An increased tax on flower has forced legally operating dispensaries to increase their prices, which makes it hard for them to compete with the black market.
In California, medical marijuana has been legal since 1996. In 2018, recreational use became legal in the state as well. With that, the state became the largest legal marijuana market in the world, according to date from BDS Analytics.
Unfortunately, this isn’t the only way California tops the charts in the world of cannabis. The state also has the largest marijuana black market in the world.
The Numbers: Black Market Marijuana in California
In 2018, law enforcement officials in California reported destroying 1.6 million marijuana plants because they were illegally grown, according to The New York Times. What does this mean for the financials of the industry? Halfway through 2019, black market sales were projected to reach $8.7 billion in California, according to the LA Times. Meanwhile, legal sales were on track to reach a little over one third of that number at $3.1 billion.
The black market has a real cost for the state as a whole as well as for entrepreneurs in the industry. When California first legalized marijuana, tax revenue was predicted to reach $643 million during the first year of legal sales, according to BDS Analytics. In reality, the state only took in $345 million that year.
Take a look a MedMen as an example of how the illicit market is hurting dispensaries that are sticking with the legal route. By the time the second half of 2018 came around, this major retail chain was struggle to make ends meet. The reason? They couldn’t compete with the low prices being offered by illegal sellers. Meanwhile, other retailers report the frustration of competing with unlicensed dispensaries operating in plain sight.
Behind the Thriving Marijuana Black Market
It isn’t a mystery why black market marijuana is thriving in California. First, we know that licensed dispensaries are facing high taxes on everything they sell. As recently as January 2020, the state increased taxes on the flower from $9.25 to $9.65 per dry ounce and the leaf from $2.75 to $2.84 per dry ounce, according to a notice from the California Department of Tax and Fee Administration. This has forced legally operating dispensaries to increase their prices, which makes it hard for them to compete with the black market.
There is also the issue of availability. The majority of California’s illicit weed isn’t even used within the state. Instead, the black market is feeding illegal sales in states where recreational sales remain illegal, according to Politico. And, within the state, the opening of legal dispensaries has been slow with a concentration of locations in specific areas while other areas have few or no dispensaries.
What does the future hold for the black market in California? It doesn’t look great, especially if things don’t change within the legal industry. Researchers predict that illegal marijuana will still claim 54% of sales in 2024 in California, while other legal states are predicted to see illegal sales to only account for 30% of cannabis income.