etc with even more force if they are found to be avoiding taxes. It’s one thing when you are endangering the public safety (as they would have you believe); it’s another thing entirely if you’re taking the government’s money (as they would have you believe) by avoiding taxes.

      Anybody who thinks legalization will end the war on drugs is naive. It might end the war at the DEA, but the troops will most certainly be redeployed to the IRS.

      1. The next chapter in the war on drugs will be the legal profe$$ion. If they can go after weed killer they’ll go after weed.

  7. LOL fucking socialists can’t even sell dope.

    1. +1 chicken dinner

  8. I don’t know what retail prices are like in CA now, but I’ve had reports that the black (or gray now, I guess) market weed prices have just cratered. Why the hell would anyone go to the store to pay many times as much?

    A friend from Mass has been trying to get me to go to one of their new weed stores. I’m not waiting in line to pay twice as much as I otherwise would (and that’s before the 20% tax they add on top of the listed price).

    1. Probably some of the “black market” is people buying from legal stores and just selling it the next county or town over where there IS NO STORE.

      (Ref below and above, WA has higher taxes in some places, and generally comparable … and you can buy a LEGAL ounce for about $100.

      Possibly with connections to a black market grower [probably a home-grower who’s selling even though that’s illegal] you could undercut that, but … at that point why even bother?

      It’s a golden age of weed prices, compared to the pre-legalization era.)

      1. “Ref below and above, WA has higher taxes in some places, and generally comparable … and you can buy a LEGAL ounce for about $100.”

        A legal pot store ounce at that price is usually shit weed. For a little more, black market pot is typically far better.

    2. If prices cratered, legaliz’n was successful. From an article linked this AM, supposedly the reason is a glut in Calif. from a boom in prod’n w/o an increase in quantity demanded locally, & that the sol’n will be the same as w all those other Cal. ag goods: export to other sts.

      1. When prices crater, quality generals turns to shit. It isn’t as cheap as most people think it is to produce quality cannabis. Especially with the insane regulations placed on growers in states like WA and CA.

  9. can’t even sell weed right = likely unsolvable problems

  10. “The cannabis industry is being choked by California’s penchant for over-regulation,”

    Hands up anyone who is actually surprised. Now, how many of you voted for Her Shrillness in 2016?

    That’s what I thought.

  11. When reading about the Soviet Union reporters or authors when speaking of GUM, the department store, described the process.
    A customer comes in looks at what’s for sale, writes it down and hands it to a clerk. He then pays the cashier and waits for another clerk to hand him the product. When I first moved to Ohio in 1972 and went to a state liquor store the process was exactly the same. Three people to conduct one transaction. Like the DMV or any government institution that deals directly with the public. I imagine state run pot stores would operate the same way. Wait till they have government run whorehouses.

    1. The government HAS run brothels. AND porn stores. They lost money on both. Which is all you need to know about government.

      1. In WA state, before liquor sales went lrivate a few years ago, the state often lost money on selling liquor. Even with a fucking monopoly.

        Why we allow democrats to live is beyond me. They are pure poison on every level.

    2. And don’t forget New York’s off track government run betting went $900,000,000 in the hole some years back. The only house to lose on gambling.

  12. “Wait till they have government run whorehouses”

    Isn’t that what the congressional buildings in DC are for?

    1. No, there are some things whores won’t do.

  13. I’m betting it’s all the “you can’t sell weed here”, not the taxes.

    (“Among states that have legalized recreational use, California has the second highest taxes, bested only by Washington, where the total rate can be as high as 47 percent”.

    WA weed is still far cheaper than pre-legalization black market weed was, is the thing – you can get perfectly good weed for $100-120 an OUNCE, whereas pre-legalization it was maybe $40 per eighth-ounce.

    Maybe CA somehow had super-low black market prices, but I’m not at all sure it did.

    It’d take California to make it hard to sell weed profitably.)

    1. Apparently it’s only now that they have super-low prices because it’s legal. Lots more prod’n. Legaliz’n worked.

      1. Prices were already low. Legalization is a huge failure.

  14. It worked for liquor. Doesn’t everybody say that despite the high taxes & patchwork of local & state prohib’ns & restrictions, the illicit booze biz dried up fast? So what’s the dif here?

    1. Can a moonshiner make cheaper product than a legit distiller? Many of the bootleggers were middlemen for smuggled liquor. The 21st amendment put them out of business. Almost anyone can grow pot ,no stills or energy needed.

    2. The obvious answer is that it didn’t dry up the illicit market for weed at all.

      Now you can claim that legalization worked in a free market fashion in that supply is up, prices are down because there are fewer legal risks to production and consumption but claiming the California legislature scheme for legalization worked is a bit much as it didn’t do much for the legal market and just expanded the opportunities for the black market.

