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One year into legal pot sales California doesn’t have expected bustling industry

126 points by petethomas 8y ago

justizin 8y ago
California has had the world's leading cannabis industry for decades, we're just now paying 38% tax.
- Scoundreller 8y ago
  38% tax when sold legally in the local market. Black-market local sales and exports still don’t raise much tax revenue.
  - bcOpus 8y ago
    And of course that black market is on average actually cheaper, often by 2x than the “legal” sources. Nobody gets taxed for growing a little on the side, or buying on the black market. As usual local greed is strangling an emerging market with the potential to net billions. As usual small operators are kept behind until the big boys (Altria et al) can dominate the market and slash prices and quality. IMO that’s what this is about; a delaying game until federal laws change and the multi nations can take over.
  - phil248 8y ago
    The total tax amount in San Francisco is about 25%, nowhere close to 38%. Where did you get that number?
    - Scoundreller 8y ago
      > Montes, who received his city and state licenses in January, says his business faces a 15% state excise tax, a 10% recreational marijuana tax by the city of Los Angeles and 9.5% in sales tax by the county and state — a markup of more than 34%.
  - pdshrader 8y ago
    I was curious about the details of this, so I looked it up. There's a 15% excise tax statewide in CA. It used to be a straight 15% on top of the sale price, but now it's calculated based on the average market price for an arm's length transaction.[1][2] This is usually calculated based on the wholesale price plus a markup of 60%.[3] On top of that, there's (normal) sales tax applied to the whole purchase, including the excise tax amount.[2] In California, that means a statewide sales tax of 7.25%, plus county and sometimes city sales taxes that can add on an extra 0-3.25%.[4] In places with very little additional county and city sales taxes, e.g. Newport Beach[5], that means paying 15% excise plus 7.75% sales tax, for an effective total retail tax rate of 23.9125%. In places with higher county and city sales taxes, e.g. Santa Monica [6] that means paying 15% excise plus 10.25% sales tax, for an effective total retail tax rate of 26.7875%. San Francisco is on the lower end of the middle of the pack with a sales tax of 8.5% [7], so that means the effective total retail tax rate is 24.775%. Of course, there are other cultivation taxes, use taxes, special local marijuana excise taxes and other permitting costs that apply to cultivators and distributors and retailers that may get passed along to customers[8][9][10], so you could say that "total taxes" are closer to 40%. But most retail buyers are paying about 24-28% on top of retail list price in sales + excise taxes. Note: Prop 64 made it so most medical cannabis sales aren't subject to sales tax, so medical users only have to pay the 15% excise tax. [8] [1] https://www.cdtfa.ca.gov/formspubs/l537.pdf https://www.cdtfa.ca.gov/formspubs/l537.pdf [2] http://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers http://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers [3] http://www.cdtfa.ca.gov/industry/cannabis.htm#Facts http://www.cdtfa.ca.gov/industry/cannabis.htm#Facts [4] https://smartasset.com/taxes/california-sales-tax https://smartasset.com/taxes/california-sales-tax [5] https://www.avalara.com/taxrates/en/state-rates/california/cities/newport-beach/ https://www.avalara.com/taxrates/en/state-rates/california/c... [6] https://www.avalara.com/taxrates/en/state-rates/california/cities/santa-monica/ https://www.avalara.com/taxrates/en/state-rates/california/c... [7] https://www.avalara.com/taxrates/en/state-rates/california/cities/san-francisco/ https://www.avalara.com/taxrates/en/state-rates/california/c... [8] http://www.cdtfa.ca.gov/industry/cannabis.htm#Started http://www.cdtfa.ca.gov/industry/cannabis.htm#Started [9] https://www.latimes.com/projects/la-me-weed-101-tax-location/ https://www.latimes.com/projects/la-me-weed-101-tax-location... [10] http://blog.margolinlawrence.com/all-about-california-cannabis-taxes http://blog.margolinlawrence.com/all-about-california-cannab...
itslennysfault 8y ago
Probably because it's been "legal" in CA for years. The "medical" cannabis was a joke. There were people on the beaches holding signs "$50 medical cannabis card". Being legal recreationally didn't really make it any more accessible. Anyone that wanted a medical card could get one in a few minutes.
- Scoundreller 8y ago
  Is the medical cannabis tax exempt?
  - Rebelgecko 8y ago
    I believe its exempt from sales tax but not the various excise taxes
    - edoceo 8y ago
      These taxes which apply vary from region to region, in USA each state has unique rules
- jaxn 8y ago
  Except that you had to have a California drivers license. Marijuana tourism seems to be a big thing in CO.
