California's cannabis black market eyed for greater enforcement amid slower legal sales
SACRAMENTO - Before he was elected governor, Gavin Newsom was instrumental in legalizing marijuana for recreational use in California. Now, as he settles into office, he faces the challenge of fixing a system that has been slow to bloom.
Newsom has urged patience with sluggish growth in the number of state-licensed cannabis businesses, saying he expected that such a complex regulatory system would take at least five years to fully develop.
But a new report from the state Cannabis Advisory Committee on the first year of legal pot sales in California says there is problem that requires urgent action: “Fragmented and uncoordinated” enforcement has allowed the black market to flourish, threatening licensed business with unfair competition.
“Lack of enforcement is creating a thriving environment for the unregulated ‘underground market,’” said the 22-member panel, which was appointed by former Gov. Jerry Brown.
In late February, Newsom announced an expansion of efforts by the California National Guard to work with federal officials to target the black market, including illegal drug grows in Northern California operated by international drug cartels.
“There are legitimate concerns in Northern California particularly as it relates to illegal cannabis grows. They are getting worse, not better,” Newsom said.
The governor proposed that at least 150 California National Guard troops would be redeployed from the U.S.-Mexico border to join a federally funded Counterdrug Task Force. The new forces would focus on illicit cannabis activity in Northern California.
Newsom said recently that he would address the black market with a carrot-and-stick approach that would “move expeditiously at licensing more and more dispensaries” while also “making sure we go after the bad actors.”
“I want to see more enforcement,” Newsom told reporters two days after the critical advisory committee report was released.
As much as 80 percent of the marijuana sold in California comes from the black market, according to an estimate by New Frontier Data, a firm that tracks cannabis sales and trends. Analysts also found that California’s illicit pot market was valued at an estimated $3.7 billion last year, more than four times the size of the legal market.
Enforcement by the state has been hampered by a lack of resources, a decision to give new firms ample time to comply with complex regulations and political disputes, according to state records and interviews with officials and industry insiders.
Newsom has a special interest in ensuring that the state-sanctioned cannabis industry flourishes in California a year after the state began issuing licenses. As lieutenant governor, while gearing up to run for the state’s top spot, he chaired the Blue Ribbon Commission on Marijuana Policy, whose recommendations led to Proposition 64, approved by voters in 2016 to legalize growing and selling marijuana for recreational use.
His campaign for governor received more than $340,000 from the cannabis industry, which is optimistic that the Newsom administration will address some of the lingering problems with the licensing system.
“We believe that this governor is committed to addressing our concerns, and he has a Legislature that is showing their willingness to author bills that will strengthen the regulated market while minimizing the illicit market,” said Josh Drayton, a spokesman for the California Cannabis Industry Association.
So far, the number of sellers and growers getting state licenses is significantly less than many in the industry expected - a result of high taxes, city bans on pot businesses and the large underground market, experts said.