During the next year, California officials said last week, the state expects to seize “more than $1 billion worth of illegal cannabis products.” That announcement came a few weeks after the U.S. Justice Department bragged about guilty pleas by 11 unlicensed California marijuana merchants who had been nabbed with help from state and local law enforcement agencies.
The continuing war on weed in California, which supposedly legalized marijuana in 2016, reflects the striking failure to replace black-market dealers with state-licensed vendors, a plan that has been doomed by high taxes, local bans, and overregulation. Judging from the marijuana legalization bill he introduced last week, Senate Majority Leader Chuck Schumer (D‒N.Y.) has learned nothing from that experience.
Six years after California voters approved recreational marijuana, unauthorized suppliers still account for somewhere between two-thirds and three-quarters of sales. A recent report from Reason Foundation, which publishes this website, highlights one major reason why licensed businesses have had so much trouble competing with illegal suppliers: Taxes are too high.
Geoff Lawrence, Reason Foundation’s managing director of drug policy, found that California’s effective tax rate ranged from $42 to $92 per ounce, depending on the jurisdiction, compared to an estimated wholesale production cost of $35 per ounce. The corresponding rates in Colorado and Oregon, both of which have been more successful at displacing the black market, are about $33 and $21, respectively.
Despite modest tax relief approved this year, legal marijuana remains overpriced in California. It is also inconvenient to buy in much of the state, Lawrence notes, thanks to local sales bans that have created “massive cannabis deserts” where “consumers have no access to a legal retailer within a reasonable distance of their home.”
Legal sellers also must contend with burdensome licensing requirements and regulations. Dale Gieringer, California director of the National Organization for the Reform of Marijuana Laws, says those rules help explain why legal marijuana prices are much higher than he anticipated.