  - alexanderwept 8y ago
    Not true, I found an online doctor who offered California medical marijuana recommendations at $39/pop 'or your money back' - and I got one while passing through San Francisco for a conference. At the time I was a resident of another State and the doctor even shipped my official medical recommendation to my home state.
  - scythe 8y ago
    You didn't need a CA license, just an address. I actually got my card the day after I moved in to my apartment. (In my defense, I have scoliosis.)
aphextron 8y ago
It all comes down to local control of licensing. To even operate a 100% mobile business, you have to be licensed out of a specific city. This involves all the associated cronyism, NIMBYism, and the like which goes along with local politics, and grinds the whole system to a halt. We need to adopt a statewide system like Oregon or there will be no room for smaller distributors left and we will be stuck with monopolized pricing.
- nine_k 8y ago
  Some may see high monopolized prices and having to jump through hoops as "fair": that is, cannabis use is not "good" and thus should not be made easy or cheap. See alcohol and tobacco. IDK if this mindset is widespread enough in California. But coincidentally such an approach does improve the bottom line of large / established sellers.
  - bcOpus 8y ago
    Then those people are actively seeking to maintain the supremacy of the black market, despite decades of evidence as to the inability of such measures to reduce consumption. Maybe people who have such ignorant and baseless beliefs shouldn’t be heeded.
    - noobiemcfoob 8y ago
      Yeah, but they don't and won't see it that way. The people with these types of reactions seem to think things go away when you make them illegal (probably aided by them having never actually seen the problem firsthand anyway). You can choose to heed their views or not, but they still get to vote the same as you.
  - Nasrudith 8y ago
    Ah the classic baptists and bootleggers connection - making things worse for everyone except them.
- wpietri 8y ago
  I'm personally fine with local control, and despite the negative tone of this article, it all sounds pretty normal to me. I live in SF, where there are a variety of shops. The ones I walk by all seem clean, orderly, and well run. Certainly more so than some liquor stores I can think of. So I'm happy to have them as neighbors. That said, I understand why other cities would have been more reluctant to license. Not everybody needs or wants to be a pioneer. If we're still having the same problems 5 years out, I'll be more concerned. But personally, I'm a big fan of subsidiarity, the principle that decisions should be made as low down in the power structure as possible. [1] That different people are deciding differently right now is how we'll learn the best ways to do it. There's no urgent problem here that requires a centralized solution. [1] https://en.wikipedia.org/wiki/Subsidiarity https://en.wikipedia.org/wiki/Subsidiarity
MisterBastahrd 8y ago
Turns out that buying from your local dealer is cheaper than going to someone who had to jump through regulatory hoops. who knew?
- rootusrootus 8y ago
  Isn't that the issue, though? In places where legalization has gone smoothly (I have personal experience in Oregon), cannabis shops are a dime a dozen, weed is cheap, easy to find, and certainly better quality. There are over 10 shops within a 10 minute drive of me, I can go buy an ounce for $50.
- donarb 8y ago
  You mean the local dealer who doesn’t have any at the moment, doesn’t answer his phone, can’t get the good shit like he had last time and this batch costs more but weighs less? Like 7-11, you’re paying for convenience and being able to get the exact same potent batch for the same price every time.
RcouF1uZ4gsC 8y ago
Another big issue might be the financial industry. Marijuana is still illegal at the Federal level so banks might be reticent to get involved with providing loans or services to these businesses. Without access to credit and banking services, a lot of people who might otherwise go into business, won't.
- xyhopguy 8y ago
  Didn't stop Oregon. We've got 5x as many dispensaries as California and wayyyyyyyy less people. Oh and the prices are like 75% lower.
- chiph 8y ago
  A former coworker's brother-in-law ran into this. He was a finance officer and got laid-off back during the Great Recession. He found a position as the CFO of a dispensary, and one of the first problems he had to address was employees doing cash pickups from the stores using their personal cars. So there were people moving $20k+ daily in their Toyotas (not especially safe!) So he called some of the armored car firms to inquire about hiring them, and they all turned him down flat because they didn't want the chance of his cash getting intermingled with that of Wells Fargo, etc. What he did was set up a wholly-owned subsidiary to do the transport, buying a couple of armored cars to move both the money and the product.
dclaw 8y ago
Yeah, well that's what happens when you let local cities/counties shit all over it, and have the laws/regulations written by the alcohol and tobacco lobbies.
