
In plain sight: California illegal pot market booming - prostoalex
https://apnews.com/ca7e90e59cab4d2e850d1ad22219ee47?te=1&nl=california-today&emc=edit_ca_20190819?campaign_id=49&instance_id=11749&segment_id=16287&user_id=ad1d38d7aeb88df9a49d1052fc4f5fba&regi_id=4617603
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dumbfoundded
So I work in this industry.

A few of the problems:

\- Taxes and really tough regulations. As mentioned by the article, taxes are
stupid high, upwards of 40% in some counties in California (CA).

\- Lax enforcement. The risk of growing illegally has diminished
significantly. Other non-legalized states provide a giant market. People grow
at scale where it's safer in CA/OR/WA and then send nationwide.

\- The transition has been more or else outright reckless. Before 2018 in CA,
most dispensaries and growers operated under medical licenses. Regulations
were pretty relaxed. Taxes were low. Customers just had to spend $25 and 20
min on a website to get a medical card. On Jan 1, 2018, something like 85% of
dispensaries went out of business. They couldn't handle the change in
regulations. Everything from taxes, building renovations for security/fire,
re-zoning. Lots of problems. Do you think these people just gave up? They had
customers and supply chains and then you take away their legal way to sell.
You also took away enforcement for selling illegally.

\- Time. Weed was 100% underground (or at least medical) before 2018 in CA.
Now it's like 75% underground. It's going to take time for the transition to
happen. Like if you're in college and you buy weed from a friend. It's good
stuff and he sells it cheaper than the dispensaries, are you going to stop?
Probably not. You were doing it before it was legal. Why change now? Most new
customers use dispensaries. You have to provide the existing people a reason
to switch.

~~~
johnisgood
[http://reason.com/reasontv/2018/04/02/californias-new-
recrea...](http://reason.com/reasontv/2018/04/02/californias-new-recreational-
marijuana-m)

California's Legal Weed Is So Heavily Taxed and Regulated That the Black
Market Might Survive

I am not surprised by this.

~~~
Scoundreller
The same thing is happening in Canada too, particularly in the provinces that
are taking their time in distribution network setup (looking at you Ontario).

~~~
johnisgood
Another: FDA approved ketamine for the treatment of depression, but the costs
are through the roof. If I remember correctly it was somewhere around $7000.
You can get more or less pure ketamine on the black market for $30-$50 per 1
g. That 1 g will last ages if used for depression.

Edit:

Found it:

> Ketamine treatments usually cost a few hundred dollars per infusion, but the
> expense comes not from the generic drug, which is cheap, but from the
> doctors’ time and the clinic space. In contrast, just the Spravato drug
> alone can cost almost $900 per session, which would bring a monthly cost —
> at the recommended two sessions a week —to nearly $7,000, according to Stat
> News.

~~~
Scoundreller
Because they’re doing the ketamine infusions really expensively.

Do the first infusion at a proper clinic, then send a travelling nurse to do
it at a patient’s home. Putting in a peripheral line and mixing and running a
bag is nursing 101.

Or do it at a nurse/operated infusion clinic to further reduce nursing time.

At least that’s how my jurisdiction does outpatient IV antibiotics, which are
riskier than ketamine.

Dunno why MD supervision would be required for a ketamine infusion. The
recipient is unlikely to crash or have an anaphylactic reaction. Maybe they
could have a fall, but we don’t put doctors in bars or dangerous
intersections.

~~~
DanBC
Spravato is a nasal spray.

~~~
Scoundreller
But sold as an alternative to infusions which are done cheaper, and have lots
of opportunity to be done even cheaper because patents aren’t involved.

------
ksaj
Canada is essentially having this same problem. CannTrust is an example of a
legal pot company that got caught growing and storing illegal pot.

The same problem applies: the taxes, and basing all the prices on the _gram_
street value instead of allowing for scale, like with street Ounce pricing.
Lots of people pay $10 for a dime bag, but _nobody_ pays $280 for an ounce on
the street unless it is truly spectacular...

Likewise, since legal weed isn't sold in dime bags, the prices shouldn't be
based on dime bags... especially if you are buying a large amount. Even beer
pricing works that way (the difference in price between a single can or
bottle, and the per unit price of a 24 case is significant.)

~~~
jefftk
I had assumed they the prices were set by the market, and were high because
the legal pot market is still very small and at several kinds of disadvantage
compared to the illegal one.

Are you saying the prices are instead set by the state? Or are you just
referring to taxes?

