Nowhere is the problem more pervasive than in California, where the unlicensed market continues to not only exist, but thrive, because of a unique confluence of factors. Many of the businesses that operate without licenses today were part of a decades-old medical market that flourished under relaxed medical regulations voters approved through Proposition 215 in 1996, and still use that network to move products. And more than 60 percent of cities and counties still ban all retail marijuana businesses, according to data from the California Department of Cannabis Control, creating wide swaths of the state where it’s difficult for consumers to access legal weed.
Roughly 1,000 brick-and-mortar pot shops serve the state’s legal market, along with 481 permitted retail delivery services. That’s nowhere close to the 3,000 unlicensed retailers and delivery services that were estimated to operate in California as of 2020, according to a market analysis by Marijuana Business Daily.
Licensed businesses also say the extra costs tacked onto their products due to strict testing and packaging regulations make it hard to compete with their underground competitors, who offer nearly identical items at steep discounts.
California’s cannabis tax-reform law came out of lengthy negotiations between the industry, labor unions and a coalition of healthcare, youth advocacy and environmental groups that are guaranteed a portion of cannabis revenues — and fervently oppose any tax cuts that could shrink that pot.
It includes a handful of new tax credits that reward weed businesses with strong labor practices and operations in so-called “social equity” programs, which are designed to support communities disproportionately harmed by drug criminalization. The changes also simplify a convoluted system for paying excise taxes, which industry leaders say will give shop owners more freedom to charge what they see fit for individual items.
That a deal was reached despite so many moving parts was hailed as a tactical victory by cannabis industry groups. But to some, the win felt hollow.
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Published: July 10, 2022