KingMachiavelli 8y ago
For perspective Colorado has 549 retail establishments and 574 medical establishments (although many overlap) while having ~3/20 the population of California. While obviously Colorado has had retail cannabis since 2012/13, both states have areas strongly for and strongly against legalization. Considering that the cities that do allow rec cannabis include Los Angeles, Oakland, San Francisco and San Diego, the number of retail establishments seems very low even if they were limited to only these cities. Whats interesting is that California's licensing is done through their Food and Agriculture Department while Colorado's is done through the Department of Revenue.
- jngreenlee 8y ago
  Reporter from CO here. I think this is the crux of the matter. If the points about a strong underground market in the article are true, it's (IMO) due to a weakened attempt at decriminalization. Very much like bittorrents before netflix/prime were widely available with large catalogs. Here in Sunny CO, the prop was a Constitutional Amendment, guaranteeing the right of each state citizen to grow and possess their own Marijuana, which lead to sales. -Only two cities (Colorado Springs and a mountain town IDK)- created local exemptions against retail sales. They are now suffering with badly damaged roads and limited tax revenues to fix them, compared to cities right next door that capture all the sales. Hampered decriminalization does not rid us of the black market. The [THC] black market is _gone_ in CO because who needs it? Questionable products, limited availability, difficult logistics...no, you go to the local store and five minutes later can be higher than 5280'. EDIT: As CP says, there were more than two cities banning sales. Actually a lot more than I knew. I'll stand by my conclusion though. The full list is here: http://webcache.googleusercontent.com/search?q=cache:11yRzRkVAJgJ:www.cml.org/rmj-action-visual/+&cd=1&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:11yRzRk...
  - bigfartchili 8y ago
    There are a lot more cities than Colorado Springs that don’t allow retail including many of the surrounding Denver cities.
obilgic 8y ago
Author, have you seen MedMen?
0x4d464d48 8y ago
Maybe this article overstated things and someone will clear it up in the comments but that was painful to read. I live in Vancouver and weed's been officially legal throughout the Canada for several weeks now. It's still relatively new but nothing noticeable has changed aside from fewer people discussing such a frivilous and previously mishandled issue. It's not perfect but far, far, far better than strict prohibition with draconian sentencing laws. What bothers me the most about this story is how marijuana is supposedly 'legal' yet some locals seem Hell-bent on treating it like an illegal and necessarily dangerous. Instead of vocferiously refusing shops to open in a municipality you'd think the free market would be enough to determine where there's not enough demand for a product. I guess if some people prefer being judgemental and pious to actually getting a handle on social issues that's their prerogative. It's a frustrating position to reason against, in fact that almost never enters the equation, but it sure seems to resonate with a lot of people.
- jaggederest 8y ago
  A lot of the concern is essentially about the precedent it sets. If you start questioning the logic of criminalizing cannabis, what's next on the list? That's the fear driving a lot of the reactionary opposition to a lot of things these days, and I think especially in the tech industry we have to remember that a lot of people don't have our appetite for risk. Personally I think we as a society have demonstrated a considerable capacity for adaptation, so there's little to worry about, but my extended family certainly disagrees. There are a lot of other linked issues that operate similarly and it's a bit of a tragedy.
  - 0x4d464d48 8y ago
    "A lot of the concern is essentially about the precedent it sets. If you start questioning the logic of criminalizing cannabis, what's next on the list?" Plus ça change, plus c'est la même chose. It's ironic that for so many Americans the idea that people should be allowed to make their own choices would be such a tough sell...
    - jrace 8y ago
cbanek 8y ago
The other factor not talked about is that in general the prices seem to be going down due to a lot of supply (both on the retail/licensed market, and the grey/black market). About ten years ago, a really good pound (in bulk) could go for $3k-$4k to a dispensary. Now the high end seems to have fallen out and you're maybe lucky to get half of that. I think a lot of people ran their business plan numbers where they were, but now that there's a lot more supply, just the raw numbers are going down. There's also a lot more low quality product on the market, which pushes down prices on higher quality things slowly. And yes, the licensing, taxes, and testing are just insult to injury on top of that. Overall I think it's a good thing though. Since real medical patients never get their pot on medical insurance, the reduction in cost really helps consumers. Source: anecdotal data from friends that were in the industry, and prices at Harborside back in "the day."
- akira2501 8y ago
  > Now the high end seems to have fallen out and you're maybe lucky to get half of that. Barely. I do lots of work with growers.. the sweet spot for a pound these days is $600 to $850, depending on quality. On top of that, transaction volumes are increasing too.. before you could make a deal on a handfull of pounds, now purchasers are interested in buying a "box" or a hundred pounds at a time.
