California Legal Weed Industry Overwhelmed by Illicit Market

While California’s cannabis market is booming nearly five years after voters legalized recreational weed, the vast majority of pot sales are still underground, with the state’s illegal market approaching $8 billion annually, twice the volume of legal sales, reports Politico. Local government opposition, high taxes and competition from unlicensed businesses are complicating California’s push to build a thriving legal market.

California law is part of the problem, including rules allowing city leaders to shut out licensed cannabis enterprises even as the state has relaxed penalties against illegal operations in the name of racial justice. Licensed cannabis shops offering legal goods are sparsely scattered across the state — there are roughly 2 per 100,000 people, one of the lowest rates in the nation among states that support legal recreational sales. California has just 823 licensed brick-and-mortar cannabis shops, but close to 3,000 retailers and delivery services operate in the state without a permit. Many in the industry say that the current penalty of a misdemeanor and $500 fine is simply too low to dissuade illicit activity. The price of cannabis products sold in legal dispensaries can be two to three times higher than nearly identical items sold in unlicensed shops, which aren’t subject to cultivation or excise taxes that drive up costs for retailers. Buyers see little incentive to pay more for a legal product.