California’s enforcement efforts against illicit marijuana market having a so-so impact for legal businesses

Raids, arrests, seizures and fines have caught the attention of the California cannabis industry in recent months, as the state’s legal marijuana market continues to grapple with financial challenges caused by business lost to the state’s enormous number of illicit MJ companies.

How big a hit to the bottom line are licensed marijuana firms taking from illegal operators?

Exact numbers are extremely difficult to pin down, but one statistic comes from BDS Analytics, which estimated that – as of June – a whopping 74% of marijuana purchases in California were made through the underground market.

The only other state-legal recreational MJ market that has a higher percentage is Massachusetts, with 77%, followed by Washington state at 51%, Oregon at 48% and Colorado at 34%, BDS noted.

Here are some of the recent enforcement actions taken in California against the illicit market:

That doesn’t touch on all the local actions by police and sheriff’s agencies against unlicensed storefronts and other businesses that have operated outside the law.

And it’s difficult to get a complete picture of the enforcement landscape because the actions aren’t all run by the same agencies.

Some are conducted solely by locals, while others are in conjunction with state authorities.

Has it made a real difference?

It’s unclear whether enforcement efforts have actually increased with the onset of the legal market or stayed roughly the same.

“It does feel as though there is some escalation,” said Lindsay Robinson, the executive director of the California Cannabis Industry Association (CCIA).

“We don’t have a lot of data on it. What we tend to see – and what most folks tend to see – is when it hits the newspapers or is announced by the (California Bureau of Cannabis Control) or people experience it themselves, because there’s multiple levels of enforcement.”

The problem is looming large enough that Gov. Gavin Newsom in June signed into law a bill that includes a new tool for regulators to use against lawbreaking businesses: a $30,000-a-day civil fine, which state regulators have yet to utilize.

Donnie Anderson, an L.A. marijuana executive and co-founder of the Southern California Coalition, said the Los Angeles Police Department has been raiding illegal shops “every day.”

“There’s been some good enforcement going on in L.A.,” said Anderson, who threatened a lawsuit in June against the L.A. city attorney’s office over an alleged lack of enforcement in parts of the city. The lawsuit was never filed.

But are those efforts actually having the desired impact, and are they quashing the untaxed and unregulated cannabis market?

The short answer: Not really.

“I’m not going to say yes. I’m going to say maybe,” Anderson said when asked if legal operators are doing better business-wise thanks to enforcement efforts.

Some of the numbers, but not all

According to the California Bureau of Cannabis Control, since January 2018, the agency  has:

  • Issued 4,000 cease-and-desist letters to unlicensed MJ businesses.
  • Executed 58 search warrants through the Department of Consumer Affairs’ Division of Investigations.
  • Sifted through 9,000 complaints.
  • Assisted in the seizures of $30 million of illegal product.

The L.A. city attorney’s office – which has jurisdiction over the heart of illegal marijuana retailers in the state – filed 312 cases against unlicensed MJ shops and has 1,199 defendants facing misdemeanor charges since May 2018.

The California National Guard – which has assisted in many of the raids on illegal grows, including the 20-ton seizure in Santa Barbara County – did not immediately respond to requests from Marijuana Business Daily about how many operations it may have worked on statewide in recent years.

The LAPD also did not immediately provide information about how many illegal shops it has closed.

Jackie McGowan, a Sacramento-based industry consultant, said the available evidence indicates that hundreds – if not thousands – of illegal cannabis operations exist across California.

McGowan’s team created a map of licensed and unlicensed cannabis businesses in California based on state licensing info and listings from Weedmaps.com, which allows advertisements for both legal and illegal MJ retailers. 

Though McGowan emphasized that, although the map is not 100% accurate because of conflicting and sometimes incomplete information, it illustrates that the underground market is alive and well.

“Not only do I think it’s not going to have any sort of effect on the duty-free market, I think it’s a waste of money,” McGowan said of California’s enforcement efforts, including the new fines authorized by Newsom.

“If we were to lower taxes and put (illegal operators) out of business through an economic strategy, that’s how we win.”

‘Multipronged approach’ needed

CCIA’s Robinson said enforcement alone has never been the answer to establishing a sustainable and legal marijuana industry in California.

“We’ve never been able to enforce our way out of illegal cannabis operations,” she said. “We’ve struggled with that for 30 years.

“That’s a part of the puzzle that needs to be put in place with these other pieces … in order to have a real substantial effect.”

She said what’s needed is a “multipronged approach” that includes decreased state taxes, lower barriers to entry for entrepreneurs and a wider industry footprint, since roughly two-thirds of California’s cities and counties still maintain bans on all types of marijuana companies.

Even then, she and other sources said, there will likely be some form of an underground market if for no other reason but to satisfy marijuana demand in parts of the country that still have complete MJ prohibition.

Which means the illicit market is almost certainly here to stay until, if and when federal legalization comes about.

John Schroyer can be reached at [email protected]

9 comments on “California’s enforcement efforts against illicit marijuana market having a so-so impact for legal businesses
  1. Rod Gass on

    //”How big a hit to the bottom line are licensed marijuana firms taking from illegal operators?”//
    The correct answer is zero. The licensed segment is “legally” stealing from the original and honest California Cannabis Culture. Reparations are coming.

    “//It’s unclear whether enforcement efforts have actually increased with the onset of the legal market or stayed roughly the same.”//
    Incorrect. It’s obvious that multi-layered enforcement actions are costing taxpayers much more than pre-$64.

    //”Raids in Sonoma, Siskiyou, Riverside and Trinity counties came away with roughly 237,000 illegal MJ plants.”//
    The raid in Trinity County was conducted as an army assault. The FBI, National Guard and 5 more California Enforcement Squads totaled more than 40 high paid experts. They ticketed one individual at a cost estimated to be more than $3 million taxpayer.