~~~
ac29
Never been to Canada, but the taxes appear to be a % of sales price, not a
per-gram basis: [https://www.canada.ca/en/revenue-agency/services/forms-
publi...](https://www.canada.ca/en/revenue-agency/services/forms-
publications/publications/edn55/calculation-cannabis-duty-additional-cannabis-
duty-cannabis-products.html)

~~~
ksaj
The taxes are on the dollar cost, and at least in Ontario, hidden in the price
tag (as it is with alcohol, lottery tickets and gasoline).

But it is a major part of the price, and everything to do with how upon
legalization, it immediately became more expensive than buying illegally. This
is despite assurances that the pricing would make it more competitive, and
remove the incentive to street purchases.

They decided early on that it should be round or about $10/g. People who voted
for this didn't seem to pay attention to the fact that sure, a dime bag might
cost $10, but the price of a half-quarter, quarter, half, or ounce gets
progressively cheaper per gram.

So now we easily spend about $280 for an ounce of blah, when on the street you
can get $210 for something that'll blow your mind.

Mostly in Canada, only people getting medical marijuana and on disability
(compassionate pricing) get prices that are on par with street value.

------
calibas
It was "legalized" here, and for a little while you could buy local, outdoor
grown cannabis legally and cheaply. Then they regulated it so much that
everyone but the large operations can no longer stay in business, so in many
ways we've gone right back to where things were before it was "legal".

~~~
jl2718
Except that now illegal pot delivery services are venture funded and drag race
around my neighborhood in mustangs with pot leaf paint jobs.

~~~
kevin_thibedeau
They should start a pro race series.

------
gumby
True on the supply side too. I have a home in Calaveras county where pot farms
were banned by referendum (“you wouldn’t want one next to your vineyard, would
you?”). Funding for the referendum came from...the illegal growers who didn’t
want the competition.

[https://www.abc10.com/article/news/local/aftermath-of-a-
ban-...](https://www.abc10.com/article/news/local/aftermath-of-a-ban-
calaveras-countys-pot-struggle/103-591662812)

------
cmrdporcupine
Basically the same scenario in Canada. The black market hasn't gone away in
the slightest. And that was the stated aim of legalization, and one of the
arguments against just decriminalizing possession was that legalization would
put curtains on the black market trade. But I don't think the official
channels will ever compete with the cost structure of the black market.

That said, it is a bit ridiculous at this point, alcohol is more regulated
than cannabis in Ontario. I have a 6 acre property and a 1 acre vineyard, but
if I were to try to make and sell wine to the general public I'd be raided by
the police and sued into oblivion by various regulatory agencies. There's a
huge pile of regulations that I can never meet: insufficient acreage, wrong
grape types, wrong part of the municipality, wrong dimensions for property,
etc. etc.

And yet it seems like there's a new illegal weed dispensary popping up in my
area every week, and enforcement against them is lax.

------
mindslight
Alternative interpretation: Government's ability to dictate what people put
into their own bodies continues to falter.

Essentially the state was lured into removing the blanket illegality, from a
desire to take a large cut of those prohibition-era street prices. But that
blanket illegality was the primary thing maintaining the high prices! Now a
veil of prima facie legality gives the free market operations a new avenue to
cut costs.

Let's hope this trend continues. Simply giving up on "the war on drugs" is a
better outcome than boot-kissing "tax it" distributors entrenching another
corporatized regime like for alcohol.

------
acomjean
There exists a black market in “tax free” cigarettes is states where they are
available (Native American land doesn’t impose state taxes).

Has legalization increased demand in general?

~~~
erikpukinskis
Surely it has, the increased advertising alone would increase demand.

------
Ericson2314
Probably the federal ban and lack of access to regular banks explains this
too? I assume a lot more capital would flood in otherwise.

~~~
codeddesign
No, they give you the answer in the beginning. High taxes on the legal pot,
and extremely low prices on the illegal pot that has flooded the market.