- treis 8y ago
  >could go for $3k-$4k to a dispensary. Now the high end seems to have fallen out and you're maybe lucky to get half of that. For comparison, bulk price of tobacco is a few bucks a pound. Admittedly I am not an expert in marijuana vs tobacco cultivation, but I doubt it's 1,000 times more expensive. Ultimately, the problem with profiting in a legal marijuana industry is that people simply don't smoke that much pot. Say that there's 260 million adults in the US and they all smoke 1 joint per day. Assuming: 1 joint = 1 g of marijuana 1 lb = 454g 1 acre can yield 600 lbs of marijuana 1 farm is 1000 acres If you do the math, that means we need roughly 350 farms worth of marijuana. Or in terms of acreage, roughly 0.04% of all the acreage in the U.S. under cultivation. In other words, even if we assume a ridiculous level of smoking there's simply not a huge demand for pot. Using more realistic amounts, a handful of large farms could produce all the marijuana consumed in the country.
simplecomplex 8y ago
Marijuana policy is the epitome of broken American politics. Obsession with money and morality, racism and ignorance driving policy, a tiny minority out-of-touch with what they’re regulating writing the legislation, business regulations that are designed for business not people, and on and on.
- deleted 8y ago
  [deleted]
newnewpdro 8y ago
My personal issue with how legal pot has played out is I have no interest in becoming a patron of these lifestyle shops for a variety of reasons. I also don't want my ID to be scanned for buying something still federally illegal. If I could occasionally buy marijuana products at the grocery store as part of my normal shopping, no different than my occasional purchase of whiskey or wine, then I would have at least bought legal weed a few times since it was legalized here in CA. Even if it were relatively expensive. Instead, today I'm far more likely to either not acquire any marijuana products at all (it's been years already) or buy some from the guy on the street who might also have shrooms.
- swebs 8y ago
  You could just have a friend get it for you from the store. Who the hell knows what's in the stuff off the street corner or who's blood had to be spilled to get it to you.
  - robdachshund 8y ago
    Its pot, not crack. There's nothing to gain from tainting it. Most of the black market stuff comes from legal states too.
- donarb 8y ago
  In Washington you have to show ID to prove you’re over 21, but nothing is scanned.
  - rcw4256 8y ago
    The law doesn't require retailers to scan IDs, but many of them do, in my experience.
    - edoceo 8y ago
      Yep, these scans are a forcing function to prevent underage sales, many POS have this feature, maybe even tied to a loyalty program
suff 8y ago
Why is California perpetually mystified that more government means less service? Because, it is hard for people to understand something when their paycheck depends on them not understanding it.
deleted 8y ago
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DigiMortality 8y ago
The government of California is extremely inefficient, no surprises. Glad I left CA I'm in Colorado now (I'm from NY originally) CO did it right, but like someone said above - CO Springs was against it (pretty conservative, military area)and are now suffering the consequences of not doing so, worse roads, worse everything... And hey, I'm pretty conservative myself and I live in Boulder. Boulder is wrong about other things though, like thinking they can ban AR-15's
- fetus8 8y ago
  I hate to break it to you, but Colorado Springs has been worse in most ways, roads and otherwise, long before recreational/medical weed was legalized. They've had issues with crime and meth, for a very long time as well.
  - jngreenlee 8y ago
    Yeah but it sucks to sit there and watch Manitou Springs get rich fast. CS city council is trying now to undo that choice. CS is weird and beautiful in its own ways, and I would only live there now for the mountain access (far better than 95% of Denver metro).
  - FlyMoreRockets 8y ago
    From what I understand, Colorado Springs has tried to make an industry out of churches. Unfortunately for the town, churches don't pay taxes for things like roads.
- scythe 8y ago
  IIRC Colorado Springs had some other... interesting policy choices unrelated to marijuana: https://www.politico.com/magazine/story/2017/06/30/colorado-springs-libertarian-experiment-america-215313 https://www.politico.com/magazine/story/2017/06/30/colorado-...
cyberpunk0 8y ago
Maybe stop trying to industrialize everything
DoofusOfDeath 8y ago
Honest question: Why do newspapers, NPR, etc. often refer to pot possession / sales as being legal in California and some other states, when they're clearly illegal under federal law? There are numerous other behaviors that IIUC are illegal under U.S. federal law but are not proscribed by California law, including: aircraft hijacking, carjacking, credit card fraud, and possession of destructive devices such as missiles and poison-gas weapons. And yet I don't hear those same news sources referring to carjacking, etc. as being legal in California. The cynic in my suspects that those news organizations are intentionally choosing language to push their own agendas, but maybe I'm totally missing something here.
