Sympathy of state officials not enough for struggling cannabis industry

State officials, from Gov. Gavin Newsom on down, have been sympathetic to the struggles of California’s legal marijuana industry since recreational sales at shops became legal Jan. 1, 2018, so long as local governments gave their OK.

This sympathy was on display in recent weeks as the Legislature finalized work on the 2019-20 state budget. It includes provisions that will allow marijuana growers and sellers to operate with provisional permits for up to five years.

As of mid-June, state officials reported only 39 cannabis retail store had received regular licenses, while more than 2,700 were operating with temporary or provisional permits. The state’s record was somewhat better with growers – 208 had regular licenses versus the 1,500-plus who had provisional permits.

But while marijuana lobbyists welcome the regulatory relief, there is growing frustration over why it is needed: the slowness of the state to process store and grower licenses. One state agency acknowledges it has 60 vacancies in the unit that reviews grower permit applications.

Illegal sellers actually increasing market share

The frustration is even more acute over the failure of state and local authorities to crack down on the illegal sellers and growers who are able to charge at least 20 percent less than those operating legally. That’s because they don’t have to pay taxes or for licenses, pot testing and child-proof packaging. A report last week from BDS Analytics and Arcview Market said that illegal sellers had such an advantage that they were actually gaining market share in California, making it likely that state forecasts of tax revenue from legal sales will continue to fall short of state predictions.

The Newsom administration is aware of concerns from legal sellers and recently launched a #WeedWise public information campaign to urge the public to only use legal outlets. The Associated Press reported Friday that the state also has begun a crackdown on illegal growers, albeit one that’s starting with relatively few resources.

A crackdown launched earlier in Los Angeles has not yielded nearly as much progress as either city officials or legal cannabis sellers hoped. A May 29 report in the Los Angeles Times found that even though city officials had done better than most in streamlining the application process for legal stores – allowing 182 to open – there were even more illegal dispensaries open selling cheaper products.

A police union official told the newspaper that since Proposition 64 was enacted in 2016, clearing the way for recreational sales, using the LAPD’s limited resources to crack down on illegal sales had been a low priority for the department.

But the Times reported that the L.A. City Attorney’s Office has been more aggressive in recent months, including targeting the landlords who rent store space to illegal dispensaries with fines and threats of escalating penalties.

While pot shop owners can be hidden behind corporate filings and thus be tough to hold accountable, landlords can be determined quickly through property tax records.

San Diego crackdown successfully focused on landlords

San Diego officials began a landlord-oriented crackdown on illegal pot stores in spring 2016. Some 20 months later, police said they continued to struggle to shut down illegal delivery services operating in the city, but that illegal storefront sales were no longer a problem.

Meanwhile, the state that pioneered approval of recreational marijuana use – Colorado – is bragging about how well its program has done. In 2018, the state took in tax revenue of $267 million on marijuana sales. It has a population of 5.7 million.

In 2018, California took in tax revenue of $345 million on marijuana sales. It has a population of 39.6 million – just under seven times larger than Colorado. That means Colorado took in more than five times as much in cannabis taxes per capita than the Golden State.