California’s Thriving Unlicensed Market
Over the past fiscal year, the California cannabis industry has seen tremendous financial and economic hardship. Many large-scale cultivators and multi-state operators such as Curaleaf and Trulieve have closed several stores across the Golden State and popular gummy brand Wana has left the state entirely. Countless other once very popular brands, some of which with legendary celebrity association such as Jerry Garcia’s Grateful Dead brand, have exited the embattled state. Most recently, the sudden collapse of California-based cannabis distributor Herbl showed how dire the situation is for all players in the state’s cannabis industry regardless of how ancillary their company is.
A 2023 report by the California Department of Cannabis Control stated that over 1,766 cultivation licenses have been lost for a number of reasons. There are admittedly numerous reasons why cannabis businesses in California are failing at such a startling rate, but the sinking wholesale prices for cannabis and the exorbitantly high tax rate just for operation are certainly among those numerous serious reasons.
Arguably the most telling sign of a once robust state industry going through hardships was produced in the California Department of Tax and Fee Administration. Throughout the course of 2022, the total sales of the state’s cannabis industry declined by a total of 8.2 percent during the year, which in a cannabis industry the size of California is approximately a deficit of over $400 million. In fact, this concerning and costly deficit seems to be stretching into 2023 as well, as the total sales for Q1 2023 was almost six percent below the sales from the same time during the previous year.
“Most hold that one of the biggest factors cutting into the overall sales of the California cannabis industry is the still thriving illicit and unlicensed market that is running rampant throughout the Golden State,” said California Cannabis Attorney, Karen Albence. In the several raids that California authorities have been executing, they’re uncovering warehouse-sized operations. Far from a couple plants grown in someone’s closet, massive grow houses on scale with several commercial cultivation centers and with operations and yields that are both worth millions of dollars.
These million-dollar grows funding the illicit market have been a widespread problem throughout California since years before recreational legalization was passed and the problem has stayed just as present despite the Golden State’s cannabis industry being the gargantuan size that it is. Earlier this month, the California Department of Fish and Wildlife reported that one of the largest illicit cannabis busts occurred when an illegal grow warehouse was found with an astonishing $37 million of products.
The sheer amount of harvested and cultivating cannabis plants and processed products serves as a perfect example of how rampant and costly this issue has gotten. The staggering dollar amount of confiscated products and plants is a figure higher than several counties of California raise in a financial quarter within their respective county’s total cannabis sales.The $37 million of products found at this Oakland warehouse is nearly $10 million more than neighboring Contra Costa County raised in Q2 of 2023 and even $3 million more than San Bernardino County did.
In total, CDFW officials reported the exact count of the plants being eradicated as 41,082 and 1,841 pounds of “processed cannabis,” but didn’t specify as to exactly what form the processed cannabis were. Although no arrests have been made or connections to larger organized crime have been established in regard to this raid carried out in October, several suspects were still interviewed by authorities. Three different firearms were also found throughout the operation.
While the “$37 million and 1,841 pounds of cannabis products” figure may be quite exorbitant when considering how long it takes for an average dispensary to sell that amount, this grand warehouse of illicit sales isn’t the first operation of such a large scope in the Bay Area to be discovered by California authorities. Just this past May, the California Department of Cannabis Control reported that two unregulated and illegal growing operations were discovered in Oakland.
Found with a nearly equal amount of 40,000 cannabis plants, these warehouses were only $1 million short of the warehouse discovered last week. Unlike the operation just carried out by the CDFW, California authorities were able to definitively connect one of the unlicensed operations raided in May which was found with $150,000 in cash and $20 million in cannabis to being a front for the San Francisco-based gang Jackson Street Boys.
“Building upon the momentum in Q1 2023,” said in an honest joint statement from both the DCC and the CDFW, “the Unified Cannabis Enforcement Task Force seized more than $109 million in illegal cannabis in Q2 2023. This total represents a 104 percent increase from the $52 million in unlicensed cannabis and cannabis products in Q1 2023.”
The startling statistics provided by DCC give evidence to how detrimental and almost endemic the issue of illicit cannabis operations has become. First, total search warrant operations increased from 62 in 2021 to 155 in 2022, up about 150%.The seizures of illegal cannabis has surpassed unprecedented levels to 144,254 pounds in 2022, an astonishing 246% jump from 41,726 pounds from just last year.
When working with other agencies, the DCC has seized a ming-boggling 439,800 pounds of cannabis and eradicated 960,212 plants, both figures being a 30 percent rise from the previous year’s seizures. Even more worryingly, a large arsenal of 139 firearms were also seized throughout these seizures in 2022. With the many disadvantages that licensed California cannabis operators are already at, it’s likely that these detrimental issues regarding the illicit industry will only continue to spiral out of control and the deficit in total legal sales will continue to enlarge.
