High state and local taxes on pot sold in dispensaries, and the continuing illegality of weed at the federal level, have resulted in numerous bad outcomes for the legal-weed industry and consumers: inflated prices, dissuasion of entrepreneurs and financiers, limits on the potential enormous growth of the pot economy, and, perhaps worst of all, a thriving black market.
Another bad outcome, though, is that it has allowed prohibitionist types to continue using weed to pander to like-minded voters, from city councils in small California towns all the way to the halls of Congress.
The term “black market” doesn’t really describe any one phenomenon. It encompasses everything from international criminal cartels to the friendly dude down the street from you who might grow weed in his backyard. It also includes sleazebags who, for example, manufacture illicit vape pens that have proved to be a serious health hazard, as when several thousand people were stricken with a severe lung ailment in 2019 and 2020, and dozens of them died.
Most of these problems would disappear, or at least be greatly minimized, with pot’s full legalization. But that alone wouldn’t be enough if taxes were to remain as high as they are in states like California. The black market thrives here despite the fact that weed is legal in the state, and legitimate pot businesses—for the moment, anyway—don’t have to worry about being busted by feds.
This is largely thanks to onerous tax rates. The state slaps a 15% excise tax on retail sales. That comes on top of a weight-based cultivation tax, regular sales taxes and often-high local levies on weed, which can run between 5% and 10%. If you buy weed from the dude down the street, the tax rate is zero. He also doesn’t have to comply with testing requirements and other regulations which, while often necessary, nevertheless also tend to boost prices. A quick look at prices in Oakland reveals that an eighth of flower on the illicit market costs $10 or $15, while the same strain in a dispensary costs $60 or more.
Those prices, not surprisingly, send people to the illicit market in droves. California saw about $8.7 billion worth of illicit weed sales in 2019, according to BDS Analytics. In comparison, the size of the legal market was just $3.1 billion. The dude down the street is essentially harmless, but organized criminal gangs run a huge proportion of the underground market, and both the feds and state and local law enforcement authorities are still busting up big grow operations and putting “dope on the table,” sometimes along with guns and fat stacks of cash, for press events. This wasn’t how legalization was supposed to work.
U.S. Rep. Mike Garcia, who represents a mostly rural and suburban area north of Los Angeles, used one such recent bust to make political hay. In an op-ed published by the Fox News website, Garcia included “dope on the table” photos and characterized the black market as being a problem caused by “Democrats”—which, in a way, it is, just not in the way he means it. He emphasized that “illegal immigrants” grew the weed, and declared that L.A. County is “where characters like L.A. District Attorney George Gascon are charged with enforcing the law—and we all know that L.A. District Attorney Gascon appears to prefer lawlessness to law and order.” He mentioned neither the federal illegality of weed, which is the main reason such grow operations exist to begin with, nor high taxes in California, which is why they continue to thrive. But he did declare, inanely and with zero basis, that the problem of the illicit market has been “significantly worsened in recent months, fueled by both calls to defund the police and the Biden administration’s failure to secure the border.”
Legalizing weed from coast to coast, and lowering taxes where they are too high, would not only solve a lot of problems for the legal-weed business and consumers, it would also prevent culture warriors from using weed as a wedge issue.