Illegal California Marijuana Shops Undercut Legal Market

Illegal California Marijuana Shops Undercut Legal Market

Illegal California Marijuana Shops Undercut Legal Market

The Compton 20 Cap Collective just South of Los Angeles that was raided earlier this Spring is 1 of hundreds of illegal marijuana stores operating in LA County, where marijuana is legal for anyone 21 and over and retailers must be licensed to sell to them.

Broad marijuana legalization arrived in California at the start of this year.

From the beginning, there was concern the legal market would be undercut by the massive black market that has existed for decades.

That is happening, and nowhere is it a bigger problem than in the state’s biggest legal local marijuana market: Los Angeles County.

The number of outlaw dispensaries in the county greatly outnumbers about 150 licensed storefront retailers.

That reality is a buzzkill for those trying to play by the rules.

Legal marijuana shops are losing customers who can get products more cheaply at illegal outlets that don’t charge or pay taxes, said the executive director of the Southern California Coalition, a trade organization that represents cannabis growers, distributors and dispensary owners.

One of the selling points for legalization was it would generate a tax windfall for state and local governments.

However, during Q-1 Y 2018, the state reported only $34-M from cultivation and excise taxes, putting it on pace to fall well below the $175-M forecast for 1-H of Y 2018.

In April, state regulators sent nearly 1,000 cease-and-desist letters to cannabis businesses they suspected were operating illegally. An analysis by the trade publication Marijuana Business Daily found about 64% of the businesses were in the Los Angeles Metro area.

Last month, the Los Angeles city attorney’s office charged 142 people as part of a crackdown on illegal dispensaries.

Los Angeles County boasts the nation’s largest Sheriff’s department, but even it has nowhere near the manpower to take down all the illegal marijuana shops.

A task force overseen by Lt. Frank Montez raids an average of 1 dispensary a week.

The voter-approved ballot measure legalizing cannabis in California included a provision that made possessing more than 28.5 grams only a misdemeanor. That means officers can seize businesses’ cash and marijuana, but employees and owners rarely face jail, and illegal operations often quickly reopen.

Marijuana sold illegally may be tainted with illegal pesticides and other harmful substances. And licensed marijuana shop owners who pay their taxes should have a fair playing field, Officer Montez said

“When you have an illegitimate, illegal dispensary operating, that not only hurts the industry as a whole but that really hurts the community,” he said.

Some illegal marijuana shops look so legitimate that customers may not even realize they are illegal unless they figure out they are not being charged tax. But like any shopper looking for the best deal, plenty know these places are illegal and go because it’s cheaper.

While some illegal LA County marijuana shops grow their own plants, many are supplied by illegal grows in the hills of Northern California, long a major source of all US marijuana.

“It’s all about manpower,” Officer Montez said. “No one has enough of it.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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