Two years in, California’s legal marijuana industry is stuck. Should voters step in?
Two years after California began licensing pot shops, the industry remains so outmatched by the black market that a state panel recently joined some legalization supporters in calling for significant changes — perhaps turning again to voters to address the problems.
In its annual draft report, the Cannabis Advisory Committee warned Gov. Gavin Newsom and California legislators that high taxes, overly burdensome regulations and local control issues posed debilitating obstacles to the legal marijuana market.
With tax revenue about a third of what was expected and with only about 800 of an anticipated 6,000 licensees open for business, the panel said, officials may need to consider “revisiting the ballot initiative process.”
“Despite the state’s committed efforts to bring cannabis businesses fully into the regulated commercial market,” the report said, “as much as 80% of the cannabis market in California remains illicit.”
The 22-member advisory panel — made up of industry leaders, civil rights activists, local officials, law enforcement and health experts — noted that California is expected to generate $3.1 billion in licensed pot sales in 2019, making it the largest market for legal cannabis in the world. But nearly three times as much — $8.7 billion — is expected to be spent on unlicensed sales.
Proposition 64 legalized growing, selling and using marijuana for recreational purposes in November 2016, and the state began issuing licenses on Jan. 1, 2018. Officials originally estimated the state would take in $1 billion annually in tax revenue from cannabis, but the fiscal year that ended in June saw just $288 million collected. The current state budget projects $359 million in tax collections.
Before passage of Proposition 64, almost 1,800 dispensaries were selling marijuana for medical purposes, which was legalized by California voters in 1996. So far, 568 retail stores have received licenses, as have 230 delivery firms. By comparison, Colorado — with some 15% of California’s population — has more than 1,000 pot shops.
“Proposition 64 so far hasn’t lived up to most of our expectations,” said Michael Sutton, an environmental activist and one of the two official proponents of the initiative. “It’s no secret that a number of factors have conspired to make the rollout take longer than we thought.”
Newsom, who was a leading proponent of Proposition 64, has called for patience, saying he always expected it would take at least five years for a legal industry to fully develop. But his administration plans to consider “substantial system changes” in 2020 to boost the legal market and tamp down on the illicit market, said Nicole Elliott, the governor’s senior advisor on cannabis. The changes will be aimed at streamlining the permit process and “pushing local jurisdictions to understand the benefits of regulation versus continued prohibition,” Elliott said.
The governor is also facing pressure from state legislators and industry leaders to postpone an increase in taxes on cannabis cultivation scheduled for Jan. 1, including a bump tied to inflation that will raise the levy on cannabis flower from $9.25 per ounce to $9.65.
The legal marijuana industry’s struggles, including being banned from some cities, have been blamed for workforce reductions at major cannabis firms, including Eaze and Flow Kana, both of which recently cut 20% of their staff, while Weedmaps pared its workforce by 25%.
Jerred Kiloh, owner of Higher Path dispensary in Los Angeles, said while his business is doing well, layoffs have been widespread among most of the 165 members of the United Cannabis Business Association, for which he is president.