6.1.19

How California Is Doing A Year Into The Legal Weed Biz

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Californians have been able to legally buy recreational marijuana at licensed shops for about a year now. But that doesn't mean everything's running smoothly in the world's largest, or possibly now second-largest, legal cannabis market. (Canada's nationwide legalization in October now vies for the top market spot.)

Unlicensed retailers are still easy to find throughout Los Angeles, drawing scores of customers away from regulated, tax-paying businesses.

We talked to three players in the cannabis sphere to get their take on the past year, and what they hope the new year will bring for California's fledgling pot industry.

Jerred Kiloh is owner of The Higher Path in Sherman Oaks and president of the United Cannabis Business Association.

Eric Spitz is founder and CEO of the cannabis distribution company C4 Distro, in Costa Mesa.

A team leader of the Los Angeles County Sheriff's Department's marijuana dispensary task force granted us an interview on the condition we not use his name because of safety concerns.

These interviews have been edited and condensed for clarity.


Q: Has the first year of legalization been going better or worse than you expected?

Dispensary owner: When January came along, and the initial newness of a recreational industry came around, it was really nice seeing the uptick in customers and volume. But then in July, new packaging requirements became almost a barrier to entry.

As a retailer, I couldn't carry anything that was not to the letter of the law inside my business. Even if you had done the packaging right, but you didn't have the right label on the outside, your package couldn't make it to the shelves. It pushed a lot of our customers to the illicit industry, because they were looking for the consistency they had before.

We had about a 50 percent increase in customer base in January, February and March. And now we're down probably that whole 50 percent — all the way back down to where we were, pre-January 2018.

Distributor: It's a sh*t show. That's literally the right word to describe it. The fundamental problem in the California system is that the state laws are not aligned with the local laws.

Enforcement doesn't happen evenly and then you have an entire system that is unenforced. As legal distributors, we only supply to licensed stores. In Southern California, we are inundated with unlicensed stores, and those unlicensed stores are robbing the players who are playing by the rules of revenue.

Law enforcement: The new laws have simplified the enforcement process. Before those laws, there was a lot of ambiguity. Dispensaries continue to be a problem, but we have cooperation with the District Attorney's office and the L.A. Board of Supervisors.

Civilly, they go after the landlord or the property owner where the [illegal] dispensary is, and then the District Attorney's office goes after them criminally.

Q: State and local taxes at legal shops can add more than 40 percent to the price of recreational marijuana. Is that pushing customers away from legal businesses?

Dispensary owner: Customers had become accustomed to budgeting for some of the brands. Now all of a sudden, that brand is almost twice as much. Well, now they might go to a black market dispensary to find a lower-cost product that is comparable to what they just had to give up. They can't afford it.

Even people who've been coming to my dispensary for years — I'm still seeing them leave bad reviews saying prices are too high, or you're trying to take advantage of us. We're getting to a point now where people are getting upset that we have to charge this much, and they're taking it out on the retailer.

Distributor: Consumers are going to go where the product provides the best value and the best quality product and right now, it's hard to argue that the legal, licensed stores are the ones that have the best value.

Nearly every successful cannabis company that I know is selling product into the unlicensed market, as well as the licensed market. If you have a pile of product, you're going to sell it where you can sell it. The unlicensed market is available, they want the product, sometimes they're willing to pay more because they can deliver to the customer at a lower price, given that they're not paying taxes. It's really a tough problem.

Law enforcement: Some of these [illegal] dispensaries are making over a million dollars a year tax-free. The penalty by law is not much, so they can easily continue to open in the same spot until the Board of Supervisors can get after the landlord and force them to evict that person who's running the dispensaries.

Q: How would you grade local enforcement efforts against unlicensed shops?

Dispensary owner: I think they're underfunded. There was over-expectation for very quick and swift reduction of the illicit industry. You can't have the kind of infrastructure that this gray market has had and just shut it all down overnight.

We're competing against people who can advertise on the same platforms we do. I mean, I sit right next to six other dispensaries on Weedmaps who are all illegal, and it's tough. I have to compete for that space. I don't know how Weedmaps is still in business.

There's a level of understanding that this is happening. But they're also slowly allowing the black market to really be in the most powerful position it's ever been in over the past two decades.

Distributor: Enforcement happens locally. And these municipalities simply don't have the resources nor the will to enforce marijuana laws at the state level.

If the state is going to step up and enact the laws, they need to be able to enforce them. And their argument today is that they can only do what they can do, and right now they want to bring people into the system as opposed to enforcing the laws on the people who are breaking the rules.

Law enforcement: We get a lot of complaints about illegal dispensaries — more complaints, in my experience, than you receive about "hard drug" houses, places selling things like cocaine. I would say the area that has the most problems is east Los Angeles so we're concentrating a lot of our efforts there.

I don't have hard numbers on how we've been effective. But for example, in the Antelope Valley, we've been 100 percent effective in that there are no more openly operating [non-medical] dispensaries. (Editor's note: Recreational dispensaries are illegal in all Antelope Valley cities. WeedMaps currently lists none in the AV.)

We've noticed cases where dispensaries have decided to move to jurisdictions in LA County where they allow marijuana dispensaries so that they don't have to worry about criminal penalties.

Q: What kind of enforcement would you like to see in 2019?

Dispensary owner: I want them to create an injunction against Weedmaps. They're collecting money, and advertising for these illegal businesses and creating unfair business competition. It's very confusing for just about everyone. Especially a visitor who comes to Los Angeles to partake in a new kind of California pastime. They don't have any idea how to find legal businesses.

Distributor: One solution that we've come up with, which I've been told is very far-fetched, is that the state put together a legal defense fund for the cities. Because not only is it costly for them to do the police work, they're also getting sued when they shut the stores down, and they have to defend the suits, they can't just walk away.

So this is an expensive process. And the expense comes when the cities have to enforce the state laws. Since the state is putting the laws in, they are abdicating responsibility by not coming up with an enforcement plan.

Law enforcement: Hopefully, we can get some more resources for enforcement.

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