By Aaron Pelley, Attorney at Harris Sliwoski
Despite continuously surpassing every other state with recreational cannabis in terms of total retail sales, California’s cannabis industry has faced continuous and far-reaching issues on multiple levels that have only spread even further. From declining sales that result in hundreds of millions less in total retail sales to a massive illicit market that the state ignores, problems abound. California has even seen a pattern of dispensaries and cultivation facilities across California being burglarized and robbed. Suffice it to say, the state’s industry has colossal problems, the magnitudes of which haven’t been seen by any neighboring state.
The issues don’t even include the many internal issues that the California industry is facing, such as unpaid debts and taxes equaling millions and a lackluster effort at social equity inclusion. In fact, issues regarding the illicit market are moving into other states and impacting their total sales as well. In just the first year of operation, the Unified Cannabis Enforcement Taskforce seized over $312 million in illicit cannabis in 2023, which amounts to more than the total cannabis sales of entire states combined. But as an aside, you can read my colleague, Griffen Thorne’s take on why those numbers are insignificant. Either way, given how admittedly widespread the illicit market of cannabis in California is, those several hundred million dollars in illegally grown cannabis seized by the state is just a miniscule fraction of the colossal amount of the total scope of that illegal and unregulated market.
Internal Struggles and Regulatory Hurdles
The ramifications of these many shortcomings and industry-wide problems are being felt like ripple effects that never truly stop flowing. Like the heads of a hydra beast, hardships and disadvantages spring up from one another when dealing with an industry as large yet frequently impeded upon such as the California industry. Worse even, the billion-dollar industry continues to considerably drop in total annual sales. In 2022, sales dropped over eight percent, equaling over $400 million and the total sales figure from 2023 shows an unfortunately similar pattern. In 2023, California dispensaries sold a total of $5.1 billion in total sales, which itself is a 4.7 percent decline in sales from the already slumping 2022. In total, sales are down a considerable 11 percent from the highest point of sales in 2021 and month over month show painfully little sign of improvement.
Even among fully legal and compliant operators in California, delayed and delinquent tax payments are a growing issue, with hundreds of different tax liabilities being owed by various cannabis businesses. With the exorbitant taxes that California cannabis operators must already regularly pay, the penalties caused by these delays and tax debts could very easily put a business under.
Bay Area Shutdowns and Rising Crime
Any industry professionals who felt falsely optimistic that the precarious conditions and problems that plague the California cannabis industry wouldn’t trail into 2024 were proven entirely wrong, as those widespread and multi-faceted issues have followed nearly every legal and compliant cannabis operator well into the new year. Already dealing with several other systemic and engrossing issues which are the aftermaths of ineffective policies, the Bay Area in particular has been once again hit with a new problem caused by the cascading effects of the many previously mentioned issues.
Cannabis businesses across the state have been either permanently or at least temporarily shutting down. This is bad news for everyone with a stake in the industry – from owners, to employees, to customers, to even neighbors who could benefit from the now-lost tax revenue.
Enforcement Failures and Policy Repercussions
Throughout the tumultuous year of 2023, Bay Area law enforcement continued to conduct several million-dollar operations, with these raids easily surpassing $10 million and thousands of illegally cultivated cannabis plants. Even more concerning, multiple firearms and thousands in cash were also found in these illegal grows. But again, this enforcement is declining and not nearly enough.
What has occurred, and continues to unfold, is an existential crisis for the entire cannabis community. The cannabis industry and legalization were founded on the premise of ending the failed War on Drugs and ceasing the incarceration of mostly black and brown individuals for victimless crimes. However, the current strain on cannabis communities, influenced by the illicit market, has reached a critical point, and business owners are experiencing the increasingly negative impacts of long-term enforcement gaps.
The Path Forward: Challenges and Solutions
What activists fail to acknowledge is that we are now facing the consequences of policies promoted for decades. The rallying cry, “Nobody should go to jail for a plant,” must now evolve. It’s time to end the War on Drugs and begin enforcing regulations to protect the industry. Creative enforcement strategies, beyond imprisonment, must be explored. Enforcement agencies and the cannabis industry, despite their historical distrust, will need to collaborate to achieve this. A short-term policy of stronger enforcement through collaboration can help reduce predominantly illicit sales. Eventually, this will lead to broader consumer acceptance of safe cannabis, purchased from reputable sources. This combined with tax relief can prevent this industry from falling into further despair.
As 2024 progresses, the multifaceted crisis confronting the California cannabis industry is expected to deteriorate further unless substantial changes are implemented by key organizations such as the Department of Cannabis Control, the Attorney General’s Office, and various law enforcement bodies. The shift from advocating the end of the Drug War to calling for enforcement marks a significant turning point. However, for meaningful change to occur, former advocates must collaborate with the government to creatively address these challenges and navigate the current storm.
For over 15 years, Aaron Pelley has stood at the forefront of the evolving landscape of cannabis regulation. Aaron is a champion of emerging markets and an ardent advocate for cannabis industry entrepreneurs, businesses, and investors. He has crafted key cannabis legislation and established himself as a leading authority on cannabis law and practice.
Reprinted with the permission of Harris Sliwoski
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