Two Years After Licensed Marijuana Merchants Began Operating in California, They Account for Just a Quarter of Sales

The state's Cannabis Advisory Committee blames high taxes, local bans, and onerous regulations.


Two years after state-licensed marijuana merchants began serving recreational consumers in California, those retailers account for just a quarter of the estimated market, according to a new draft report from the state's Cannabis Advisory Committee (CAC). The CAC says the lackluster progress in displacing the black market is due to a combination of high taxes, local bans on pot shops, licensing bottlenecks, and heavy regulation.

The CAC report, which was obtained by the Los Angeles Times, projects that licensed marijuana sales will total $3.1 billion this year, compared to $8.7 billion in unlicensed sales. That means the black market still accounts for nearly three-quarters of marijuana sales. Tax revenue from legal sales for the fiscal year that ended last June was just $288 million, less than a third of the $1 billion that was expected.

California legislators do not seem to have learned much from the experience of states that legalized marijuana earlier. If they had been paying attention, they would have figured out that maximizing tax rates is not a smart way to maximize tax revenue, since legal sellers have to compete with black-market dealers who do not collect any tax at all. The combination of state and local taxes currently adds as much as 45 percent to the retail price, and both the cultivation tax and the excise tax are scheduled to increase on January 1.

Three-quarters of California cities have prohibited marijuana stores, a policy allowed by Proposition 64, the 2016 ballot initiative that legalized cannabis for recreational use. Partly because of those bans, California has just 568 licensed marijuana retailers, less than a tenth of the expected number. That amounts to about 14 stores for every 1 million residents. By comparison, Colorado, where marijuana was legalized in 2012 and licensed sales began in 2014, had 572 recreational retailers as of December 2, or 100 per 1 million residents.

Even in places where pot shops are allowed, the state and local licensing process is a "nightmare," William Panzer, who co-authored California's 1996 medical marijuana initiative, told the Times. As of September, Scott Shackford noted, Los Angeles had received more than 1,600 applications from would-be retailers. So far it has granted only 188 licenses.

In addition to the licensing ordeal and the heavy taxes, says California NORML Director Dale Gieringer, legal marijuana businesses have to deal with regulatory burdens that include legally mandated middlemen, "excessively costly" testing requirements, and "multifarious petty regulations" regarding storage, security, transportation, labeling and packaging, financial reporting, and waste disposal. "Illegal retail operations outnumber legal shops 3-to-1," Lindsay Robinson, executive director of the California Cannabis Industry Association, told the Times. "Almost two years into legalization, we continue to be plagued by local bans, untenable taxation, onerous regulations, an illicit vape crisis, slow growth, and a thriving illicit market."

So far the main official response has been a crackdown on unlicensed sellers, perpetuating a war on weed that Proposition 64 was supposed to end. The CAC is urging the state to consider tax and regulatory relief, possibly through a new ballot initiative. Legislation introduced in January would temporarily reduce the excise tax from 15 percent to 11 percent and temporarily eliminate the cultivation tax, which is currently $9.25 per ounce for buds and will rise by 40 cents on January 1. That bill is still bottled up in committee.

Gov. Gavin Newsom (D), who says he is sympathetic to the complaints of marijuana business owners, is mostly preaching patience. But the lesson from California's bumpy rollout of legal marijuana should be clear: The harder the government makes it to sell pot legally, the larger the continuing black market will be.

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  1. Problem with minor deregulation of weed rather than repealing the unconstitutional Controlled Substances Act and making weed as regulated as bar soap in states.

    1. reason Propagandists and their ridiculous notions that Drug Warriors and Lefties can be trusted to make Marijuana “legal”.

      Its usually better to stick with principles and work hard to get what is done right. Sometimes it just takes longer.

      1. You’re really on a roll this morning with Reason Treason and their Socialist Progressive Communist writings. Did someone piss on your Christmas tree and stink you out of the house?

      2. Poor alphabet troll.

        1. Why not call them a Russian bot while you’re at it?

    2. The black ,market is so much more efficient and so much better. Fuck these states.

    3. Im a pothead for 35 years and will continue to buy on black market as long as possible. Daddy government been busting our balls about this for my whole life. No way they are getting my tax dollars off this bs. EFF THAT

  2. “The CAC says the lackluster progress in displacing the black market is due to a combination of high taxes, local bans on pot shops, licensing bottlenecks, and heavy regulation.”

    Well, damn; whodathunkit?
    If only someone had pointed this out multiple times before and after the law was passed – – – –

    1. If only all the proponents of cannabis reform werent just a bunch of stoners living in their parents basement playing video games and eating fast food all day, they might have ……

      1. It’s not “all” of the proponents.

        I agree that the biggest inhibitor of marijuana legalization is the very people advocating for legalization. They are their own worst enemy.

