LOS ANGELES ( Associated Press) — On a separate farm, greenhouses are lined up in regimental order, covered with a side of trees. Inside are hundreds of head-high cannabis plants in precise rows, each growing from a pot nourished by coils of irrigation tubing. Light powerful enough to turn night into day blazes overhead.
In the five years since California voters approved a broad legal market for marijuana, thousands of greenhouses have sprung up across the state. But these, under their plastic bins, hide a secret.
The farmer growing north of Sacramento has a reputable license issued by the state, which allows the business to produce and sell his plants. But it has been nearly impossible for the grower to turn a profit in the struggling legal industry, where wholesale prices of cannabis buds have fallen by as much as 70% from a year ago, with taxes reaching as high as 50% in some areas and customers elsewhere. Get better deals. Thriving underground market.
So the company has two identities – one legal, the other illegal.
“We basically subsidize our white market with our black market,” said Cultivator, who agreed to speak only with the Associated Press on condition of anonymity to avoid potential prosecution.
Industry insiders say the practice of legal and illegal markets working together is very common, a financial reality caused by the difficulties and costs of doing business with a product they call the most regulated in the US.
For the California grower, the covertly illegal sale occurs informally, often with calls to shop with a friend within the tight-knit cannabis community. The state requires legal businesses to track what they grow and ship, and this is entered into a massive computerized tracking system—known as “seed-to-sales” monitoring—that is far from airtight. Is.
“It’s not too hard” for the tracking system to operate outside of the railing, the producer said. Plants can vary widely in the output of each one, which allows wiggle room in what is reported, while leaving little in the way of on-site inspections to verify record-keeping. The system is so loose, some legal farms take up to 90% of their produce to the illegal market, the producer said.
The passage of Proposition 64 in 2016 was seen as a turning point in the move to legalize and tax California’s multi-billion dollar marijuana industry. In 2018, when retail outlets could open, California became the world’s largest legal market, and after unprecedented legislation went into effect in Colorado and Washington state in 2012, advocates hoped it would be a path to federal legalization.
Today, most Americans live in states with at least some access to legal marijuana—18 states have widespread legal sales to people 21 and older, similar to alcohol laws, while more than two-thirds of states have access to medicinal programs. through access.
Kristie Knoblich Palmer, co-founder of top edibles brand Kiva Confections, laments that the business’s migration to the illegal market is hurting efforts to establish a stable, consumer-friendly market.
“For this system that is failing now, people have to go back to the old school way of working… it doesn’t help us reach our goal of professionalizing cannabis and normalizing cannabis, ” He said.
In California, no one disputes that the huge illegal market remains dwarfed by legalese, even though the 2016 law boldly said it would “disable the black market.” Democratic Governor Gavin Newsom, who was then lieutenant governor when the law was approved, called it a “game changer.”
But California’s legalization faced challenges from the start. The state’s illegal market had flourished over the decades, located in the “Emerald Triangle” in the northern end of the state. No attempt had been made to legalize such a large illegal economy since the end of Prohibition in 1933.
In October, California law enforcement officials announced the destruction of more than 1 million illegal plants across the state, but said they were detecting large illegal growing operations. In Humboldt County’s cannabis heartland, many illegal growers are moving indoors to avoid detection. Investigators are making arrests and issuing search warrants every week, but with so many underground developments “we can never put an end to illegal farming,” Sheriff William Honsel said in an email to the Associated Press.
Tom Adams, chief executive officer of research firm Global Go Analytics, said California’s illegal market is worth $8 billion. This is almost twice the amount of legal sales, although some estimates are even larger.
In September, a cannabis company sued government regulators in state court in Orange County, alleging that so-called burner distributors were using shady “front men” to obtain licenses to buy bulk cannabis, then sell it. Were selling illegally in the market to evade taxes.
No state is claiming to eliminate illegal operators. U.S. Representative Earl Blumenauer, an Oregon Democrat who co-chairs the Congressional Cannabis Caucus, said he sees little chance of decriminalizing illegal markets without federal legalization, which would have Democrats in control of Congress and the White House. Despite this, the Congress is stuck.
Illegal markets that flourish in California, Oregon and elsewhere are “the product of failure, lack of resources, and the fact that we do not have a national market that is regulated,” he said.
Like the California cultivar, many businesses make some transactions in the illegal market to help meet needs, but others have left the legal economy or never bothered to enter.
While California’s legal market tightly controls how and where pot is sold, the illegal industry is easy to access and leads to a vast and profitable national market.
“Licensed players are good people. Yet it never feels like we are being treated like we are on the right side of history,” Knoblich Palmer said.
California’s attempt to position itself as a major player in the legal cannabis economy has never felt more risky, and talk of a revolt against the state’s policies is spreading, such as the Boston Tea Party. In a December letter to Newsom, nearly two dozen industry executives said the state was crippling the marijuana economy.
“The California cannabis system is a nationwide joke, a public policy lesson in what not to do,” business leaders wrote. Newsom has indicated he is ready to change.
The unnamed producer said the burden of competition in a regulated economy is meaningless to many long-standing operators who came to the pre-Proposition 64 market. There is a pervasive mindset – “Why bother?” – When the illegal economy is booming and there is little law enforcement to fear.
For example, in Los Angeles, opening a retail operation can cost $1 million or more with license fees, real estate costs, attorneys and inspections — if you can get a license at all. Promises of social equity programs that would help businesses run by people of color that were targeted during the War on Drugs have gotten off to an uneventful start.
For the struggling legal market, “it’s a challenge when you have quality, price and convenience working against you,” said Adams, a cannabis analyst. “These are all three in the illegal market.”
An irony in the fiat market is that wholesale prices have fallen, shaking up the supply chain. A year ago, a farmer could get around $1,000 per pound in bulk. Now it has come down to as low as $300 with the market saturated.
Slap $150 in farming taxes on a $300 pound, and that’s an astonishing 50% rate.
Part of the problem for the industry is that two-thirds of California’s cities do not allow legal selling or growing—local governments control, or if necessary—to create a legal market, and many have restricted or regulations. Failed to install. Even in those places, cities have been slow to allow storefronts to sell legal products, with fewer than 1,000 brick-and-mortar shops in a state with nearly 40 million people.
Meanwhile, the wholesale prices of underground buds are quite high. The legal market, with limited outlets to sell it, is flooded with pottery from corporate-scale producers.
Little is known of the industry as well as dispensary owner Jared Kiloh, who also heads the Los Angeles-based business conglomerate United Cannabis Business Association.
“Nobody is making money anywhere in the (legal) supply chain,” he said, adding that his own sales have plummeted. Kiloh sees some bright spots in the law that established California’s legal market, beyond a testing program that protects quality and programs to eliminate old criminal records for marijuana.
With Proposition 64, “we did it all wrong,” he said.