~~~
BigChiefSmokem
I wonder if the boom in illegal pot (driving prices down) is due in part to
the oversupply from the legal side, since prices seem to be fixed on that end,
mainly due to taxes and overhead. It is a strange structure that has
developed.

~~~
dillonmckay
No.

Oregon has fairly lax requirements for setting up legal sales and
growing/processing, but put a moratorium on new permits because the market
became flooded.

California legal prices are twice as expensive as both Colorado and Washington
State, simply because of taxation.

Interestingly, I believe a similar situation is occurring in Ohio for legal
medical sales.

------
bgentry
The situation in California is substantially worse than most people are aware.
Many of the large well-funded operations have also been severely disrupted
since adult use legalization. Most of the blame belongs to the CA bureaucracy
which has completely bungled the rollout of legalization.

CA took so long to issue annual licenses that many cannabis businesses'
temporary licenses were going to expire before they received annual licenses,
and the state's own authority to issue temporary licenses was going to expire
before they could fix the situation (July 1). The result would be that the
vast majority of the state's legal cannabis businesses were at risk of finding
themselves without a license.

To fix this, the state regulators had to petition the legislators to pass an
emergency resolution giving them the authority to issue a "provisional"
license, which is basically a mix of a temporary and an annual license
(including all of the track-and-trace requirements of a full annual license).
Yet even after doing this, the state failed to issue provisional licenses for
a huge fraction before July 1. Even as of today, many businesses which were
operating in full compliance and with every intention of following the rules
are operating without a valid license due to this gap, though I think the
state has finally almost finished issuing provisionals.

Another major aspect of this is that as each licensee gets their provisional
license, they must begin tracking all of their inventory operations on the
state's cannabis track-and-trace system, powered by Metrc. The state is
woefully unprepared to train licensees about all of the requirements of this
system, and there are gaps between what the rules say and what the system
actually allows you to do. Third party software providers that integrate with
Metrc (like us, Distru) are also in the dark on much of this, because Metrc
has only minimal documentation, is full of bugs, and doesn't offer a complete
sandbox/test environment. The only way to really figure out some aspects of
the system is through trial and error with live customers. We're much further
along on this than most (this was my 3rd implementation of a Metrc sync engine
so it's robust enough to deal with many of their issues); but there are still
edge cases that are impossible to handle well.

When there is a major bug in their software (such as the GET endpoints for
transfers straight up not working when they should) Metrc does not fix the
problem. When there are gaps between the regulations and Metrc, Metrc won't
answer and says to "talk to the state". The state won't answer (likely because
they don't know) and sometimes says "talk to Metrc". We're doing our best to
help our customers and train them on things the state isn't prepared to just
so our customers can keep operating, but the unfortunate reality is that our
hands are often tied.

The above is just a glimpse, but there are so many more issues. Banking is of
course a huge problem until congress acts to fix it. Operators often have to
pay their taxes by driving giant bags of cash to one of the few state offices,
or to an authorized bank branch. One of our customers brought their giant bag
of cash to pay their taxes directly into the state's bank account at Bank of
America, and the bank's fraud systems shut down the state's bank account
temporarily as a result. Add to this the regulatory variations at the local
levels where most cities and counties are still outlawing the industry, and
the absurdly high taxes some are trying to impose, and it's no surprise that
things are going so poorly.

California could have followed the proven playbooks that other much smaller
states had successfully used to roll out their regulated industry; instead we
are almost 3 years into the adult use era and it is still a complete shit
show.

\---

Obligatory footnote: Distru is doing well in spite of this environment and
we're confident we will help our customers through it. All of the above is
really an opportunity, and we've been building out a world class team to help
solve these supply chain problems. If you find this industry as fascinating as
I do, and want to work on software that makes a huge impact on the industry,
please reach out :) blake [at] distru or
[https://www.distru.com/careers](https://www.distru.com/careers)

------
ddoolin
How can/does a consumer know if the shop they are visiting is illicit? I
believe the shops I patronize operate legally, or at least for the most part -
the prices are still much lower than the black market prices where I came
from. However, the problem seems to lie with the shops, not their patrons.

~~~
tomc1985
The shop probably looks and operates like they did a few years ago, instead of
how they should be currently (glass containers for everything, everything sold
as eighths, no bulk discount)

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masonic
Longtime CA DF&W officer John Nores has written and spoken extensively on the
problem of illegal grows, the largest generally operated by Central American
gangs.

[http://www.johnnores.com](http://www.johnnores.com)

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siempreb
Maybe if legal weed would be certified 100% non-poisonous, organic, etc..
there could be more traction for legal. The government should be able to
enforce this.

~~~
deepakhj
My friend’s farm in Mendocino is 100% organic. He grows for Flow Khana.

------
ggg3
> illicit source

Because everyone wants our taxes to crack down on every herb garden in the
neighborhood that evades taxes! specially the heirloom tomatoes! those creates
multi-generation lost taxes oportunities!

everything that is somewhat not-ilegal will have small scale informal market.
Friends grown their own tobacco, roast their own coffee... and all sell a
little on the side.

how dense you have to be to think a literal weed would be different?

~~~
bigwavedave
I really wish I could understand what you're saying here, friend. Please
revise your comment because your point might be interesting and I'd like to
know what you're saying.

