[Canniseur: We’re not surprised at all. History shows us that illegal alcohol was a big part of the market for about 20 years after prohibition ended. New markets aren’t necessarily trusted markets. The old illicit market is going to stay until the legislators get the regulations right and fair.]
As people still go to jail for cannabis-related crimes, it’s a privilege to be able to carry a half-ounce bag of herb and not be doing anything illegal. But does this new freedom come with consequences? Most of California’s Proposition 215 supporters seem to believe so, particularly when it comes to high taxes inflating retail prices.
It’s pushing people back to the illicit market—the underground commerce our government said would dissipate upon legalization—to procure their meds. Although it seems agreeable for potheads on a budget, illicit cannabis is a splitting headache for the state.
Jake Heraty, a student at the Academy of Art University in San Francisco, had a liver transplant at only six-months-old and survived hepatoblastoma, a rare cancerous tumor that develops in the liver. Heraty uses cannabis to alleviate chronic pain resulting from his surgery. It’s extremely difficult for college students (or anyone not making $15c10,000 a year) to survive in San Francisco, and Heraty can barely afford the medicinal marijuana he needs.
“I don’t like purchasing from the streets,” Heraty tells High Times. “I’d prefer to go to a store and pick out just what I want. You know? But when you have to pay an extra 15 percent in taxes, there’s really no questions. I just can’t afford to throw down 20 extra dollars so the state can get their share of the cannabis market. That extra tax is my dinner.”
Still, the state of California is making efforts to rid the streets of these affordable cannabis outlets. Last May, Governor Jerry Brown proposed to put $14 million into investigations towards illegal cannabis market activity. Brown’s proposal has been put into effect and a number of illicit market groups—from distributors to cultivators—have been raided. A job like this with only $14 million is simply absurd. Destroying the illicit cannabis market in California is a multi-billion dollar job.
It’s going to take just as many years to destroy the illicit market as it will to create a well-oiled legal cannabis system.
Inside the Illicit Market
It isn’t just expensive for consumers to buy legal cannabis—it’s also expensive to own operate a legal business.
Marco*, a Bay Area dealer, sips on a bottle of lean and puffs on a Backwood. He lounges back and recollects his illicit roots, comparing it to an art and drawing parallels between the OG weed community and family.
“In the beginning, most people with any knowledge on the plant had learned it from a direct source,” he says. “Somebody who had grown it since the 1960s–those people were experimenting with hydroponics, indoor lighting environments, nutrient infusions, and all sorts of shit…Knowledge was protected by the farmers and distributors alike. Not everyone could just get into it, you had to be trusted.”
Marco has been in this business for seven years now, since he was in high school. He claims that since legalization, the familial aura of the illegal cannabis community has been fading—specifically, among those who are vying for licenses from the state. Yet, what remains a dominant factor of success is that of customer-to-buyer relationship. “People don’t often consider the family and relations that’s been built through the years between seller and buyer. The legal market just doesn’t have that yet.”
Marco believes the illicit market will continue to flourish because due to many enduring relationships between dealers and growers. Not everyone in the game is making the legal switch, according to Marco. Moreover, a lot of people aren’t looking to give up their strong relationships for a business that has no certainty. Furthermore, those just beginning in the legal market don’t have the same knowledge and experience as long-time growers.
“This is due to limitations of the industry going legal,” Marco says. “In my opinion, the goal of any licensed distributor or grower is to yield as much top quality product as possible. However, since a bunch of new guys are coming in not knowing a damn thing about how to grow pot, there’s an excess in B to C grade product floating around. These new guys ain’t got shit on those who’ve been doing it for years.”
Marco explains that his goal isn’t a matter of legality. Rather, his primary concern is helping people learn about the plant and make informed decisions about what works best for them.
“My goal is to serve more as a guide to those who might not entirely understand the plant. To show people the pros and cons and to help them find what works best for them. I just want to supply the people in my life with quality medicine so they can feel their best and achieve their best highs.”
An Outside Perspective
In 2019, however, Marco’s philosophy doesn’t mesh with California’s law. We reached out to the San Francisco Police Department with a few questions on the matter. But the inquiry was met with an uninformative response explaining that they find little activity in the illicit market.
Alex Traverso, the Chief of Communications for the Bureau of Cannabis Control—the organization responsible for regulating the legal market—admits knowing that illicit cannabis was going to be an issue. In fact, prior to Jan. 1, 2018, the BCC was well aware that underground commerce would be a problem. It’s been a hurdle for every state that’s implemented a legal cannabis program.
