On January 1, 2018, California cannabis shops opened their doors for recreational sales. Today, California is one of eleven states along with the District of Columbia that allows the legal sale of recreational cannabis to adults.
Many would say the industry is booming. According to market research, adult-use cannabis sales eclipsed medical cannabis sales for the first time in 2018. And total legal cannabis sales are projected to reach over $40 billion globally by 2024.
Illicit Market Outcompetes Legal Cannabis in California
Despite the ongoing boom in the legal cannabis market, California has struggled to meet tax revenue expectations. In 2018, California took in a reported $345.2 million in tax revenue from cannabis sales, falling short of the $1 billion estimates some analysts predicted. Moreover, legal spending actually declined in California, from $3 billion in 2017 consisting of only medical cannabis to $2.5 billion in 2018.
There’s no doubt that the demand for cannabis is growing, but many Californians are continuing to buy their cannabis from unlicensed sellers. As a result, under-the-table sales of cannabis in the state still dwarf legal cannabis sales with estimates putting the black market at nearly three times that of the legal market.
But what’s driving Californians towards unlicensed cannabis sellers? Some point to high taxes, but a more significant issue is that licensed stores can be hard to find. That’s because a large number of cities and counties have banned legal cannabis retailers from opening. California currently has fewer licensed cannabis shops than Colorado, a state that only has 15 percent of California’s population. This means consumers without access to licensed cannabis shops are turning towards unlicensed sellers to meet their needs.
California Fights Back
The United Cannabis Bussiness Association (UCBA), an industry association that represents growers, dispensary owners, and other licensed marijuana businesses in California performed an audit of the website Weedmaps. They estimated that more 2,000 unlicensed cannabis shops were operating in the state and called for action from California Governor Gavin Newsom.
California and the Bureau of Cannabis Control (BCC) have since made efforts to fight back against unlicensed cannabis sellers. In November 2019, the BCC sent warning letters to landlords of illegal cannabis businesses, threatening fines up to $30,000 per day for illegal cannabis activity.
In December 2019, the BCC in coordination with the Department of Consumer Affairs’ Cannabis Enforcement Unit (DOI-CEU) served 24 search warrants on unlicensed cannabis retail locations in Los Angeles. The searches resulted in the seizure of $8.8 million in cannabis and cannabis products, including 9,885 illegal vape pens.
The BCC has also launched an educational campaign, #weedwise, to encourage consumers to only purchase cannabis from licensed sellers. The campaign highlights the importance of cannabis testing and warns consumers about the potential dangers of illegal, untested cannabis which can contain contaminants like chemicals, mold, and even fecal matter. Additionally, the California Department of Public Health has linked dozens of cases of acute lung disease to patients who had recently used vape pens, many of which were purchased from unlicensed shops.