California Stumbles (Again) With Legal Marijuana

It shouldn’t be like this.

California was one of the first U.S. states to legalize medicinal cannabis. It became a dual-use state at the beginning of 2018. Yet (somehow) sales of legal cannabis actually went down in 2018: from $3 billion to $2.5 billion.

The Seed Investor has previously outlined the woes in California’s legal cannabis market that are undercutting the legal industry.
 

1. Over-taxation
2. Over-regulation
3. Inadequate access to legal cannabis

These problems are far from unique to California. But they are especially prominent in this state, especially the last issue.

California chose to make its cannabis legalization merely permissive. In other words, individual counties can choose to opt in (or opt out) of legalization. They can dictate what level of cannabis commerce and cannabis industry is present in the county.

The result is that nearly 90% of California’s counties have some degree of cannabis Prohibition still in place. This either restricts cultivation, manufacturing, retailing, or all of the above.

While cannabis sales in the state are once again trending in the right direction in 2019, California’s structure for its legal cannabis industry is severely flawed.

What’s California’s “solution” to its own regulatory failure(s)? It’s attacking the cannabis black market within the state with a new War on Drugs: bringing in the National Guard, massive police manpower, massive expenditures of taxpayer dollars.

And it won’t work.

Neither the U.S. nor Canadian government was able to prevent black market cannabis commerce even when cannabis Prohibition still reigned supreme. Nothing changes simply because there is also a legal industry on the scene as well. Indeed, legal growers are not in favor of this heavy-handed law enforcement against the black market.

How does California fix its legal cannabis industry? One word: Colorado.

Colorado has already proven that all that is required to allow the legal cannabis industry to take away market share from the cannabis black market is moderate taxation and sensible regulation.

This concept still seems to be too much to grasp for many U.S. state governments – including California.

It’s easy to build a thriving legal cannabis industry with reasonable taxation and regulation. It’s impossible to do so without those ingredients.