Puff, Puff, Passage of New California Bill Could Alleviate Black Market Boom by Targeting Landowners

One of the most frustrating issues, if not the most frustrating issue, facing the legal Californian commercial cannabis market today? The thriving black market. From the perspective of those within the legal, regulatory compliant realm, it’s like watching your potential success slip through your fingertips, especially in the state where the black market produces more than twice the revenue of the legal market.

The infamous black-market dispensary story is one we’ve all heard time and again. An unlicensed retail store opens up or operates in a space that’s too close to another store—which, is a violation in and of itself if it’s located within 600 feet of another dispensary—and it stays open at whatever hours they please. Their prices often undercut the licensed stores because they don’t have to pay any of the crippling taxes, annual local and state licensing fees, or the inspection fees associated with operating a duly licensed dispensary. 

To add insult to injury, local and state enforcement agencies cite to a lack of personnel and funding when licensed stores make claims to get the illegal stores shut down. The illegal stores may close for weeks or months at a time but then will simply reopen after receiving only a slap on the wrist. Legal retail store owners are left only with the option to angrily shake their fists at their insufferable competitors next door. Though enforcement and regulatory agencies are, in fact, expanding, the last year has shown that it’s not expanding fast enough, and the good Samaritans of the legal market are at the brunt of it. Is there really no hope but to wait it out and hope it gets better? Certainly not.

Step in Assembly Member Reggie Jones-Sawyer. In early February, Jones-Sawyer introduced Assembly Bill 2094 (“AB 2094”), a bill that takes a creative approach in helping to diminish the black market because it targets a population in the industry previously overlooked: landowners and landlords. Under current law, it is a crime:

“for a person who has management or control of a building, room, space, or enclosure, either as an owner, lessee, agent, employee, or mortgage, to knowingly rent, lease, or make available for use, with or without compensation, the building, room, space, or enclosure, for the purpose of unlawfully manufacturing, storing, or distributing a controlled substance for sale or distribution.” Cal. Health & Saf Code §11366.5(a).

A person found to violate the above-mentioned law may be punished by up to one year in prison. What this ultimately means, is that landowners and landlords who rent their spaces to illicit dispensaries, cultivation, and manufacturing facilities must be prosecuted with criminal charges for any type of enforcement to occur.

AB 2094 proposes to take this one step further. If passed, the bill would allow the three licensing authorities (the Bureau of Cannabis Control, the California Department of Public Health, and the California Department of Agriculture) to impose an administrative fine of up to fifty thousand dollars per violation against any landowner or landlord that violates §11366.5(a). Each day the violation continues would be a single separate violation. As a result, the violator can face both criminal and administrative punishment, the latter of which may serve as a better general deterrent.

            Though this bill wouldn’t solve any of the other issues plaguing the current Californian commercial cannabis market such as expensive barriers to entry and inflated tax rates, as mentioned before, it does present a creative way of alleviating the black-market problem. In fact, legislation of this nature is not new, even within California.

            In Sacramento, a city often used as a beacon of hope with regards to the legal cannabis market, had imposed hefty fines on landowners who both knowingly or unknowingly, leased or rented property to any person growing cannabis on the property without a valid permit. Whether the landowner knew or not, he or she was subject to these fines. Between August 2017 and August 2019, the city administratively issued 400 fines totaling up to $90 million. However, Sacramento backtracked on this ordinance at the beginning of 2020—currently, the language of the ordinance only imposes fines on landowners and landlords if he or she “knows or, by exercising reasonable care or diligence, should know that cannabis is being cultivated.” See Sacramento City Code Section 8.132.030. This change is similar to that of AB 2094, which proposes to impose its administrative fine only on those who knowingly rent or lease property to illicit black-market businesses.


Mio Asami

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