California Cannabis Taxes Fall Short

This entry was posted on Friday, May 10th, 2019 and is filed under California, Cannabis.

California’s commercial cannabis businesses have been patiently awaiting enforcement against the illicit black market. Presently, it is projected that the black market directly competes with the legal market by soaking up a 50% market share of cannabis users. Black market cannabis retailers do not pay the hefty cannabis taxes that are currently crippling legal and licensed cannabis retailers.

Pleas to city and state officials for enforcement have gone largely unanswered though the City of Los Angeles recently touted the filing of a lawsuit as a tremendous victory in the quest to eliminate hundreds upon hundreds of black market retailers. The LA Times wrote:

” The city of Los Angeles is seeking millions in civil penalties from an unlicensed South L.A. cannabis dispensary accused of selling marijuana contaminated with pesticides, a move officials said Wednesday is intended to crack down on widespread illegal pot sales.” LA Times, “In a first, L.A. sues unlicensed cannabis dispensary, seeking millions”, April 7, 2019.

See the full article here:
https://www.latimes.com/local/lanow/la-me-ln-los-angeles-marijuana-lawsuit-20190416-story.html

As we have said before, “enforce against the landlords who have dynasty properties to lose.” If cities stop the practice of landlords knowingly leasing to black market dealers, the black market will die. Landlords and property owners are within reach; the wack-a-mole challenges presented by chasing down the shops themselves do not exist when the property owner is pursued directly. The property owners have something to lose and cannot pack up and move to evade enforcement, a tactic widely utilized by black market shops.

Now, state revenues are being impacted by the slow roll out of enforcement efforts against the black market. California now expects a shortfall of $223 million from its tax projections made at the beginning of 2019.

Marijuana Business Daily reports:

The diminished optimism for retail cannabis sales comes as a thriving illicit market continues to undercut licensed shops, where consumers can avoid taxes that can approach 50% in some communities. Marijuana Business Daily, “California Marijuana Sales a Far Cryu From State’s Projections“, May 10, 2019.

See the full article here:
https://mjbizdaily.com/california-marijuana-sales-states-projections-short/

We are hopeful that the state’s tax shortfall will motivate state and local law enforcement to follow the example set by the City of Los Angeles’ recent civil filings and ramp up enforcement efforts against a black market that continues to undercut the great strides made by this industry.

By GianDominic Vitiello, May 10, 2019.