        But I would posit that it really only *seems* that way because the ones you see are the ones who don’t have much to lose. The stoners in their mother’s basement working as a career barista have nothing to lose.

        Doctors and lawyers and teachers and *insert any other profession here* also wish for legalization, but have homes, families, careers, etc to lose and therefore haven’t been vocal about for fear of losing those things.

    2. Instead of fixing that stuff, the solution will be to go after the black market. That’s how these Marxist scum think.

      1. And it’ll be every bit as effective as it is now.

  3. The state’s Cannabis Advisory Committee blames high taxes, local bans, and onerous regulations.

    A state committee criticizing high taxes and excessive regulations? This is an example of:

    a) The obvious
    b) Irony
    c) White patriarchy
    d) CA being CA

    1. e. Big Weed lobbyists putting profits ahead of people.

  4. This is fodder for academic economists and students looking for thesis subjects.

    What penalties/risks do non-licensed growers and sellers face in CA currently other than ones associated with failure to pay taxes?

    What’s happening with DUI/DWI violations? Are there statistics for violations on account of alcohol vs cannabis and other substances? Is legal cannabis producing measurable harm of any sort?

  5. Wait until the state discovers that (gasp!) marijuana has some health risks.
    The AG will sue the nascent industry back into the shadows.

    1. That is the funniest shit for SJWs who want to ban soda, straws, silverware, bags, Republicans….

      Smoking weed at the level people smoked cigarettes will likely produce lung and other cancer rates similar to when most of America smoked cigarettes.

      But straws should be banned in the USA because Pacific Islands dump tons of plastic into the oceans each year.

      1. “Smoking weed at the level people smoked cigarettes”

        Not physically possible.

        1. Willie Nelson. Even Snoop couldn’t keep up with him. I saw that he quit now. Well he is 86 and has had a very active and productive life.

  6. By the way, it got no attention whatsoever from this “libertarian” outfit, but a few days ago on the 17th, presiding FISA Court judge Rosemary Collyer submitted and made public a court order proving that Devin Nunes was right along, as we’re all the rest of us who said that Operation Crossfire was crooked from the start and the FBI knowingly lied to that court.

    If you don’t believe me, you really owe it to yourself to actually read the court order linked below yourself. It’s not that long, and you will be to understand, as she makes it quite clear.

    1. +1000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

    2. The court should hold every applicant in contempt who failed to provide valid Probable Cause to the court under oath or affirmation for a warrant.

      That letter to the federal government is pretty much saying that they allowed warrants to be issued without valid Probable Cause.

      Which is why the 4th Amendment requires warrants only be issued upon (1) Probable Cause, (2) supported by oath or affirmation, and (3) particularly describing the place to be searched, and the persons or things to be seized.

      No General Warrants and no Open-Ended Warrants.

  7. You weed users, move to other states where the pot is controlled but cheaper, the state of Ca is among the biggest government management dummies in the country and it won’t be long before the cartels move back in and stake a claim in the MJ industry, complete with turf wars….Smoke more gov legal controlled pot, your adding to my bank account…..

  8. “Two Years After Licensed Marijuana Merchants Began Operating in California, They Account for Just a Quarter of Sales”

    Little of which @Reason had apparently foreseen based upon it’s strong support for “PARTIAL” legalization of marijuana

  9. The power to tax is the power to destroy.

    In this case, the high taxes (no pun intended) are destroying the idea that the state will collect massive amounts of money from people who would otherwise keep growing their own or buying from the gangbanger on the corner.

  10. In Washington State, I don’t know anyone who buys illegally any more… The legal shops are much cheaper than what we paid before legalization, much more convenient, better labeled, infinitely more choices…

    It’s certainly worth analyzing what was done different in WA vs CA, because it’s working just fine here.

    1. Sounds like that is worth investigating. I think Illinois is coming legal now but I am sure they will find a way to mess that up.

    2. You must live in a bubble…. I don’t ose the stuff but I know quite a few who refust topay the outrageous taxes this stupid state demand on weed. Same scenario as hard liguor. I REFUSE to buy hard stuff in this state.. because I REFUSE to pay their confiscatory taxes. I either do without, or buy it when I am in another state. Go tlittle enogh sare change to spend on booze, but when it goes only as third as far as it used to for that product line, I can easily reduce my in state spending to zero.

    3. It really isn’t. If that’s what you’re seeing then your local black market hook ups weren’t very good.

  11. Only democrats could screw this up, you dem voters should be so proud. Now go take a walk in the feces for your victory lap.

    1. Democrats are so arrogant and stupid that it’s beyond belief. I needed up having a co versatile with some lawyer I met last night and made the mistake of allowing the conversation to turn to politics.

