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California’s Illegal Market Could Be 3 Times Larger Than Legal Market

California is on track to post a record $3.1 billion in licensed cannabis sales this year, solidifying its status as the largest legal marijuana market in the world, according to a study released Thursday by financial analysts who advise the industry.

Legal sales are up significantly from an approximate $2.5 billion in 2018, the first year of licensed cannabis sales in California, according to the analysis by sales-tracking firms Arcview Market Research and BDS Analytics. After a rocky start in 2018, retailers that have survived California’s tough licensing, testing and packaging regulations are “battle hardened” and stronger because of an influx of investment that has allowed them to take advantage of the state’s large population and pent-up demand for legal products, said Tom Adams, managing director and principal analyst for BDS Analytics.

“Any market in the world would be ecstatic about a 23% growth rate,” Adams said. “That is fabulous for any industry to have that kind of growth.’’

But California’s black market for marijuana continues to flourish as high taxes and a refusal by most cities to allow licensed shops makes it cheaper and easier for people to buy from illicit dealers, he said. An estimated $8.7 billion is expected to be spent in the illegal cannabis market in 2019 — more than double the amount of legal sales.

The size of the black market continues to trouble many supporters of Proposition 64, the statewide initiative approved by voters in 2016 that legalized growing and selling cannabis for recreational use.

“The illegal market is competitive because legal marijuana is so expensive to produce under Prop. 64,” said Dale Gieringer, director of Cal NORML, which supported the initiative though it preferred other regulations.

Assemblyman Rob Bonta (D-Alameda) tried unsuccessfully this year to win legislative approval to temporarily reduce cannabis taxes.

“It’s abundantly clear that the illicit market is still undercutting the licensed and regulated market,” Bonta said. “The much lower than projected statewide cannabis tax revenue indicates that significant numbers of cannabis businesses remain in the illicit market not paying their taxes, rather than migrating to the regulated market.”

Tamar Todd, an attorney who lectures on cannabis law at UC Davis and UC Berkeley and is vice chairwoman of a state advisory panel on marijuana, said the growth of the legal market and the continued existence of a large illicit market is not a surprise.

To Read The Rest Of This Article By Patrick McGreevy on Los Angeles Times

Published: August 15, 2019

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