Illegal Pot Shops Undercutting California’s Legal Market

California’s Legal Market

Under a wafting smell of marijuana, a constant stream of customers entered a warehouse, bars covering its windows and doors. Without warning, police swopped in, shouting, “Sheriff’s department! Search warrant!” Officials thundered their way through the door, handcuffed whomever they found there, and started hauling people out.

Earlier this spring, police raided the Compton 20 Cap Collective in the south of Los Angeles, just one of hundreds of illegal pot shops operating in the county. However, only those aged 21-years or older can use its legal market and retailers must have a license to sell weed to them. This was not the case here. California began its broad legalization of marijuana as the year started.

From the outset, concern was rife that the state’s enormous black market, which has been thriving for decades, would undercut its legal one, and this is exactly what is happening. Nowhere is the problem bigger than in California’s most lucrative local market: Los Angeles County. There are only around 150 licensed stores in the area, but the number of illegal dispensaries far outnumbers them.

Obviously, this is cutting profits for anyone even attempting to play by the rules. Customers can get weed products cheaper at illegal outlets than they can at legal ones, who are losing customers faster than they are gaining them. Illegal stores do not charge consumers taxes, since they do not pay them. This is giving them a major competitive advantage over legal weed shops.

“I think if you turn the tables and took cannabis out of the equation, if it was another industry that did not have the stigmas, the government would do everything it could to give those licensed businesses paying taxes a level playing field.” These were the words of Adam Spiker, executive director of the Southern California Coalition, a trade group representing cultivators, distributors and storeowners.

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One of the attractions of legalization was that it would generate tax revenues for local and state governments. However, the only reported $34 million from cultivation and excise taxes during the first quarter, making it unlikely that it would reach its forecasted goal of $175 million in the first six months of legal sales.

Back in April, state authorities sent as many as 1,000 cease-and-desist letters to pot companies they believed were operating illegally. Marijuana Business Daily, a trade publication, conducted an analysis that found around 64 percent of them doing just that in the Los Angeles metropolitan area alone. Its attorney’s office sent similar letters and charged 142 people during a crackdown last month.

California’s largest sheriff department is in Los Angeles County, but even it has insufficient labor to shut down all the illegal weed stores. On average, Lieutenant Frank Montez and his task force raid one dispensary every week. However, the law only allows people to possess 28.5 grams of weed, so officers can seize stock and cash unhindered. Offenders seldom go to jail and doors quickly reopen.

Captain Holly Francisco, commander of the sheriff’s department narcotics unit, explained, “It is a money-lucrative business, so there are people willing to take the risk.” For Montez, his work is more than just enforcement. Illegal weed can contain illegal pesticides and harmful chemicals, and he believes that taxpaying pot shops should not have to fall under such unfair competition.

“When you have an illegitimate, illegal dispensary operating, that not only hurts the industry as a whole, but that really hurts the community,” Montez emphasized. The Compton store had a sign saying customers must be at least 18-years and have a doctor’s letter to buy medical weed, or be 21-years or older with an I.D. to prove it if they wanted to buy anything else.

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Like others, the Compton store ran its business in plain sight and used online platforms to advertise, the go-to website for anybody looking for somewhere to buy weed. Inside the shop, whiteboards advertised all the different prices for the various cannabis products and concentrates on offer.

“People out here on the street are thinking it is a legitimate operation and are smoking this cannabis with all these dangerous pesticides, and they are really killing themselves,” Montez worried. Some illegal stores look more legitimate than legal ones do, so much so that people are unaware that they are breaking the law until they realize they are not paying tax.

However, like anybody trying to save a buck or two, most customers know that they are buying from an illegal operation, but they do it anyway because it is so much cheaper. While some illegal stores are growing their own supplies, many are buying stock from illegal grows in the Northern California hills, which has been growing most of the country’s illegal weed for eons already.

Due to its topography, Lake County, roughly 125 miles to San Francisco’s north, is a major hub for many such grows. Illegal cultivators can hide big operations very easily. There is so much state and federal forests to disappear into that cartels are setting up operations in large numbers. Like the sheriff’s department in Los Angeles County, Lake County does not have the workforce to do much about it.

Officers patrol the area on foot and in helicopters, and according to Lake County Sheriff Brian Martin; they destroyed roughly 250,000 cannabis plants and arrested 46 people for growing illegally in the area last year. He cannot guess how many illegal grow sites are operating in the area, but he believes the hundreds of thousands of plants destroyed by deputies every year are “just the tip of the iceberg.”

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Martin explained that his understaffed department has assigned marijuana eradication to just one of its detectives, who is working on it full-time. He relies heavily on help from both federal and state agencies to do this, but they have priorities of their own. “It is all about manpower,” he stated. “No one has enough of it.” While the new market flounders, illegal businesses are still thriving unhindered.

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Comments (1)

  1. Avatar for Zac Zac July 7, 2018 / 4:40 pm / Reply

    Free the weed

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