Growing Pains for California’s Legal Cannabis Industry

Temporary business licenses for every facet of the cannabis industry in California are expiring all across the state, leaving thousands in legal limbo.

As of August thousands of temporary business licenses are inactive for: cultivators, manufacturers, distributors, and store owners. Cultivators make up the bulk of these newly inactive licenses. The active temporary license number for cultivators was 5,381 as of early 2019, but as of August the number of active licenses total 2,795. California is now facing a burden of regulation, enforcement.

Enforcement is not an easy task. It takes manpower, equipment, identification and investigation of illegal businesses. Most importantly, it takes time. California law enforcement suspect there are 259 illegal cannabis retail operations in the state. This is contrasted with the 186 licensed retailers across California.

The current licensing issues are causing a market contraction in the legal cannabis industry that is already substantially behind the thriving black market in California. Marijuana is a $70 billion dollar a year industry nationally and legalization is meant to not only capture this demand, but phase out black market sellers. This is not the case in California.

In 2018, California predicted $1 billion dollar in tax revenue for legal cannabis sales, the actual figure ended up being $345 million.  This is in large part due to the black market entrenched across the state. The current inefficiencies of the barriers to entry in the legal market are going to continue to make the fundamental goals of legalization an uphill battle.

A major inefficiency is California licensing requirements for potential cannabis related business owners. Licensing is the state’s way of making sure businesses comply with current legislation and regulation, so that consumers are protected and taxes are paid. This is exactly what you want out of a legal market, but this issue is how do you balance the cost of intense regulation with that of a thriving black market with no regulation?

California can either attack the black market through its police powers, streamline licensing and support legal businesses by lowering the barriers to entry and making the legal market more practical on the consumer, or do both at the same time.

It is not only that state that is to blame, city and local governments across California are not in support of a legal cannabis market. 76% of cities and 69% of counties have banned legal marijuana sales in the state. This stand on legal marijuana does nothing to combat the thriving black markets in these jurisdictions. This leaves a substantial enforcement burden on the state and the legal market is suffering because of it.

The fact of the matter is California has numerous growing pains it must fight through. Creating effective legislation and regulation, enforcing these laws and regulations, combatting an entrenched black market, and gaining support from smaller jurisdictions throughout the state. California will continue to lose ground to illegal operations until it has solved these issues.


11 thoughts on “Growing Pains for California’s Legal Cannabis Industry”

  1. It is shocking to learn that so many California cities are opposed to allowing dispensaries in their town. Most of what you hear about is the great revenues that marijuana brings in, but this seems not to be the case in Cali because of these anti-pot towns and high taxes on the legal marijuana. Cali should try and change those two issues in order to reduce the black market sales.

  2. I was very interested in this coming into this class. It looks like overregulation is becoming a serious issue in California. It especially targets lower-income people who are trying to get into the market, pushing them towards illegal operations.

  3. Your article has all the stats and documentation to make the government of California look totally incompetent. Particularly startling is the fact that California estimates 60% of its own weed retail outlets are illegal. They’re aware of the illicit activities and completely inert in enforcement! It’s not as if they don’t want to prosecute the illegal shops (which represent a significant diversion in tax revenue), rather they seem to just not have the wherewithal to uphold their own laws.

    Shouldn’t look at this in a vacuum though. Their issues with legalization are simply a microcosm for the greater woes facing the whole state. The exodus from California is ever-growing. Last year, California had 38,000 more departures to other states vs. arrivals from other states. It would be unfair to generalize the reason for this exodus, but I have a feeling it might have something to do with disastrous policies at the state and local levels. I worry that some of the economic refugees from California may be importing some of the ideology to Texas!

  4. Many people in Texas believe that what begins in the West eventually comes to or through the Lone Star state. But on this issue, I hope that Texas or any other “dry” state considering legalization will examine California’s consistent struggles.

  5. It seems that the state efforts to create a legal cannabis industry haven’t been successful because cities and towns have created their own laws to keep it illegal. The state isn’t going to be able to meet its expected revenue levels if such a large portion of cities and towns aren’t on board.

  6. I feel like these struggles should have at least been somewhat expected and California should have tried to set up better legislation and regulation in an attempt to prevent this. That being said, they were one of the first to implement decriminalization and I am sure that the means by which these businesses are regulated and helped in the process of becoming active can be improved upon. I am hopeful that another state will be the pioneer that comes through and solves these issues when they decriminalize it, but until then California is in quite a pickle it would seem.

  7. The black market sale of marijuana is an issue that I believe will always be present. The legalization of the substance will definitely cut down on the illegal sale of the drug, however, it will not eliminate it. I understand wanting more regulation on the black market selling, but I don’t think that it’s fair to leave those who were already licensed in a limbo, when this could be their only means of financial gain.

  8. It is shocking to read that so many cities and local governments are not ok with legal marijuana sales. I wonder if the localities got to keep more of the taxes/ add their own taxes if they would be on board? Of course, that would drive up prices which would encourage black market sales anyways… what a conundrum.

  9. It is surprising to fead that California is going through such a large struggle with their cannabis market. I believe most people think it is legal across the state of California and most would be surprised to learn that so many California cities are opposed to legal marijuana. California would have to make legal marijuana more widely accepted throughout the state. Only then will they bring in the kind of tax revenue that they had projected. It will be interesting to see if the legal market can overtake the black market.

  10. This article presents a really important reality that I feel a lot of people fail to recognize. I think on the surface it seems that since marijuana has been legalized in California you can buy and sell it like if it was any other item. This isn’t the case and this article presents the hurdles California must overcome.

  11. I’m surprised there is so much in-fighting in California about marijuana sales; I delved into the link but I couldn’t find specific reasons why people were having so much trouble passing legalization through their local governments.

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