Not even Jerry Garcia, it seems, can make it in California’s chaotic weed market.
Garcia Hand Picked, the brand named for the late, iconic singer and guitarist, recently announced it would stop selling cannabis products in the Grateful Dead’s home state. And Hand Picked, which is owned by Holistic Industries, is just the latest high-profile pro-pot enterprise to exit California.
Companies, it seems, may be eager to reach the world’s largest legal pot market. But high taxes, complex regulations, and the booming illegal trade have made it hard to turn a profit in the Golden State. And cannabis firms in New York’s new legalized marketplace are already facing similar concerns.
Wana Brands’ gummies edibles are available in more than a dozen states, but last year it pulled the plug on California. It’s the only market they’ve abandoned. Curaleaf, one of the country’s largest pot concerns, exited California a few weeks ago. The legal industry “simply cannot compete with the illicit market that is paying no taxes,” Wana CEO Nancy Whiteman said.
In Los Angeles, taxes on legal weed top 30 percent. Rather than pay up, buyers regularly source their stashes from illegal shops and delivery services that sell similar products tax-free. Aside from the price, it can be hard to tell the difference between legal and illegal cannabis.
Further complicating matters, nearly six years after California’s legal market opened, vast swaths of the state are still closed to dispensaries. State law gives cities and counties power to decide what kinds of pot businesses they’ll permit. According to the state Department of Cannabis Control (DCC), 61% of local governments don’t allow pot shops.
In conservative-ish Orange County, for example, most of its 3 million residents don’t have dispensaries in their city. By shutting out legal businesses, jurisdictions are handing the illegal market a de facto monopoly.
“Regulations meant to protect public health are accomplishing the exact opposite as millions of consumers turn to the cheaper, but untested and unsafe illegal products,” said Wesley Hein, president of the state Cannabis Distributors Association.
New York, California, and other states speak loudly about their quest to support small, minority-owned cannabis businesses. But if large, well-capitalized companies can’t make a market work, legal mom and pops (of all colors) have little chance either.
The illegal market used to evoke farmers tending small gardens in the forest. Today, vast, unlicensed criminal operations hide in plain sight alongside licensed growers in the California desert and other mostly rural areas. Operated by armed criminals, these farms guzzle water unlawfully and dump pollutants with impunity.
In 2021, California’s legal market did more than $5B in sales. By all estimates, the illegal market is far larger. DCC-led search warrants seized $77 million in illegal cannabis in 2021, perhaps one percent of the state’s total illegal market. California and other legal states lack the resources and political will to crack down harder. Harsh enforcement against illegal operators would also defeat the purpose of legalizing in the first place.
Similar enforcement challenges have already emerged in New York, which only permitted pot sales in 2021. The city’s first legal bud boutique, for instance, opened in late December – faced, from day one, with an estimated 1,400 NYC shops already peddling bud illegally.
These businesses, many of them bodegas and smoke shops, largely sell unlicensed pot imported from California and elsewhere. “The illegal market is shipping in tractor-trailers of cannabis products,” Wana CEO Whiteman said. “There’s no enforcement, making New York just as challenging as a market like California.”
In addition to not paying pot taxes, unregulated shops also accept credit cards. For consumers, this may seem like merely a matter of convenience. But with the licensed cannabis industry still mostly cut off from the banking system, illegal shops have yet another edge by accepting all forms of payment.
Industry’s hurdles, like access to mainstream banks, will only be resolved via federal cannabis reform. Such a banking bill has repeatedly passed the House of Representatives with bi-partisan support before being blocked by Senate Republicans.
In the meantime, states have the power to prevent illegal markets from smothering their legal counterparts. The fastest way to support legal operations would be to reduce pot taxes, currently at 13% percent in New York State. But folks are counting on that tax revenue – for law enforcement, youth programs and the racial justice initiatives heavily baked into New York’s push to decriminalize cannabis. Reduce the tax pool and someone will inevitably be left out.
New York’s legal weed market is in an uneasy early stage, clamoring for a foothold in an unfair arena where illegal competitors clearly have the upper hand. Overtaxed and in many ways over-regulated – for instance, New York is the only state to charge distributors an additional potency tax – New York’s pot market is already, well, going to pot as consumers flock to more convenient dealers and depots.
Envisioned as a way to compensate for racial injustices — 40 percent of legal cannabis tax revenue is earmarked for communities impacted by pot busts — New York’s nascent cannabis industry might very well wind up like gimmicky Garcia Hand-Picked. Because as long as unlicensed dealers sell their products for less, they’ll thrive at the expense of both legal operators and the social causes they so loudly champion.
https://nypost.com/2023/02/11/illegal-weed-is-killing-licensed-california-bud-shops/
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