(Photo: Kim Stringfellow)
Black markets thrive under mismanaged legalization.
After California voters decided to legalize the cultivation and sale of recreational marijuana in 2016, the vast majority of the state’s cities banned those activities within their borders. But Adelanto’s leaders were eager to embrace the newly legal market. The small desert town of 31,000, best known for its nearby prisons, had a reputation for poverty and emptiness. Local politicians hoped legal marijuana would change that.
In May 2017, the Adelanto City Council approved a plan to license recreational growers and retailers, making the town one of the first in the state to do so. That early, atypical choice attracted a lot of national press coverage. In an interview with The New York Timesthen-Mayor Richard Kerr predicted that Adelanto could raise $10 million annually by taxing local marijuana businesses.
It didn’t happen. Adelanto’s budget for 2020–21 anticipated just $1.4 million in marijuana revenue, less than a third of the city’s projected $4.5 million budget deficit. While that $1.4 million is money the town would not have seen without legalization, it clearly isn’t enough to save Adelanto.
Kerr is no longer Adelanto’s mayor. The FBI raided his home in 2018 as part of a corruption investigation. Three years later it arrested him on seven counts of wire fraud and two counts of bribery. Kerr is accused of taking at least $57,000 in bribes and kickbacks to approve permits for marijuana businesses. His arrest came four years after then–City Council Member Jermaine Wright was accused of taking a $10,000 bribe from an undercover FBI agent posing as an applicant seeking approval for a local marijuana transportation business.
Other local officials in California have been implicated in similar corruption. In July, marijuana magnate Helios Dayspring pleaded guilty to bribing a now-deceased San Luis Obispo County supervisor for years in exchange for favorable policy votes. The plea agreement did not name the supervisor, but news reports identified him as Adam Hill, who died of an overdose that was deemed a suicide in 2020.
After Dayspring’s guilty plea, the Los Angeles Times implied that the problem was California’s “nascent, ill-regulated marijuana industry.” Stories about California’s marijuana market commonly describe it as a “Wild West” situation.
It is true that California has badly mishandled legalization—so badly that, more than five years after voters approved that change, the black market still accounts for an estimated two-thirds of cannabis sales. But far from the result of weak regulation, the disastrous rollout of legal marijuana stems from giving officials too much power to decide who can produce and sell it.
Where Are the Shops?
Most California cannabis consumers do not buy pot from state-licensed shops. Market observers such as Global Go Analytics estimate that illegal cannabis sales in California total $8 billion a year, double the amount of legal sales.
One reason for the black market’s persistence is that many Californians do not have easy access to legal retailers. California has only two licensed dispensaries for every 100,000 residents, compared to about 18 in Oregon and 14 in Colorado.
Proposition 64, the ballot initiative that legalized recreational marijuana, authorized municipalities to cap the number of local retailers or prohibit them entirely. For every California city that allows dispensaries, two have banned them.
While Prop. 64 allows people to grow their own marijuana, that alternative has little appeal for consumers who lack the requisite space, equipment, and know-how. In the parts of the state where retailers are banned, this policy is akin to letting people brew their own beer while denying them the ability to buy the finished product from a local store.
Online orders are another theoretical option. State regulations issued in 2020 seemed to bar local governments from interfering with state-approved marijuana deliveries. But 24 cities that had outlawed sales challenged the regulation, claiming it interfered with their local bans. A Fresno judge dismissed their suit, but in a way that left a lot of regulatory uncertainty.
For Californians who live near licensed dispensaries, the price of marijuana can be exorbitantly high due to state and local taxes. The state imposes a 15 percent excise tax on retail marijuana sales, along with a weight-based cultivation tax that is indexed to inflation. Thanks to rising inflation in 2021, cultivation taxes jumped at the beginning of 2022, even though the market value of cannabis had declined.
Prop. 64 also allows local governments to impose their own taxes, and many do. In Los Angeles, legal cannabis buyers pay a 10 percent local marijuana tax, along with the state’s marijuana taxes and an additional 9.5 percent general sales tax. All told, taxes increase the retail price of legal marijuana in L.A. by more than a third. People who buy marijuana from illegal dealers, by contrast, can avoid that burden entirely.
Meanwhile, the power that Prop. 64 gave local governments fosters corruption. When Adelanto leaders announced that they would let the marijuana industry in, there was a land rush. Because so few cities were welcoming of marijuana businesses, everybody interested in establishing a presence in the industry wanted to set up shop in Adelanto. Property values tripled.
To Read The Rest Of This Article By Scott Shackford on The Reason
Published: March 12, 2022
Founder & Interim Editor of L.A. Cannabis News