In a wobbly cannabis market, complaints intensify

The old headlines were attention-grabbing; some were scary:

“What will your mother say when she finds your corpse?”

“The weed with roots in hell.”

“Assassin of Youth”

They were, of course, all about marijuana. Movie producers discovered they could sell more tickets if their advertisements promised audiences lots of dissolute youth – especially if some of the dissolute youth depicted were young women insufficiently clothed, presumably a side effect if marijuana use.

“The California cannabis system is a nation-wide mockery; a public policy lesson in what not to do.” — Letter from industry executives

Fifty years on, cannabis now is a big, legal industry in California, and those depictions of weed use in popular culture are objects of curiosity and giggles. “Marijuana” “Mary Jane” “Weed” and “Pot” are not quite in as common use. Today, it’s “cannabis” — more dignified term and less derogatory — and the challenges faced by the growers and sellers are similar to those confronted by other, more traditional industries.

But along with modern legalization and a growing acceptance of cannabis use, have come two key issues — complaints about taxes and the expansion of a multibillion-dollar black market.

There also are provisions in California law allowing people with certain prior, cannabis-related convictions to get their records cleared, since the conduct is no longer illegal, thus allowing them to legally enter the industry. But the process has been slow, and has had an effect on the market; the state attorney general has urged county prosecutors to expedite the procedure.

The sales value of legal recreational marijuana in California is expected to reach $6.59 billion by 2025.

Pioneering California allowed medical use of marijuana in 1996 and recreational use (Proposition 64) in 2016, and a record 68 percent of Americans now favor legalizing marijuana, according to Gallup. California polls report similar numbers in the Golden State. In one poll, 18 percent of adult Americans said they had consumed cannabis within the previous year.

It has become big business.

The sales value of legal recreational marijuana in California is expected to reach $6.59 billion by 2025, up from $2.69 billion in 2016, according to Statista, a provider of market and consumer data.  In 2020 alone, retail sales were estimated at $4.4 billion.

California has just 823 licensed brick-and-mortar cannabis shops, but close to 3,000 retailers and delivery services operate in the state without a permit, a February 2020 market analysis by Marijuana Business Daily found.

But there’s trouble.

Leaders of the cannabis industry say legal cannabis is taxed too heavily and cannot compete with illegal sources that offer lower prices. The taxes and fees, they argue, thwarts development of the full market. The Associated Press reports that California’s illegal marijuana market is worth an estimated $8 billion, roughly double that of legal sales.

“It is critical to recognize that an unwillingness to effectively legislate, implement, and oversee a functional regulated cannabis industry has brought us to our knees.” — Industry executives

One problem for legal growers: A retail license can cost $100,000 for even a small farm, according to one estimate. “Once again, the small farms get screwed,” Nevada County grower Donna Panza told Rolling Stone. 

Industry leaders say they recognize the problem.

“It is critical to recognize that an unwillingness to effectively legislate, implement, and oversee a functional regulated cannabis industry has brought us to our knees. The California cannabis system is a nation-wide mockery; a public policy lesson in what not to do,” a group of industry executives declared in a letter to Gov. Gavin Newsom, state Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon.

Cannabis is taxed in California at a flat rate of about $161 a pound. In addition, the state levies a 15 percent excise tax, in along with local cultivation, manufacturing, processing, distribution and retail taxes.

In 2021, there was a bumper harvest of weed, which wound up forcing prices down. Combined with that has been the impact of the COVID-19 pandemic, during which sales slumped following the departure of stimulus checks.

Some experts inside as well as outside the industry, believe the marijuana market may be on the brink of collapse, driven in part by government controls and a burgeoning black market.

Rep. Barbara Lee, (D-CA) who co-chairs the Congressional Cannabis Caucus, is working to legalize cannabis on the nationwide.

Newsom promised help when he released his 2022-23 budget proposal, saying he supported cannabis tax reform and planned to work with the Legislature to modify policy.

His budget proposal declares:

“The Administration intends to further develop a grant program this spring that will aid local governments in, at a minimum, opening up legal retail access to consumers. Further, the Administration supports cannabis tax reform and plans to work with the Legislature to make modifications to California’s cannabis tax policy to help stabilize the market; better support California’s small licensed operators; and strengthen compliance with state law.”

On the national level, Rep. Barbara Lee, (D-CA) who co-chairs the Congressional Cannabis Caucus, is working to legalize cannabis on the nationwide, arguing that federal law declaring cannabis illegal is “outdated.”

The House passed the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which Lee described as “the most comprehensive piece of cannabis legislation to date.”

She said the “MORE Act not only decriminalizes marijuana, but takes important steps toward racial justice and equity for communities of color, including through critical sort and funding for small cannabis businesses.”

There has been no definitive action so far in the Senate, although Majority Leader Chuck Schumer is planning legislation to legalize marijuana at the federal level and set tax and banking rules to oversee the industry.

Schumer said earlier that a bill he’s been working on with Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) for many months would be formally filed by the end of April.

That didn’t happen, and he now says the “official introduction” will take place sometime “before the August recess.”