  15. This is looking like a replay of beer. Prohibition and the Income tax wrecked the economy. So the Dems copied the Liberal Party repeal plank which took over a year to achieve full alcohol legalixation as of the 1932 election. Then on came the excise taxes and license fees and restrictions. By the time Hitler was ready to invade Europe and blame Jews, looters and prohibitionists were blaming weed for falling revenue. This was not for ignorance of the Laffer Curve either. Cal Coolidge had explained that long before Hoover ‘s tax-and-prohibit harmed America–while his Moratorium on Brains helped Hitler rearm. The real problem is that looters understand nothing about economics, beginning with the word “willing” in the Law of Supply and Demand.

  16. Why anyone other than a lefty would want to live in CA with their strict policies is beyond me…
    https://aladyofreason.wordpress.com/

    1. Because I was fucking born here and I’ll not be run off. If assholes from the lower 49 would recall their proggy asshole relatives back to their flyover pen, this state would fill back up with sensible natives and go back to it’s sensible roots.

  17. If I may make so bold, it has been noted that “California could screw up that oft mentioned 1 car funeral”.

  18. Just wait. New Jersey is poised to follow California’s lead.

  19. Meet the new boss, same as the old boss.

    Oh, my, what are all those Weed Libertarians gonna do now it hasn’t panned out like the thought? Prop. 666 – Make Weed Really, Really Legal!

    Maybe it’ll teach some a lesson that simply being differently regulated isn’t a move in the direction of freedom at all. The state got more invasive and pervasive when they let you smoke your joint. Neat trick, huh?

  20. We have known for a very long time that high taxes on products creates criminal activity. We have seen this in times past when cigarettes were taken into states with high tobacco taxes and sold. The same thing will also happen the recreational marijuana. But with legal marijuana and and illegal marijuana it will make it much harder to determine if the weed is legal or illegal. With much of the illegal weed coming form south of the border maybe that is the reason that the democrats don’t want a wall along the border with Mexico. A wall would slow much of the illegal crossing thus allowing the Border Patrol to pay more attention into the illegal drug trade.

    1. Mexican was always crap weed.

      We grow far better.

      The drugs coming over are meth, heroin, fentalyl, cocaine.

      Those are so high profit that losing some along the way is no big deal. There is no way to stop the supply. Wall is a joke.

      We are the customer as a nation. Deal with that first.

      1. True. You couldn’t sell Mexican weed in WA if you were giving it away. But then, the NW US has the best weed in the world these days.

  21. I’ve found it interesting over the years that so many libertarians would say they wanted pot legalized adding that the government could then tax it. Taxing is just a way of shifting the criminal factor and solves nothing. And why should anything be taxed to fund the government’s socialist programs?

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  23. I don’t know what retail prices are like in CA now, but I’ve had reports that the black (or gray now, I guess) market weed prices have just cratered. Why the hell would anyone go to the store to pay many times as much?

    Download SHAREit For PC is available at the same place.

  24. The taxes are high enough that the authorities have the best of both worlds: an over-taxed legal market for tax revenue plus a thriving black market to justify a war on illegal untaxed MJ.

    Back in the 1970s I advocated decriminalization of marijuana (not legalization): it could be grown to be shared at Grateful Dead concerts, but selling it would be a crime. Nobody liked my idea, especially drug dealers.

    1953 to 1968 we had local option prohibition of alcohol. (I was 5 to 20 yo in those days). Prohibition (and defacto prohibition through punitive sin taxes) leads to black markets and no end to the abuses that were supposed to be ended by the prohibition or restrictive taxation.

    VA state police will run an NICS BG check on a private used gun sale for $5 at a gun show. Where Bloomberg has gotten his Universal Background Check passed, UBC checks on a private used gun sale can run $55. That is sin taxing. It is intended to discourage private used gun sales. It discourages private used gun sales with UBCs.

    Problem + government often equals bigger problem. The DoJ investigation of the ATF Good Ole Boys Roundup noted that one the winners of the Liar of the Year contest walked out on the stage and said: “I’m from the government and I am here to help you.” and walked off the stage. Truer words have seldom been spoken.

  25. The only thing keeping the price up is over-regulation! Otherwise, you could buy it like lettuce or celery.

    It’s a weed. It’s a weed. How hard can it be to grow?

    But at least the dream of tax revenue got the politicians to do the right thing, and decriminalize it. If they knew anything about supply and demand, or economic laws, or human nature, they wouldn’t have made it illegal in the first place.

    1. “It’s a weed. It’s a weed. How hard can it be to grow?”

      To grow it? Easy.

      To grow a quality product that people expect anymore? Costly and requires skill and experience.

      Anyone can ferment grapes/potatoes/etc.. not everyone can make a quality scotch, vodka, rum, bourbon, etc.

      1. Yep, I live in the land of moonshine and even the good stuff is too expensive for the price. At $20 a quart you might as well get a bottle of Four Roses.

  26. Political arrogance is so pitiful. There is no mirror that allows them to see their foolishness

  27. Wait, you mean permission is not the same as liberty?

    Shocking.

  28. I have always said, tax it and kill it, (about any industry).

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