Recreational Marijuana in California Did Not Turn Out to be the Cash Crop the State and the Cannabis Industry Expected

A customer reaches for cannabis products at MedMen, one of the two Los Angeles area pot shops that began selling marijuana for recreational use under the new California marijuana law on January 2, 2018 in West Hollywood, California.
Photo: David McNew (Getty Images)

The sale of recreational marijuana has been legal in California for just shy of a year now, and the dreams of what many imagined would become a wildly successful venture for growers, sellers, and everyone involved have seemingly gone up in smoke.

The Los Angeles Times reports that retailers and growers are feeling the burn from a complex system of regulations, high taxes, and the large number of cities within the state that have decided to outright ban cannabis shops. Add to that the residents of many cities who consider marijuana businesses to be nuisances, those who voice their concerns in city council meetings and courtrooms—as well as the unregulated black market that refuses to go away—and you have a problematic concentration of weeds that stunt the growth of any entrepreneurial seed that may be planted.

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Dale Gieringer, director of the pro-legalization group California NORML, told the Times: “The cannabis industry is being choked by California’s penchant for over-regulation. It’s impossible to solve all of the problems without a drastic rewrite of the law, which is not in the cards for the foreseeable future.”

When Gavin Newsom takes office as the state’s new governor in January, legislators are hoping he will consider bills that will take some of the pressure off, including legislation to provide banking for the industry. Because marijuana is not legal at the federal level, it is harder for marijuana businesses to fight their way through all the banking regulations, making them subject to higher fees than most other industries as a result.

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As the Times notes, when recreational marijuana became legal with the passage of Prop. 64, state officials projected that there would be as many as 6,000 licensed cannabis shops within the first few years and the industry was expected to bring in $1 billion in revenue in a year. That is not how things turned out.

Currently, the state Bureau of Cannabis Control has only issued 547 temporary and annual licenses to marijuana retail stores and dispensaries. State tax revenue is projected to be just $471 million. Gov. Jerry Brown’s initial budget forecasted $630 million in tax revenue.

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Ultimately, consumers feel the pinch from high taxes as well. In many parts of California, buying a gram of marijuana the legal way will cost you $15 to $25, compared to the relatively low cost of $1 to $3 you can find in places like Colorado, Washington and Oregon—where legal prices are directly competitive with black market prices.

Californians pay a state excise tax of 15 percent. That does not include city sales tax or any other local excise tax that may be involved.

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As an example, in the city of Los Angeles, a person purchasing a $50 eighth of weed is now subject to a 9.5 percent city and state tax, the 15 percent state excise tax, and a 10 percent recreational tax. That $50 eighth now costs $67.50. Compare that to West Hollywood where I live, where we don’t pay the local excise tax (for now*). Here, that same eighth is $62.25.

The way to avoid the sales tax is by obtaining a special state ID for medical purchases, but your name gets entered into a database with the California Department of Public Health and there are a number of reasons why people would not want to do that.

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Of the 482 cities in California, only 89 allow recreational marijuana sales. That’s just 20 percent, and the varying taxes in those areas can drive the cost of legal purchases up by 45 percent according to the Times, which compared that to Oregon—a state with a 20 percent cap on marijuana taxes. Oregon has a tenth of the population of California but has more legalized shops—601 to be exact.

Earlier this year, Assemblyman Rob Bonta (D-Alameda) tried to push for a temporary reduction in California pot taxes in an effort to allow the growing industry to get on its feet, but the measure failed.

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Bonta told the Times that he may revisit the taxation issue in 2019 and is exploring the idea of having the state do more to get cities to approve businesses, possibly by providing advisory guidelines for local legalization that address cities’ concerns.

“It’s a work in progress,” Bonta said of the current regulatory system. “We knew we weren’t going to get it exactly right on Day 1, and so we’re always looking for ways to achieve the original intentions and goal.”

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Bonta, who co-wrote a bill this year that would have created a state-sanctioned bank to handle money from pot sellers, also addressed the banking issues that those in the marijuana industry face.

“Banking continues to be an issue in terms of creating a real public safety problem with significant amounts of cash being moved for transactions,” he said.

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In the meantime, others continue to remain optimistic about the future of the legalized cannabis industry in California.

The state is working on a proposal that will allow home delivery of marijuana throughout the state—even in cities that currently ban recreational marijuana shops. The new rule was created by Lori Ajax, chief of the state Bureau of Cannabis Control, and it is expected to be implemented in January, despite fierce opposition from law enforcement.

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In weed-friendly West Hollywood—the first city to actually have opened recreational marijuana shops on Jan. 2, 2018 when the law went into effect—the local government has approved a number of cannabis cafes and consumption lounges.

West Hollywood Community Affairs Manager John Leonard told ABC7: “DJs, rooftop lounges, where you can take in the view of West Hollywood but also restaurants where you can order virgin food and then you can have CBD or THC sauce infused on the top of it.”

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The city has approved 40 cannabis licenses, 16 of which allow for on-site consumption of weed—which means you can blaze up right after you purchase if you so desire.

“We’ll see it all integrate together. You’ll have a cannabis lounge next to a bar, next to a hotel, next to a high-class restaurant... You can be between all of them and enjoy your time in West Hollywood,” Leonard said.

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Basically, West Hollywood is about to be Hamsterdam.

State weed czar Ajax is also optimistic, telling the Times that her agency has had a productive first year.

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“I am optimistic about the coming year, where our focus will be primarily on getting more businesses licensed and increasing enforcement efforts on the illegal market,” Ajax said.

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About the author

Monique Judge

News Editor for The Root. I said what I said. Period.