Adult use cannabis is still a giant industry, with tax revenue for California approaching $1 million a day. That milestone, however, falls far short of the forecasted $514 million for the 2019-2020 budget year. The cause of this missed projection? The black market.
So even with the opportunity of getting legal cannabis delivered to your door, why is the black market still flourishing? There are three surface level reasons:
- Pursuant to California’s Business and Professional Code, individual municipalities reserve the right to ban retail sales, and a majority have elected to do so.
- The law also allows adults to cultivate six of their own plants, barring any restriction from local municipalities. And,
- Legal cannabis includes a near 77% markup in order to cover taxes and other expenses.
But the biggest reason for the black market’s popularity? Unlicensed retail stores. The black market isn’t just your friendly neighborhood drug dealer, it could also be your favorite cannabis store in the strip mall. These retail stores need an “A-License” issued by the Bureau of Cannabis Control, and if they don’t have a license, they’re technically a criminal operation! So just get a license, easy enough right? Wrong. The law as written is nearly impossible to navigate for a small business owner. The Medical and Adult-Use Cannabis Regulation and Safety Act contains 23 chapters, two which deal with licensing, and ten of which regulate the entire supply chain from seed to spliff. Because of this confusion and difficulty, there are thousands of unlicensed retail stores throughout the state. Just last month, Weedmaps finally caved to regulators and will begin requiring businesses provide state license numbers in order to be listed on their site. In an August 21st, 2019 press release, Weedmaps stated:
While helping social equity businesses get licensed, the company is also committed to helping licensed businesses thrive. Beginning later this year, US retail advertisers on Weedmaps will be required to provide a state license number on their listing. This requirement joins existing consumer information tools offered by the company, including surfacing lab data on product pages and a “Brand Verified” program that combats counterfeiting.
The company is also restricting the use of its point of sale, online orders, delivery logistics, and wholesale exchange software-as-a-service (SaaS) platforms to licensed operators exclusively. In addition, Weedmaps will explore ways to make it easier for patients and adult-use consumers to identify the license number on advertised listings.
“These enhancements to existing safeguards on our platform will help patients and adult-use consumers find cannabis retailers that have provided evidence of state licensure,” Beals added. “It also underscores our commitment to working with lawmakers and regulators to foster a flourishing legal market.”Alex Clark
So what can California do to remedy this situation? According to BDS Analytics, a cannabis specific marketing research group, if the state doesn’t cut taxes to make prices competitive, almost half of all sales are going to remain in the illegal black market through 2024. Regulators and law enforcement also need to crack down on unlicensed stores that aren’t paying taxes, as well as websites and apps that advertise these businesses.
If California can make the price of legal cannabis attractive to consumers while simultaneously making sure businesses are playing by the rules, it may become the billion dollar industry that legislators expected.