(This is the second in a two-part Q&A series. Part 1 covered some of the California governor’s administration’s top priorities with regard to the newly legal cannabis industry in the state.)

California’s legal marijuana firms have largely struggled since January 2018 with competition from still-thriving underground businesses, which have severely undercut licensed operators on prices.

To date, state and local officials have also struggled in their own right to get a grip on the illegal market, which has flourished for decades.

The replacement of the illegal market with the legal one, therefore, is likely to be a multiyear project, with no end in sight.

Advertisement

Raids on illegal grows and retail shops have been regular occurrences in recent years, and even the California National Guard has been called in to help.

In the second part of our conversation with California’s cannabis business czar, Nicole Elliott, Marijuana Business Daily asked what the administration of Gov. Gavin Newsom hopes to achieve in this ongoing battle.

What does the governor plan to do to extinguish the illicit market and supplant it with an entirely legal market?

When it comes to enforcement, the goal is to try to create as many tools as appropriate and possible. What you saw with the addition of that ($30,000-a-day civil) penalty, that reflects one of many that we’d like to have available to agencies.

That is obviously a civil approach, but there’s also the criminal nature of some of what’s occurring.

Where we look at criminal enforcement, that’s being focused on environmental damage and high-level criminal activity.

That said, there are a lot of law enforcement agencies in the space. There’s local, state and federal.

And there are some jurisdictions that have been really good about how they want to parse out enforcement in their jurisdictions, and the state wants to partner with them in what they dictate.

In thinking about some of the smaller operators – perhaps where there are issues associated with financial barriers to licensure – those are areas where jurisdictions have indicated they prefer to go after that type of commercial activity through a local abatement process.

By all means, we support that.

But where there are serious environmental issues that impact … downstream, impacting licensed operators, communities that use that watershed and the ecosystem that benefits from that watershed, that’s where you’ve seen the state engage with quite a bit of activity.

There’s been some backlash among Northern California growers over the raids on illegal farms, in part because they simply don’t like the tactics, with National Guard helicopters. Do you expect those raids to continue, or may they be scaled back at some point with enforcement shifting more toward civil fines?

In my trip up north earlier this year, I talked to legal operators about this very issue.

The administration recognizes that there is a history of militarized enforcement up north, and that has left lasting impacts on multiple generations of growers, particularly.

In having those conversations, the goal was to understand if there was ever a way that these two things – legal cultivation and enforcement to support that cultivation – could coexist.

I’m still in conversations with representatives from those communities, because I think it is important to remain sensitive to those responses to that activity.

In general, the fact that we are sensitive to that is a recognition that we care about impacts of enforcement, especially communities that have experienced disproportionate enforcement in the past.

But there’s also the reality of a need for enforcement against operators that are having serious impacts on environmental safety and public health and safety.

Many of the operations that have been occurring in that area are in partnership with the local law enforcement agencies and at their direction, so they’re really dictating what’s happening on the ground there and are also sensitive often to the needs of their citizens.

I think this is an evolution, so I can’t say what enforcement will look like next year or the year after, but I think these conversations are important to informing that.

In general, where we have a full stop is, in the areas where there’s disagreement, where individuals think we should not be doing any enforcement.

That is not an area where I think we will come to agreement.

What does the governor think should be done about the tax burden on legal operators, and the narrative that all the tax structure does is drive up prices for consumers and encourage them to buy from illegal businesses?

Broadly, when it comes to taxation, a big point, there is not an interest in lowering those taxes.

The focus is more on reducing regulatory and licensure costs and also thinking about – when looking at the tax structure – if there’s a better way to go about it.

There are limitations on what the governor can do around taxes in general.

Where you saw that legislative discussion stall out is a perfect example of that. It never even got to (Newsom’s) office.

There is an interest in looking at the ways in which we conduct taxation, and thinking about it, are there better ways of going about that first and foremost?

This is where we’re not necessarily thinking, what’s the quick fix, but (rather) what’s the more sustainable long-term fix?

This interview has been edited for length and clarity.

John Schroyer can be reached at johns@mjbizdaily.com