      The fool really thought his law degree proves he’s a genius. When in fact he was an idiot, spewing the usual kind of bullshit one would expect to see in a WaPo comment section.trying to lecture me how Obamacare is so much better. When I explained that Obamacare provided inferior coverage for over twice the price, he moved the goalposts and insisted it was my duty to pay for it.

      Just more evidence that progtards must be pushed aside.

      1. If Obamacare is so good, why is virtually every democrat trying to fix it?

  12. Simple supply and demand. Bootleg weed is cheaper, readily available and just as good.

    Also some smokers have jobs with a no drug policy. Safer to get it on the black market.

    The only way to force people to buy from the shops is to eliminate the black market which has been proven to be impossible.

    They should have seen this coming but we are talking government here. Where I live there is medical legal but hardly anyone is using it. The licensed shops are losing big time.

  13. These eedjit pawl a tishuns need to read up on an economic phenomenon alled the Laffer Curve…. first observed and documented by a senator named Laffer, I think back in the 1960’s/ It goes about like this, in layman’s terms, but he calculated and graphed it all out:
    Find an item at some price, $A tax it at some rate. Revenue generated is some dollar volume times percent tax.

    a status quo will be observed. NOW.. increase that tax rate a little bit. Tax will now be slightly higher. . Revenue will increase by close to the additional tax rate percentage added. Sales volume on that item will not change signficantly. Increase the tax rate again, same thing, but revenue gained will be somewhat reduced, as the tax rate now applied provides some pressure against sales volume. Tax a LOT more, revenue does not increase, as many choose tax avoidance actions, including ceasing to purchase that item at the significantl increased total cost, item plus new higher tax. NOW< REALLY put the screws to the retail purchaser and total revenue will actually DECREASE to below initial levels resulting from the fiirst applied low tax rate, as people will simply take whatever steps are necessary to not pay that much for the product plus screws to you taxes. They will make it, import it directly, do without of buy from non-in state and/or non-retail channels.

    WHY should the dimwits in California or Wasningto expect weed to be exempt from the reality this "LAffer's Curve" describes And no, I don't use the stuff, but if I did I'd certainly be proactive about avoiding paying that outrageous taxl I personally will, and do, forgo the use of whatever product/service is in view .until I can obrain it through channels not collecting the tax in question. When 2/3 the retail price of a product is directy due to taxes. And an HUGE portion of the imposed taxes are eaten up via the government agency assigned to oversee the tax imposition and its management and collection. Eliminate the tax, release the.wasted revenue to manage it, and watch sales go back up.Duhhhhh……

  14. I distinctly recall a Reason Brickbats one-liner to the effect that “if the the government were serious about getting rid of the marijuana industry they could hand it a billion-dollar subsidy and put Lee Iacocca in charge!” This has turned out prophetic–unlike Soviet 5-year plans and econazi warmunism prophesies.

  15. Drug dealers are drug dealers regardless of the law.

    The Rocky Mountain High Intensity Drug Trafficking Area report on the impact of legalization in Colorado is devastating for those pushing pot. The report found:

    Traffic deaths where drivers tested positive for marijuana increased 109 percent.
    Traffic deaths involving drivers who tested positive for marijuana more than doubled between 2013 and 2018.
    The percentage of all Colorado traffic deaths that were marijuana-related increased from 15 percent in 2013 to 23 percent in 2018.
    Marijuana use in the past month for children ages 12 and up increased 58 percent, and is 78 percent higher than the national average.
    Adult marijuana use increased 94 percent, and is 96 percent higher than the national average.
    The yearly number of emergency room visits related to marijuana increased 54 percent after legalization.
    Marijuana-related hospitalizations increased 101 percent after legalization.
    Suicides where toxicology results were positive for marijuana increased from 14 percent in 2013 to 23 percent in 2017.

    1. And did the total number of traffic deaths increase? Or decrease, because most weed use is substituted for drinking, and drunks are much more dangerous behind the wheel than potheads?

      And what is an emergency room visit related to marijuana, but some inexperienced user panicking over something he could just sleep off? MJ is safer than aspirin, unlike alcohol, which always kills some brain cells, and can stop the heart in too high a dosage.

  16. Just legalize all drugs. Period. No special taxes – just make them legal.

    The DEA is the largest drug cartel in the world, and this phony legalization just replaced one cartel with a different cartel, and both are corrupting. The “regulations” are a license to pay to play.

  17. This is very good content, i have been waiting for so many days for this type of content.thank u so much sir,you can visit my website for this type of content click here

  18. Amazing, just HOW would a state committee know the sales volume of illegal sales??
    The answer, there is no way, so they are making it up. they may be correct, but as this is an underground market there is no way to obtain anything close to real numbers.
    More propaganda FROM GOVERNMENT

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