Black Market Cannabis Thrives In California, Despite Legal Options

By Paul Gaita 04/09/19

Some customers would rather give their business to the black market to avoid the highly taxed, legal option. 

person smoking black market cannabis

A combination of high taxes, buyer loyalty and legal red tape has allowed black market sales of marijuana in California to flourish, despite its legality for both medical and recreational use.

That's the opinion of High Times, which detailed the conundrum faced by buyers and sellers in the Golden State: the 15% tax imposed on marijuana from licensed state dispensaries is too steep for some consumers, who turn to street dealers despite the threat of legal repercussion. 

Complicating matters are a lack of manpower and resources to fight black market sales and the relative complexity of licensing for prospective cannabis dispensaries. Stuck in the middle of this push-and-pull are consumers, especially medicinal marijuana users, who don't want to turn to street sales, but can't afford California's tax rates.

To underscore the choices faced by consumers, High Times cites 2016 figures from Statista, which list the street value of an ounce of marijuana at $218 dollars, while the same amount from a legal dispensary costs $299. For Jake Heraty, a college student at San Francisco with serious health issues, that price differential determines whether or not he'll eat dinner on a given day.

"I'd prefer to go to a store and pick out just what I want," he told High Times. "But when you have to pay an extra 15% in taxes, there's really no questions. I just can't afford to throw down 20 extra dollars so the state can get their share of the cannabis market."

High Times also spoke to "Marco," a Bay Area dealer who illustrated why trust is also a factor in consumers choosing black market buys over dispensaries. An abundance of new growers and distributors without the years of experience earned by those in the illicit trade has resulted in what he called "B to C grade product floating around." That undercuts return customers and trust, which according to Marco, is key to his transactions.

"People don't often consider family and relations that's been built through the years between seller and buyer," he explained. "The legal market just doesn't have that yet."

And if those new industry participants manage to get their product to a legal market, they still face a host of regulations from both state and federal agencies that challenge the basic operations of many new businesses.

As High Times noted, regulations established in 2018 required new labels for many cannabis products, which effectively forced dispensary owners to remove salable goods from their shelves. 

The Times also quoted criminal defense attorney Marc Wasserman, one-half of Pot Brothers at Law, which provides representation to California marijuana businesses.

According to Wasserman, a lack of tax deductions has hindered the ability of legal dispensaries to move into black market business; write-offs for expenses allowed to most businesses are prohibited for cannabis companies. "Cannabis businesses have to deal with form 280-E of the IRS," he said. "When you fill out this form, you're saying, 'We're dealing an illegal Schedule 1 drug, but the government still wants its cut.' Yet, they don't allow you to take typical write-offs." 

This confluence of restriction, taxation and bureaucracy is what has sent California pot consumers back to dealers like Marco—a situation that isn't preferred by individuals like Jake Heraty.

"I've seen the stores, and they're much more attractive than a trap house," he told High Times. "If I could afford it, I'd be in those shops. It's unfortunate California's government is more concerned about getting their share of the cut rather than providing their residents with an affordable service."

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Paul Gaita lives in Los Angeles. He has contributed to the Los Angeles Times, Variety, LA Weekly, and The Los Angeles Beat, among many other publications and websites.