Will California's Pot Law Limit Illegal Marijuana Sales

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Ron Strider

News Moderator
Staff member
The new year brings with it a new age of legal marijuana: As of Monday, the growing, sale and use of recreational cannabis in California is now legal for individuals over the age of 21. But will it change much in the state?

Implementing the new law requires an impressive amount of regulation, and the new rules—many of which have yet to be finalized—are extensive. But the changes are unlikely to have much of an immediate impact on California’s robust illegal marijuana production. While the legal market for marijuana will grow, it's not clear the criminal market will shrink: Marijuana businesses may decide more profits can be made operating illegally.

Pro-pot advocates presented Proposition 64 to voters in 2016 as a way to move the illegal marijuana market out of the shadows. Legalization, the argument went, would alleviate pressure on the state’s criminal justice system; bring growers under government regulation, thereby ensuring that production was safe for users and the environment; and, through taxes, generate as much as $1 billion in new revenue for the state, with local governments free to join in and add taxes on top of the state's. In short, it would create an orderly, legal market where users could access marijuana and the government could make some money in the process.

That moment has arrived, and while a number of aspects of legal marijuana sales will change—such as new taxes, licensing, testing and packaging requirements—much about the market in general will remain the same. There are a couple of reasons for that:

First, marijuana use has long been popular in California. Government and other surveys have consistently ranked the state as having one of the highest use rates relative to the rest of the country. When the state’s voters made California the first state to legalize medical marijuana in 1996, it ushered in a quasi-legal market for the drug. The 1996 law was written broadly, and the state legislature waited 20 years before offering any comprehensive regulations. As a result, anyone with a health need, as well as any adult savvy enough to navigate the minimal restrictions, could legally buy cannabis products at medical marijuana dispensaries. In 2018, more pot shops will emerge and some more people are likely to patronize them, but the overall change is unlikely to be dramatic.

Second, large amounts of marijuana are grown illegally in California. In the 1970s, Mexico and South America supplied most of the cannabis consumed in the United States. The war on drugs with its focus on border interdiction provided a tremendous incentive for domestic cultivators and fueled the growth of a multibillion-dollar agricultural sector in state. Growers currently produce more than enough for California’s own residents, with the excess presumably headed for other parts of the country and beyond.

Will the new law change that? Probably not. A recent economic analysis prepared for the California Department of Agriculture estimated that legal recreational and medical use in California will account for only 19 percent of the total production. In Washington state, cannabis regulators estimated a similar figure for legal sales in the first years after it passed its recreational use law in 2012.

Some number of producers in the illegal market probably will emerge from the shadows. But it is worth noting that compliance with the various regulations will come with a hefty price tag. Marijuana growers, for example, will need to obtain permits, invest capital to track their water use and ensure that they are not harming the environment. These business owners will have to factor in the impact such expenses will have on their bottom line. The increase in costs will come at a time when the expansion of the legal market is likely to cause prices—and in turn, revenue—to drop. As a result, while many will decide to comply, we suspect that a significant number will not, at least in the near to medium term.

For some, the costs may not pencil out, with the compliance spending washing out profits. Others may want to make the investment, but the nature of their business limits their ability to borrow since federally regulated banks are reluctant to lend money to people in the pot business. Finally, some may simply see little reason to change what they are doing, and continue to operate in the illegal market.

California’s new recreational marijuana law will change a number of things, including creating a new source of tax revenue. Pot regulators, too, will face a growing challenge over implementation. But don’t expect the illegal cannabis market to change dramatically.



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Full Article: Will California's Pot Law Limit Illegal Marijuana Sales?
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"But don’t expect the illegal cannabis market to change dramatically."

With great sadness I agree with the conclusion of this article.
 
Considering how much compliance fees and almost no business expense deductions for taxes, is it even profitable to grow legal cannabis?
I haven't necessarily looked into this so far. Though I would imagine, at least when everyone's opening dispensaries left and right, running a farm to supply all the new dispensaries popping up would do all right. Now, I don't remember where I got this part from, so take it with a grain of salt, but I do think I recall there being by no means a lack of demand for growers in the legal states so far. Either way as long as you get through all the paper work, I'm sure it'd no doubt be a living. I personally would prefer to set up a decently sized farm anyway, growing cannabis has always been fascinating to me, and people can be too complicated lol.
 

Icemud

Member & Nug of the Month July 2012 Member of the
My personal opinion is no, legalization will not limit illegal sales.... here is why

Main reason... out of state prices of cannabis are still fetching premiums... many east coast states and midwestern states are fetching almost double the cost per pound than the current rates in California, fueling much interstate commerce. Until the East coast states are all legal and prices there come down, I don't think we will see any slowing down of out of state sales...

To run a legal cannabis business in California is very very expensive. At least right now it is... The main reason is most cities have banned commercial and medical cannabis business, forcing legal property that is within permitted city zones for cannabis business to skyrocket in price... supply is low, demand is through the roof... so even to get a 2500sqft building in a cannabis zone, be prepared to dump over $1Million for just the property alone, or if you are leasing, be prepared to pay extremely high rates per sqft of real estate. Landlords and property owners know the worth of this land and are demanding premiums for it.

Not only the land cost, but all the taxes associated (state, local, excise, cannabis tax... and so on), compliance permits and inspections, softwares, insurances, and other regulatory tools are very expensive...

Testing!!! this is a big one... because of the way the structure of state testing is, the costs of full spectrum testing are not cheap and will be added to the product cost... so you will be required to get tested: potency, cannabinoids, terpenes, microbial, heavy metal, pesticide, water content (au), and others... about $400 per test and every batch requires at least 2 tests.

Distributors... every farmer/grower HAS to use a distributor to get their product transported in custody to a dispensary, and this distributor also must charge a fee... therefore, add this fee onto the cost of the cannabis....


If you are black market/illegal, none of the above you will have to pay...(obviously risking arrest) but the overhead is very low, since you care less about all the other regulatory hoops the cost to produce is cheap...


Eventually, when the large commercial scale businesses get going, producing tons of cannabis monthy, eventually the costs will come down...but right now.. I don't see this for at least 3-5 years... I see the black market thriving actually for the first couple years...

Who wants to go back to paying $60 or more an eighth... I dont... and wont...
 

Dwight Monk

Spambot Patrol
Staff member
It took less than two years for Supply to be more than Demand in OR and I believe about same in CO, the prices have dropped like a rock and it puts a damper on the "black market" as growing indoors doesn't add up with electrical costs for the small time folks. Black Market never goes away completely, but they move on to more profitable things instead for the most part, but it does take awhile for the market to become awash with legal Cannabis.