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In what is an absolute lack of surprise to anyone who’s thought about the issue, the severe regulations imposed by the state of California on legal marijuana shops means the majority of marijuana sales take place in the black market.

After five years of legal recreational marijuana, sales in the illegal market are estimated to be twice the volume in legal stores.

This is the 32nd article I have written covering the legalized recreational marijuana market. You can see my other articles by clicking on the regulation experiment tag.

(Cross-post from my other blog Outrun Change. A bit of background – I’ve had a long running series of posts there describing the California efforts to legalize recreational use of marijuana as a natural experiment. In other words, let’s sit back and watch what happens in a brand new industry when the government implements severe, extensive regulations on a new industry and imposes harsh taxation on the industry’s product. Also, there is an existing illegal industry that provides a rough frame of reference of what the industry kinda’, sorta’ looks like. My prediction all along has been growth in the new industry would be artificially restricted from what would otherwise happen without the severe regulations. Looks like my predictions is correct. I will continue to watch this natural experiment.)

Politico explains on 10/23/21: California’s legal weed industry can’t compete with illicit market.

One way to measure how severely the legal marijuana business has been restricted is to look at the number of licensed marijuana shops per 100,000 residents. For six Western states that allow recreational sales, here is the number of legal dispensaries per 100,000 people:

  • 20.3 – Alaska
  • 17.9 – Oregon
  • 14.2 – Colorado
  • 6.6 – Washington
  • 2.8 – Nevada
  • 2.1 – California

Article says there are an estimated 50,000 illegal growing sites in California. Most of them are believed to be using banned pesticides which poison wildlife, leak into the water supply, oh, and stays on the product for eventual human consumption. Those grows take lots of water with estimate of hundreds of millions of gallons stolen from law-abiding sources.

As everyone knew would happen, enforcement on illegal grows has not stopped with legalization. The California AG says there were almost 500 raids in 2021.

In one specific raid the scale of the operation staggers the mind: cops seized 50 tons of processed cannabis and over 100,000 plants. Yes, 100,000 pounds of processed marijuana and 100,000 growing plants. Article says officials valued the confiscated stuff at more than $1 billion. 

At the same time as extreme regulations throttle legal marijuana sales, penalties for selling marijuana (I think of any volume) has been reduced to a misdemeanor and mere $500 fine. These minimal penalties have been adopted due to so-called social justice. The disproportionate arrests in communities of color is actually an argument for full legalization, not tilting the scales in favor of illegal over legal sales.

Previous articles I wrote several years ago predicted extensive regulations in terms of having to track product from seed to plant to specific product, heavy excise taxes, extra sales taxes, restrictions on hours of operation, and extensive paperwork requirements would drive up prices and make legal marijuana shops noncompetitive in terms of price.

Did that happen?

Yup.

Article says prices in legal, licensed, regulated dispensaries can be two or three times higher than unlicensed shops. Two or three times more. It costs a lot more to buy legal pot.

Oh, another thing.

Has legalization produced tons and tons of money for the state and localities? No.

I don’t have any articles immediately available, but the amount of money raised has been far less than projected. Yet another total and complete non-surprise.


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