The Shady Yet Lucrative Dispensary—the Thriving Californian Cannabis Black Market

According to the report BDS Analytics and Arcview Market Research, California’s legal cannabis market is expected to reach $3.1 billion this year. This makes the Californian marijuana market the largest in the world—bigger than Colorado and Washington, two of the pioneer states for legalizing recreational cannabis, and even bigger than Europe. Anybody looking to enter the cannabis industry can look at that number and be hopeful for their chance at the American dream, especially when these numbers are expected to continue to grow. However, there is a looming byproduct of legalization that can’t be ignored: the still existing (and, in fact, booming) black market.

California legalized recreational marijuana with the passage of Prop 64 back in 2016. It’s been around 3 years since legalization, and there are currently 583 licensed dispensaries and 263 licensed home-delivery firms. These licensed dispensaries are operating within the confines of their local laws and regulations in order to maintain their licensed status. This means that they can only sell a certain amount of marijuana to a single customer, remain open for certain hours of the day, and pay taxes imposed on the products, amongst all the other requirements for legal compliance. On the other hand, unlicensed dispensaries are not under any obligations to comply with any of these restrictions. Without the imposition of taxes or any other compliance-related expenses, they can sell products at a price lower than their licensed competitors. The reality is, these illicit businesses are taking money away from the licensed businesses. In fact, the BDS Analytics and Arcview Market Research report projects the Californian cannabis black market sales to reach $8.7 billion this year alone, more than twice that of the legal market.

On top of the thriving black market driving profit away from the legal market, the Prop 64 gave the power to regulate cannabis to local governments. California requires dual licensure in order to operate a cannabis business legally within the state, acquiring a local license is a prerequisite to obtaining a state license. Starting or operating a cannabis business with all the proper licenses is extremely region dependent. Many counties and cities have even prohibited commercial cannabis businesses. With such inconsistencies throughout the state, it’s no wonder California cannabis licensure is infamously difficult to navigate.

The good news is that the Californian black market is not sustainable long-term, which means that the more it shrinks, the more the legal market will grow. Regulations and taxes are continually changing, enforcement agencies are growing in both funding and staffing, more locales that opted for prohibition will likely open up for cannabis businesses as time goes on. As growth continues, the earnings currently in the black market will shift into the legal market, inevitably allowing the legal market to win this battle. Though obtaining a license may be difficult, it is not impossible. Let us know if we can help.

By Mio Asami

Cultiva Law

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