California Targets Legal Cannabis, Let's Illicit Business Thrive

Part 2 of Green Market Report’s series on California‘s war on cannabis

 

The troubling trend of regulatory problems persists in California as the state targets legal cannabis but lets illicit businesses thrive. In recent months, operators have warned of an industry on the verge of collapse as regulations and the unlicensed market throttle legal operators. Meanwhile, with high taxes and little incentive to go legal, many operators and consumers remain on the unlicensed side of the supply chain.

On the surface, numbers can be deceiving. California has raked in $3.44 billion in tax revenue since legalizing adult use. Still, many concerns continue to mount in the Golden State, ranging from inconsistent enforcement of the illicit market to raids on tax-paying ventures to alleged corruption and theft from law enforcement.

As it currently stands, the state appears to have few achievements and many shortcomings, leaving the entire supply chain in possible peril. 

Few Pros, Many Cons

Sources tell Green Market Report that law enforcement is the central pain point. Guy Rocourt, CEO of cannabis brand Papa & Barkley, feels that law enforcement isn’t heading in any direction and that it may have an ax to grind against the market.  

 “It seems that law enforcement is so upset by adult-use cannabis that they are not enforcing the regulatory policies and allowing non-compliant dispensaries and vendors to thrive,” said Rocourt.

Eddie Franco, senior compliance manager for California wholesale shipping platform Nabis, said illicit activity enforcement remains a concern. He said Prop 64, which legalized cannabis in the state, aimed to bring the unlicensed market into a regulated space, providing safer access to cannabis. He feels enforcement has not lived up to the measure, noting that illicit ventures outnumber licensed operators

“California still has work to do in finding the right balance between access for legal cannabis businesses and enforcement against illicit operations,” Franco stated. 

Jungle Boys Raid Underscores Ongoing Enforcement Concerns

Legal ventures still find themselves in the crosshairs of state officials. LA-based cultivator collective Jungle Boys found this out in early March 2022 when officials raided company headquarters, seizing $66,000 in the process. The raid had nothing to do with pot production. Instead, the raid and taken sum stemmed from a disputed late fee to the state. The collective already had a court date to appeal. Despite the alleged late payment, Jungle Boys paid $18 million in taxes in 2021.  

Rocourt called the state’s regulation process “fear-based and biased against cannabis.” He felt the raid said “nothing and everything at the same time.” He detailed the disparity between licensed and unlicensed enforcement in the state. 

The Papa & Barkley CEO said, “With hundreds of non-licensed shops throughout the state and tons of cheap, non-regulated cannabis products available to consumers, it is incredible to me that they find the time to raid a licensed producer.”

Brooke Butler, VP of partnerships for compliance software platform Simplifya, feels the raid indicates that state enforcement may be confused.

“Jungle Boys is not even close to one of the primary threats facing licensed and unlicensed cannabis operations,” said Butler. She added, “The state’s vigorous enforcement against the company looks erratic and vindictive, rather than effective and comprehensive.”

Efforts Ongoing

California hasn’t thrown in the towel on the cannabis market. At the start of 2022, the Department of Cannabis Control (DCC) awarded $100 million in grants. The grant provides local jurisdictions financial aid to help transition operators from provisional to annual licenses. 

Butler feels the decision is “woefully behind” in providing local support, noting that hundreds of municipalities still lack the funds to address unlicensed actors. 

“I think that far more of the municipalities that have not yet permitted cannabis are led by people who, quite legitimately, wonder if the hassle is worth the effort,” she posited. 

Morgan Davis, the owner of state-by-state cannabis law database Cannabis Complete, said lawmakers continue to offer little incentive to go mainstream. She feels that the state’s treatment of licensed operators doesn’t encourage integration into the mainstream market.

“Licensed cannabis operators often complain about theft and are given little to no help by local law enforcement,” said Davis, adding that banking issues, high taxes, and extremely cumbersome regulations all compound the problem. 

Rocourt said that some communities, like Eureka in Humboldt County, could serve as an example. He feels the city has made it so legacy operators “Have become active in building the local community as they are recognized as legitimate businesses.” 

 

Andrew Ward

Andrew Ward is a Brooklyn, NY-based freelance writer. He is the author of the book "Cannabis Jobs" (out October 2019). Bylines include Benzinga, High Times, Merry Jane, Weedmaps, PROHBTD, PotGuide, The Marijuana Times as well as several other publications, company blogs and live events.


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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