But illicit operations undercutting legal businesses is among the BCC’s biggest concerns. “There are people going out of their way to get a license and do everything by the book,” says Traverso. “And getting a license and paying your taxes increases your costs.”
Most people believe increased costs is the foundation in which the illicit market continues to thrive. According to Statista, the street price for an ounce of herb in California averages around $218, compared to the dispensary price of $299.
Despite higher prices for legal cannabis, California has seen floods of newcomers and tourists flocking to dispensaries to enjoy legal purchases and be properly informed about what they’re purchasing.
Traverso and his team have taken a number of steps to defend legal businesses against the illicit market. He says the BCC has sent out cease and desist letters to unlicensed businesses they discover through websites such as Weedmaps and Craigslist, for instance.
The BCC has followed up on complaints, Traverso explains. “There have been a number of legal businesses that are saying to us, ‘there are ten different illegal businesses right around our shop. We need someone to come shut these people down,’” he says. “So, unfortunately, that doesn’t happen overnight. Our investigators have to go in and build a case. But slowly and surely, we have shut a number of these businesses down.”
Still, there’s been a great difficulty for legal cannabis companies. In July 2018, regulations forced businesses to relabel cannabis-products, requiring stores to remove products from shelves and render them non-compliant—or unsellable. As the State continues to develop cannabis rules, it comes as no surprise that entrepreneurs are struggling to adapt. The BCC understands these difficulties, Traverso contends, and they’re doing everything in their power to help.
“We do our best at the Bureau to try and be available for people,” Traverso says. “I’m not gonna lie. It’s gotta be hard for businesses out there because this is a brand new thing. And the process California has gone through, at this point, is unlike any other state.”
Better Call The Pot Brother
Marc Wasserman isn’t your average lawyer. In fact, he’s a film actor turned criminal defense attorney. He fights solely for the rights of those who have been wrongly accused of cannabis charges. He teamed up with his brother, Craig, to form the Pot Brothers at Law who fight against prohibition and push for people’s rights.
A weed lawyer for longer than regulation has been in effect, Wasserman’s seen a lot in the illicit business. Though he can’t be on retention for anyone operating within the illicit market, he can defend these individuals after they’ve been arrested and charged. And Wasserman has done so many times.
“It’s grown 10-fold,” Wasserman tells High Times. “Quite frankly, [the legal market] is over-regulated and overtaxed—that’s driving consumers to go to the black market because it’s much cheaper. [Dealers] can undercut all the license businesses because they’re not getting [screwed] by regulation and taxes.”
These points are furthered by the fact legal cannabis isn’t treated like a normal business.
“Cannabis businesses have to deal with form 280-E of the IRS,” Wasserman says. “When you fill out this form, you’re saying, ‘we’re dealing an illegal Schedule 1 drug, but the government still wants its cut.’ Yet, they don’t allow you to take typical write-offs.”
Wasserman offers an example of a normal business having a secretary. If that business is paying this secretary $30,000 a year, they’re able to write it off as a tax cut. Legal cannabis businesses are not granted such privileges, however. All that can be written off are things that touch the plants, such as administrative work.
The deeper a person looks into the complications people must face in order to have a legitimate cannabis business, operating in the illicit cannabis seems far more attractive. If for nothing more than the overall profit made—without taxes.
Wasserman says there isn’t enough manpower or funding towards law enforcement to bust those driving the illicit market. Sure, we’re perpetuated with reports of raids taking place throughout California, but at the end of the day, these are only a small fraction of the large picture.
“When alcohol prohibition ended, you were flooded with your bootleggers and moonshiners,” Wasserman says. “That was until it all straightened itself out which probably took five to ten years.”
Forecast of the Underground Market
The biggest issue is the fact dealers aren’t only distributing cannabis. The problem behind the illicit market is larger than cannabis itself. For example, that lean Marco was sipping on wasn’t just for personal enjoyment. He was selling it by the bottle. He also had bags upon bags of prescription medication—everything from Xanax to Percocets.
No matter what lawmakers might do to stop it, they will be fighting the illicit market battle forever. The reason? People like Heraty–medical patients who need cannabis at an affordable cost. Though he isn’t sure how long he’ll continue to purchase from dealers, he hopes to one day walk into a store and get his medication properly.
“I don’t enjoy illegally purchasing cannabis,” he explains. “I’ve seen the stores and they’re much more attractive than a trap house. I’ve seen the menus and the vast amount of choices these places offer. It’s wonderful! If I could afford it, I’d be in those shops all the time. It’s unfortunate California’s government is more concerned about getting their share of the cut rather than providing their residents with an affordable service.”
*Name has been changed