Before 8 million Californians voted in 2016 to pass Proposition 64 by a decisive margin and allow recreational use of marijuana by adults, supporters acknowledged that the approval would lead to a massive social experiment in the nation’s most populous state — with great potential for unintended consequences. So far, though, the consequences are almost entirely foreseeable — or should have been.
After California voters legalized medical marijuana in 1996, an extremely profitable multibillion-dollar industry sprang up — one that often operated in gray areas or acted illegally to promote sales. When voters decided recreational marijuana sales would be legal starting in January, state officials apparently expected this industry to permit their shops en masse for legal cannabis sales. Instead, as the Bay Area News Group reported last week, marijuana industry officials say only a few hundred of the state’s estimated 12,500 retail cannabis shops now have permits for recreational sales.
That low percentage is not just because of the cost of a state permit (up to $73,000). It’s because compliance eliminates the enormous price advantage that illegal dispensaries have over legal ones, which must add the state’s 15 percent marijuana tax and the state’s regular base sales tax of 7.25 percent or more (in San Diego County, it’s typically 7.75 percent) to the cost of marijuana purchased. The city of San Diego also adds a 5 percent tax on top of that. No wonder unincorporated Spring Valley has at least 11 illegal dispensaries taking away millions of dollars in business from legal shops. They can charge so much less. And no wonder that in the first three months of this year, the state averaged only about $11 million a month in state sales taxes on pot — far below the $29 million a month it expected.
This is why Gov. Jerry Brown’s call in his revised 2018-19 state budget for the California Department of Justice to spend $14 million to hire five teams to crack down on illegal marijuana operations — with one team based in San Diego — is cause for both celebration and bafflement. What took so long?
One person who saw this huge problem coming is Assemblyman Tom Lackey, R-Palmdale, who worked for 28 years for the California Highway Patrol. In a telephone interview with an editorial writer for The San Diego Union-Tribune, Lackey said state officials never seemed to grasp “the size and sophistication of California’s black market marijuana industry” or appreciate the fact that black marketeers had a 20-year head start because of the 1996 medical marijuana law. As matters now stand, Lackey said, “There’s no way the regular market can compete.”
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So far, state government’s response to what Lackey calls a “ridiculous” state of affairs is quite limited: Brown’s proposal for five teams to target illegal cannabis operations, state regulators’ willingness to give extensions on permit and fee deadlines for some pot shops that have taken steps toward compliance, and some state lawmakers’ interest in reducing the state’s 15 percent marijuana tax. But a much better idea is a no-brainer and long overdue: Set up a small task force of marijuana industry and law enforcement experts to develop best practices to ensure the industry can thrive — and not be undercut by illegal shops ignoring the rules.
In Lackey’s phrase, it’s time to “minimize the casualties” resulting from the state’s what-me-worry approach to regulating legal marijuana. In a separate interview, Lt. Gov. and gubernatorial candidate Gavin Newsom, who helped lead California’s push to legalize recreational marijuana, acknowledged state officials’ failures to stop the black market from popping up so blatantly. “That,” he told us, “goes deep to the stubbornness and the friction and the pace of permitting that has been very slow, and that’s on us.” Newsom noted that Gov. Brown has “not been spending a great deal of time getting folks around the table” on this. Whoever the next governor is, it’ll have to be far more of a pressing priority.
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