Growing, selling and using cannabis is legal in California under state law. So many people across the country were shocked last week to see images of Alameda County sheriff’s deputies hacking through marijuana plants with hedge trimmers during a bust at 18 locations across the Bay Area that netted up to 500,000 plants and millions in cash.
The truth is that while California does have a state sanctioned and highly regulated market for cannabis, illegal grows still exist and are in fact thriving. The Bay Area seizures illustrate just how lucrative and incentivized this modern-day illicit trade in cannabis has become.
California weed growers are reshaping a national and global marketplace just as the state’s vintners did with the wine industry. But the cumbersome legal environment of cannabis regulation threatens to squander this economic opportunity.
Most of the responsibility lies with the federal government. Continued federal cannabis prohibition has created a web of compliance concerns and economic disequilibrium that would be smoothed by reform. But California’s prohibitive excise taxes and the excessive costs associated with licensing make the Golden State’s system ripe for abuse and puts compliant operators at competitive disadvantage.
The latest development is the use of so-called “burner licenses,” in which gray-market operators benefit from features of California’s legal market, while diverting legal cannabis into illicit markets out of state.
The advantages of this setup are obvious to anyone who’s tried to operate in the state’s legal market. By using a distribution license to acquire legally grown cannabis and then reporting the crop as “lost,” “damaged” or even in cold storage, illicit operators can sell to eager customers across state lines, where California herb fetches a premium and state regulatory reach ends. In the end, they avoid taxes and the compliance costs of running a legal business by letting the license expire and moving on to a new license.
California is a victim of its own success in cannabis. Cultivators in the state harvest an incredible amount of high-grade flower — more than Californians can consume — as cannabis connoisseurs everywhere else pay top dollar to illicit actors who smuggle it out of California.
It’s happening at a prodigious rate.
“California produces 13.5 million pounds of marijuana annually — but Californians only consume 2.5 million pounds of it,” according to a 2017 study by the state Department of Food and Agriculture, which means illegal operators are exporting more than 10 million pounds a year.
Unregulated grows cause problems for the environment and wildlife of California. A UC Davis study found that “an anticoagulant in rat poisons like d-Con” has been affecting wildlife in California due to chemical runoff from unregulated grows. On public lands in California and elsewhere, illicit pot growers harm the environment in numerous ways.
By exploiting California’s decriminalized environment, illegal operators are gaining the upper hand on legal businesses that are struggling to play by the rules. State and local social equity programs in California can’t compete on price. Legal weed is more expensive, and the illicit market offers comparable product-brand selection. Conversely, illegal operators face few penalties for avoiding taxes and selling product outside the legal marketplace. In the end, communities lose tax revenue, businesses lose customers and the environment loses responsible stewardship.
The Department of Justice reports that using law enforcement to address unregulated narcotic production is neither efficient nor effective, and catching illicit polluters after they pollute still leaves behind expansive and damaging remediation issues. The only equitable solution rests with the federal government: open the country to interstate commerce in cannabis with as few barriers to entry as possible.
This would level the playing field and give law-abiding businesses access to the tools and opportunities they need to succeed: intellectual property protection, federal aid, crop insurance and tax breaks for small businesses.
Interstate trade is happening, but it’s happening without federal public health and safety regulation or tax enforcement. The serious policy answer is for Congress to allow and regulate cannabis commerce among legal states and nations. Congress ended alcohol prohibition in 1933 with the Blaine Act, and in doing so, it reduced organized crime, protected the public from tainted alcohol and enabled the collection of taxes.
Licensed and compliant California businesses deserve an opportunity to really compete. Congress should let them.
(Randal John Meyer is executive director of the Global Alliance for Cannabis Commerce and a co-coordinator of the Cannabis Freedom Alliance.)