    //”But are those efforts actually having the desired impact, and are they quashing the untaxed and unregulated cannabis market?”//
    No, it’s causing higher production and profits. 74% of business is outside of $64 purview. NorCal mom & pops are enjoying significant increases in sales.

    It should be obvious that Newsom and $64 is another failed attempt to control cannabis. How many times will he send the military into family homesteads to pillage and plunder. Send hard working people down to poverty. Inflate the enforcement waste. His plan is to tax and punish not to serve Californians.

    Newsom held an election which he rigged by the stacking of cultivation licenses. Until that election gets voided or at least reviewed and corrected, the “legalites” will flounder at the bottom of the market.

    Reply
    • Bill Graham on

      Hi Rod, Thank you for the perspective and it is so true that enforcement so often goes overboard, but it is not fair to put so much on Gavin Newsom. I got to talk with Gavin before, and briefly after, the elections and he is totally behind every honest Mom and Pop earning a living doing what they enjoy. He was adamant about limiting production to an acre per license but it is the CDFA and BCC that fouled that up by issuing multiple permits to single entities, letting big money in three years early. Why have a limit at all if it can be so easily superseded?

      Enforcement was written into the bill which was put on the ballet for direct voting and not part of the governor’s control. Only the follow-up legislation by the house can change anything. Everyone concerned should contact their state legislator and research thoroughly as much as they can in every election. I have voted absentee and never missed an election in over twenty years and every vote counts. Absentee also allows a few weeks to look up issues and candidates online with time to consider choices.

      We are still in a great position for the coming federal legalization. California will be, like it already is, a popular source state for quality cannabis, just like CA wine is around the world. In fact, the 4th Wine and Weed meeting is Aug 8 in Santa Rosa with the CCIA and CGA working to protect growers and encourage the state’s adaptations of California’s fine growing regions.

      Reply
      • Rod Gass on

        Nope, sorry, Newsom is to blame 100%.

        While still the LT Gov he conceived and formulated the BCC. The ballot prop was his baby. He personally guaranteed the 5 year protections of the small-scale cultivators. Newsom desires revenue and has intentionally destroyed the mom & pops. He could have controlled the stacking of licenses differently if he had wanted. Ultimately Newsom controls all state agencies.

        Reply
  2. Rico Savie on

    I am not a Rocket Scientist and don’t play one on T.V but we keep hearing that Most all of the “Illegal” Weed is Destined for other States, Especially States where it is still 100% not Legal.

    So if this is the case, How Specifically does the crackdown on Non-Licensed Growers help the “Legal” Market if they are not competing?

    I mean it makes for good headlines and all, but really isn’t the lackluster California Market more about ALL the Cities and Counties saying NIMBY and all the Regulations and Taxes?

    Reply
  3. mike on

    well here we go again. law enforcement ‘crackdowns’ are just another phase of the stupid ill fated war on drugs. sure it makes good press (like in the 60’s when lapd would make massive drug arrests on sunset blvd. which were really a bunch of cops grabbing hippies with one joint each) but just made a joke of drug cops and why pot was overwhelming voted to be legal. we have a prez using ice to round up peaceful non legal workers and putting children in concentration camps and now we have a massive law enforcement effort to try and stop unlicensed pot growing and sales to help the legal growers and sales businesses. if the gov would allow ez legal compliance and control grows and sales like they do for booze, then there would be no need for massive leos attacking citizens that are just providing what the citizens voted for. the gov set this in motion to show that more law enforcement is needed to control even this non violent activity.

    Reply
  4. AB on

    Thanks for the interesting article.
    The map of licensed and unlicensed retailers and delivery services is fascinating. Please would someone explain how all of these retailers can stay open in plain sight ?
    1. Do they have ANY licenses at all that give them some sort of a legal leg to stand on ?
    2. Do the delivery services use private driver’s, Uber style, to deliver to residential customers? What about the risk of hijacking if the vehicle is unsecured?
    Thanks, hungry for knowledge

    Reply
    • M. H. on

      In LA most illegal operators are blatantly selling cannabis in plain sight. Big green crosses on the buildings and everything. The only kind of licensing they have MIGHT be an old Prop 215 license but those are all void now. The illegal delivery services mostly use the drivers personal cars and publicly advertise on weedmaps. Huge risk involved, I’m surprised they don’t get robbed everyday. Unless your in the cannabis industry, you really wouldn’t be able to tell which shops are legal and which aren’t.

      At this point its just flat out incompetence on the states part. They want to, but cant shut down all the illegal operators. As the article mentions, the industry was built on loopholes and it was already out of the governments control back in the medical days. Its truly a unique culture in CA. Now the state’s trying to take control and force all these rules on it, and failing miserably.

      Reply
      • Pat on

        From the state side , it’s all about creating more bureaucracies that don’t need to exist. Creating a “false” need to expand traditional agency’s budgets; thereby expanding a false sense of power. Creates new positions in those agencies ( CDFA, CWF, SWRCB, CDPH, etc..) that allow preexisting employees the opportunity to “move up” and promote, where that promotion ( new job ) is not sustainable, as this industry is still corrupted. And getting more so w/every passing day. There doesn’t need to be all these agencies involved. Most of them got caught up in it for the above, and not because they were really needed. It’s 90% fluff and b.s. that we’re all paying for.

        Reply
  5. Michael Shaef on

    This just makes me laugh because really no state,county or any municipality can license, tax, Zone or basically set any rules governing a schedule 1 drug it’s just a joke

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *