Double dealing — legal, illicit blur in California ganja market
In this April 15, 2019 filephoto, a vendor makeschange for a marijuanacustomer at a cannabismarketplace in LosAngeles. (Photo: AP

LOS ANGELES, US (AP) — On an isolated farm, greenhouses stand in regimental order, sheltered by a fringe of trees. Inside are hundreds of head-high cannabis plants in precise rows, each rising from a pot nourished by coils of irrigation tubing. Lights powerful enough to turn night into day blaze overhead.

In the five years since California voters approved a broad legal marketplace for marijuana, thousands of greenhouses have sprouted across the state. But these, under their plastic canopies, conceal a secret.

The cultivator who operates the farm north of Sacramento holds a coveted state-issued licence, permitting the business to produce and sell its plants. But it's been virtually impossible for the grower to turn a profit in a struggling legal industry where wholesale prices for cannabis buds have plunged as much as 70 per cent from a year ago, taxes approach 50 per cent in some areas, and customers find far better deals in the thriving underground marketplace.

So the company has two identities — one legal, the other illicit.

“We basically subsidise our white market with our black market,” said the cultivator, who agreed to speak with The Associated Press only on condition of anonymity to avoid possible prosecution.

Industry insiders say the practice of working simultaneously in the legal and illicit markets is all too commonplace, a financial reality brought on by the difficulties and costs of doing business with a product they call the most heavily regulated in America.

For the California grower, the furtive illegal sales happen informally, often with a friend within the tight-knit cannabis community calling to make a buy. The state requires legal businesses to report what they grow and ship, and it's entered into a vast, computerised tracking system — known as “seed-to-sale” monitoring — that's far from airtight.

“It's not too hard” to operate outside the tracking system's guard rails, the grower said. Plants can vary widely in what each one produces, allowing for wiggle room in what gets reported while there is little in the way of on-site inspections to verify record-keeping. The system is so loose that some legal farms move as much as 90 per cent of their product into the illicit market, the grower added.

The passage of Proposition 64 in 2016 was seen as a watershed moment in the push to legitimise and tax California's multi-billion-dollar marijuana industry. In 2018, when retail outlets could open, California became the world's largest legal marketplace and another stepping stone in what advocates hoped would be a path to federal legalisation, after groundbreaking laws in Colorado and Washington states were enacted in 2012.

Today, most Americans live in states with at least some access to legal marijuana — 18 states have broad legal sales for those 21 and older, similar to alcohol laws, while more than two-thirds of states provide access through medicinal programmes.

Kristi Knoblich Palmer, co-founder of top edibles brand Kiva Confections, lamented that the migration of businesses into the illegal market was damaging the effort to establish a stable, consumer-friendly marketplace.

“To have this system that now appears to be failing, having people go back into the old-school way of doing things...it does not help us get to our goal of professionalising cannabis and normalising cannabis,” said Palmer.

In California, no one disputes the vast illegal marketplace continues to dwarf the legal one, even though the 2016 law stated boldly that it would “incapacitate the black market”. Democratic Governor Gavin Newsom, who was lieutenant governor at the time the law was approved, called it a “game changer”.

But California's legalisation push faced challenges from the start. The state's illegal market had flourished for decades, anchored in the storied “Emerald Triangle” in the northern end of the state. Not since the end of Prohibition in 1933 had an attempt been made to reshape such a vast illegal economy into a legal one.

In October, California law enforcement officials announced the destruction of over one million illegal plants statewide but said they were finding larger, illicit growing operations. In the cannabis heartland of Humboldt County, many illegal growers are moving indoors to avoid detection. Investigators are making arrests and serving search warrants every week, but with so many underground grows “we may never eliminate the illegal cultivation”, Sheriff William Honsal said in an e-mail to the AP.

California's illegal market is estimated at US$8 billion, said Tom Adams, chief executive officer of research firm Global Go Analytics. That's roughly double the amount of legal sales, though some estimates are even larger.

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