Competing Against The Cannabis Black Market in Los Angeles
Law Enforcement Cracks Down on Illicit Cannabis Market in Los Angeles
The marijuana black market has been an issue for the legal cannabis industry since the legal market launched in January of last year. The illicit market takes a great amount of business away from licensed cannabis businesses striving to compete.
Although California has the biggest cannabis market in the world, the black market is even bigger and law enforcement is finally doing something about it.
Last November, the Bureau of Cannabis Control sent out hundreds of letters notifying landlords of illegal cannabis activity in their properties in an effort to fight the cannabis black market in Los Angeles which still has a big negative impact on the legal marijuana market.
Last week, law enforcement took action and performed the largest crackdown on the illegal marijuana market by setting up dozens of raids in Los Angeles, serving 24 search warrants over a 3-day period. This resulted in the seizing of over $8 million in cannabis and cannabis products from unlicensed weed shops. An undeniable win for the legal marijuana industry.
The legal cannabis market brought in an approximate $2.5 billion in sales in California in its first year. This year the legal marijuana market is on track to exceed $3 billion. Although the industry is undoubtedly growing, the black market still poses a big threat for licensed cannabis businesses.
Why is the illicit cannabis market such a challenge for legal cannabis businesses?
Taxes are a big part of why the legal cannabis market is struggling to compete. Astronomical taxes for cannabis steer consumers over to illicit shops looking for a better price. Consumers will go wherever they see a cost-effective price while possibly jeopardizing their safety by consuming products that aren’t regulated and could potentially be dangerous.
In California, the cannabis excise tax is set at 15%. In contrast, the excise tax for alcohol is 6%. Not surprisingly, taxes are set to increase starting in 2020, the California Department of Tax and Fee Administration (CDTFA) announced recently with the mark-up rate going up from 60% to 80%.
- Licensing Process
A complex and lengthy cannabis licensing process discourages investors and operating cannabis shops from pursuing a cannabis business license. The costs associated with obtaining a cannabis business license can be overwhelming.
Currently, there are 188 authorized licensed retail businesses in Los Angeles. The Bureau of Cannabis Control (BCC) and the rest of the licensing authorities in the state have experienced delays with the licensing phases, causing frustration and challenges for cannabis businesses awaiting licensing.
The solution would be to normalize the cannabis industry and work towards making it like any other industry by not overtaxing and having a fair and attainable cannabis licensing process for everyone. The various states that have a legal and regulated cannabis market have seen numerous benefits like a decrease in opioid use and a drop in crime rate.
Although there’s no quick fix and it’s surely going to take some time to get past some of these challenges, the industry is moving in the right direction towards a legal, regulated cannabis market, free of federal restrictions, and the cannabis businesses that are working towards licensing now will surely be ahead of the competition in the future.