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Six years after legalization, cannabis black market still thriving

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A cannabis greenhouse at Pacific Stone in Carpinteria. The company’s CEO says California’s taxes and regulations make it hard for legal companies like his to compete with the black market. (courtesy photo)

When California legalized cannabis for recreational use in 2016, the idea was to create a new legal industry and eliminate an illegal one.

Instead, the illicit market continues to have a stronghold in California, as legal growers struggle to turn a profit amid high taxes and strict regulations, and state and local governments often fail to enforce the rules against unpermitted and untaxed growers and sellers.

“I mean, you have to have some greater level of enforcement,” Skip Motsenbocker, CEO of Pacific Stone, a cannabis grower in Carpinteria, told the Business Times. “If there’s no enforcement or no penalty and if you’re continuing to just play under the old rules or no rules, how is it that the people who are trying to do it the right way can ever be really competitive in the end? I’d say it’s impossible from a practical perspective.”

Pacific Stone is one of the largest cannabis brands in the state. The company runs multiple greenhouses and sells under its own label in dispensaries statewide.

Mostenbocker estimates that the black market still accounts for about 80% of California’s cannabis industry.

Moorea Warren, a spokesperson for the California Department of Cannabis Control, told the Business Times that legalized cannabis is still in its infancy and “remains a work in progress.”

“But there are many early successes worth celebrating, including consumer access to regulated, tested and, therefore, safer cannabis products and the opportunity for legacy cannabis business to operate without fear of prosecution,” she said.

Part of the problem is a lack of enforcement. A recent Los Angeles Times article found that in East Los Angeles alone, there are 25 to 30 illegal retail dispensaries in operation. Even if police shut them down, they typically open back up within a couple of months. The Times estimated that there are at least 150 illegal dispensaries in all of Los Angeles.

“California needs to stamp out and investigate illegal dispensaries,” Amy Steinfeld, a managing partner at Brownstein Hyatt Farber Schreck who represents cannabis growers in Santa Barbara County, told the Business Times. “I know that’s a big problem in the Los Angeles region, where most consumers don’t know they’re walking into a legal or illegal shop. It’s frustrating for the legal growers because they go through so much to stay compliant.”

To Read The Rest Of This Article By Jorge Mercado on Pacific Business Times

Published: September 15, 2022

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