Nearly two months after California legalized cannabis sales, the black market for marijuana continues to flourish as communities and law enforcement struggle to crack down on door-to-door couriers delivering cheaper, unregulated weed.
Only 25 percent of the cannabis consumed in the state is purchased from government-approved brick-and-mortar retailers, according to a report released this week by the Cannabis Growers Association.
Much of the rest is sold door-to-door by hundreds of unlicensed, small and independent couriers — such as DoorDash delivers carnitas from your favorite taqueria.
In the Bay Area, there are about 60 unlicensed delivery services — usually, a ‘dispatcher’ on the phone and a fleet of drivers — advertising on websites such as WeedMaps, Leafly and Wheres Weed.com. They lack permits and insurance. It isn’t clear how many of them verify the source or safety of their cannabis. And it’s also unknown if they require customer IDs to prevent minors from buying their products. Their weed is typically cheaper than what’s sold by licensed dispensaries.
“With unlicensed delivery, you don’t know who is showing up at your home or workplace. And you don’t know where your cannabis originated,” warned San Jose Police Department’s Wendy Sollazzi, who manages the department’s Division of Marijuana Control.
New rules created by the passage of Proposition 64 strive to tighten California’s loose and freewheeling cannabis marketplace. But not enough licenses have been issued to legitimate delivery services, according to the new report. While there are hundreds of delivery services in the state, only 51 licenses have been issued.
It’s a cheap business to enter, requiring less capital, real estate and overhead expenses, according to civic leaders and the report by the Growers Association, the state’s largest association of cannabis businesses.
There’s abundant access to cheap and unregulated cannabis. California produces about 13.5 million pounds of marijuana a year. But fewer than one percent of the state’s 68,120 cannabis cultivators have been licensed, according to the association. The rest of the weed needs to go somewhere.
“Most of it is in the black market,” said David McPherson of HdL Companies of Diamond Bar, which advises local governments on cannabis policy.
Cracking down on these unlicensed businesses is tough. “It’s difficult to catch them and get hold of them,” said McPherson, former deputy finance director for San Jose and tax administrator for Oakland. “Local agencies have to do sting operations to shut them down. The state is not going to do it.”
It’s like cutting grass,” he said. “They’ll come back.”
But it’s daunting for these businesses to enter the legal market. Vehicles must be tracked using GPS, deliver during daylight hours and restrict sales to customers with a state-issued ID over the age of 21. They can only sell licensed products. Some cities, like San Diego, have banned delivery entirely.
BY THE RULES
To be legal, a delivery service must get both a local permit to sell cannabis from each city where it conducts business, as well as a “Type 9 retail non storefront” state license. It must run its business out of a licensed brick-and-mortar building.
“We have to have a premises to inspect,” said Alex Traverso of the state’s Bureau of Cannabis Control.
Delivery services fill an important role, according to the Growers Association. The market shouldn’t be built on a small number of large dispensaries, it says.
Until recently, cannabis delivery services were largely unregulated. Under old laws, mobile marijuana “collectives” distributed cannabis — grown only on their farms — for medicinal purposes to “patients” who were homebound or too far away from medical dispensaries. While these nonprofit “collectives” are still allowed, they’re largely being replaced by for-profit businesses.
The regulatory transition has created confusion among some delivery businesses. At Mary Jane’s, which delivers to the San Francisco Peninsula, manager Adam Ash said the company is compliant with the regulations of the “collective” model and is now seeking new for-profit business licenses during a legal “grace period.” But the state disagrees, saying that any business that’s advertising and selling products on websites is operating as a commercial cannabis business, not a collective — and there’s no six-month “grace period” for that.
TAXES AND REGS
Illegal businesses undercut the competitive taxed and tightly-regulated market, say some dispensaries who must buy and sell only regulated weed. “Customers walk in and say ‘why is the price so high?’ — because of taxes and regulations,” said Khalil Moutawakkil of KindPeoples Dispensary in Santa Cruz.
“The black market is thriving. But the consumer has no idea what they are getting, and whether it’s been tested or not.”
Other dispensaries, such as San Jose’s Caliva, count on customers to pay more for tested products, like pastilles and lozenges, that aren’t available from illicit delivery services.
“The consumer that does a little bit of research will seek out businesses that are trusted brands that do testing and meet compliance standards,” said Dennis O’Malley, president of Caliva.
Newly introduced legislation, AB 2899, requires a license number to be shown on advertisements for pot-delivery service. Some states, like Massachusetts, are going further, warning online directories like Leafly that they may be violating state law by publishing ads for illegal services.
San Jose aims to crack down, but because delivery services are mobile operations, they’re difficult to locate, said Sollazzi of the San Jose Police Department. Illegal sales of cannabis can be a misdemeanor or a felony in San Jose. A business operating without registration may be subject to escalating fines of up to $50,000.
“The city’s enforcement abilities…are challenging, due to staffing shortages and vacancies,” she said. San Jose hopes to partner with the state and neighboring cities to end the practice.
IN SANTA CRUZ COUNTY
In Santa Cruz County, which is finalizing new regulations, “it is definitely something we’ll be looking at, from an enforcement standpoint,” said county spokesman Jason Hoppin.
Some cities, such as Oakland, are working with delivery businesses to help pull them into the legal market, said Greg Minor, assistant to the city administrator.
“A lot of folks can’t rent out storefront locations,” he said. “The cost of a little bit of space and a personal vehicle is pretty cheap compared to a big facility or retail storefront.”
Cannabis businesses also need to step up to the plate, according to the Growers Association. Producers can organize as “cooperatives” to apply for delivery permits, or form partnerships with delivery services, it said.
“A market built on a large number of small delivery services rather than a small number of large dispensaries…offers consumers more options,” it said.
“Access to the regulated market — both for consumers and for producers — is a foundation of success in California.”