A Dozen Unlicensed Los Angeles Dispensaries Slapped with Tax Evasion

In the uphill battle to regulate the colossal cannabis market covering the greater Los Angeles, California area, authorities served tax warrants to 12 unlicensed dispensaries. After various regulatory bodies cracked down on illegal dispensaries in the area using numerous other methods, tax liens will be dished out to illegal operators who will face tax evasion.

The California Department of Tax and Fee Administration (CDTFA) issued a news release on July 8, announcing that the organization led a joint effort with California Highway Patrol (CHP) to identify illegal operations spanning Los Angeles and San Bernardino Counties.

“The CDTFA’s collaboration with the CHP is an important deterrent to tax evasion,” said CDTFA Director Nick Maduros. “Tax evasion unfairly shifts the burden onto all other taxpayers and makes it tough for those businesses that are playing by the rules to survive.”

The 12 illegal operations were not identified within the news release. 

The CDTFA warned other illegal operators in the area—which are many—what can befall them in the event that they don’t cease operation: “… Any person who willfully evades or attempts to evade the reporting, assessment or payment of the cultivation tax, the cannabis excise tax, or the sales tax that would otherwise be due,” the CDTFA warned, “is guilty of cannabis and sales tax evasion.”

The crackdown was spearheaded by the CDTFA Investigations Bureau, a branch of the CDTFA that “plans, organizes, directs, and controls all criminal investigative activities for the various tax programs.”

Under Proposition 64, and the CDTFA, cannabis operators in the state are confronted with some of the highest cannabis tax rates in the nation.

Legal operators must pay several layers of tax: a 15 percent excise tax on recreational sales, 7.25 percent in sales tax, and any local taxes going up to one percent. Cities can also impose cannabis businesses taxes going up to 15 percent. In addition, cultivators are subject to a tax of $9.65 per dry ounce on flower, $2.97 per ounce on dry leaves, and $1.35 per ounce on fresh cannabis plants.

The Struggle to Contain Illegal Cannabis Operations in California

California’s plethora of illegal dispensaries are well known across the county. Most estimates agree that illegal dispensaries in the state dwarf the number of legal dispensaries—easily.

Arcview Market Research and BDS Analytics estimated in an analysis last year that Californians spend $3 on illegal pot for ever $1 spent on legal cannabis. Presumably, consumers turn to illicit market dispensaries because they don’t want to pay steep taxes.

Generally speaking, however, cannabis trade organizations and the businesses behind them agree with the CDTFA’s efforts to control illegal operations that constantly cut into their profit margins. It’s extremely difficult to play by the rules when illegal dispensaries cut corners and save thousands upon thousand in taxes and fees.

At the city level, the Los Angeles City Council resorted to turning off utilities last year during a major crackdown. The council authorized the Los Angeles Department of Water and Power to shut off electricity and water. Neighboring Anaheim also took a similar approach.

One of the largest crackdowns to date in Los Angeles took place last December, when authorities raided 24 unlicensed dispensaries. During that crackdown, law enforcement seized $8.8 million worth in cannabis products and scooped up almost 10,000 vape pens and $129,000 in cash. That crackdown was supported by the United Cannabis Business Association, because illegal dispensaries have always been a problem to legal operators.

The Department of Cannabis Regulation under the City of Los Angeles provides a list of authorized retail locations that have temporary approvals to sell cannabis.

The CDTFA’s crackdown on illegal dispensaries likely won’t be the last. If you’re not being charged taxes, it’s not a legal dispensary. The days are numbered for tax-dodging dispensaries that are sprinkled all throughout the greater Los Angeles area.