- Rumudiez 8y ago
  It is explicitly legal in WA, CO, CA and others. Those states have successfully passed laws to this effect. Because the feds don’t/can’t enforce the federal laws prohibiting cannabis on residents of those states, it is for all intents and purposes legal, no scare-quotes required.
- fjp 8y ago
  Because California passed bills clearly delineating how, where, and in what quantities pot growing and selling can be done. The state issues licenses. In America, this is federalism at work. States can choose to do things that the federal government explicitly does not allow, and states can choose to not do things that the federal government explicitly tells it to do. When there is enough of a conflict, it gets resolved by the courts. In this case, the federal government has just chosen not to dedicate resources to cracking down on California's pot industry. California still welcomes the DEA's efforts in CA to crack down on other things, such as pot coming in from Mexico and harder drugs being trafficked.
  - masonic 8y ago
    States can choose to do things that the federal government explicitly does not allow Not true at all. Take slavery, for one obvious example.
    - 8y ago
Animats 8y ago
The farming side is even funnier. The old-line potheads who are used to hiding, high margins, and inefficient farming are being pushed out by Central Valley farmers who look at it as just another cash crop.
- MisterOctober 8y ago
  Fact. What used to be junkyards and chop shops in South Phoenix [AZ] is now filled with state-of-the-art indoor horticultural installations producing this stuff at an industrial scale.
johan_larson 8y ago
I'm guessing investors are leery of funding expansion in an industry that is still illegal under federal law. The businesses themselves also have all sorts of trouble because banks don't want to deal with them.
sonnyblarney 8y ago
The market was already functioning - now with taxes, regulations, overhead ... who wants to have to find a new supplier and pay for all of that? There may be real competition between the black market and over the counter market that will play out, particularly if the former networks are already well established. The regulations and controls on advertising are fairly strong here, for 'vaping' in Quebec for example, windows have to be covered, and there can hardly be any wording on the signage. No advertising, no way to get the word out. Now - for a very heavily established industry, with a very addictive product like smoking ... they can still thrive. But for a relatively new and established industry, we'll be able to see just how powerful advertising, branding, sponsorships really are in terms of influencing behaviour.
dgzl 8y ago
> Retailers and growers say they’ve been stunted by complex regulations, high taxes I can't say I'm surprised. As someone who grew up on the Oregon border of California on i5, locals here complain about California's influence on the local economy and politics. (E.g. buying expensive land, driving taxes up) However in Oregon, I believe our problem is with oversaturation of the market. From what I understand (not rehearsed in the subject), we literally have to give the stuff away because there's so much. For anyone who knows/cares, it's not unheard of for places to sell quality marijuana for as low as $48/ounce, which is very cheap.
- stupidbird 8y ago
  For comparison, you can easily pay $500/oz on the east coast.
  - burfog 8y ago
    Dear my. Have you considered smoking saffron, truffles, beluga caviar, or Hewlett-Packard color inkjet cartridges? You're paying 2 to 10 times as much.
- verbify 8y ago
  > it's not unheard of for places to sell quality marijuana for as low as $48/ounce, which is very cheap When I look at other dried herbs on amazon, they're much cheaper. E.g. thyme is about $10 for 12 ounces, oregano is $13 for 5 ounces. Weed obviously has higher taxes, more regulation and I presume a smaller market (most people consume culinary herbs as part of their diet, not everybody consumes weed). But I'd expect the price to come down once the regulations disappear.
  - ficklepickle 8y ago
    First off, marijuana is a flower, not an herb. Second off, much work goes into developing and stabilising a strain. Thirdly, high quality MJ is grown indoors, with artificial lighting. Fourthly, it requires a curing process.
Tsubasachan 8y ago
One of the most hilariously stupid arguments against legalisation of drugs is that it makes everyone into a junkie. Fact is most people don't do drugs, even if you can buy it in the supermarket.
- bdhess 8y ago
  I suppose you’re excluding alcohol from that pronouncement?
  - Vadoff 8y ago
    And caffeine
  - xoa 8y ago
    Your question really made me curious so I looked it up, the NIH keeps extensive records about this sort of thing. This is America only of course, which looks to be in the top third or so worldwide based on the WHO lists ("Western" countries or those with colonization history there and Russia seem to be higher then southern Asian and African countries in general). But in America while a majority use it, it's still lower then I actually expected digging into the definitions. In the surveys apparently 56% of Americans reported consuming alcohol, any whatsoever, in the previous month, 70% in the previous year, and 86% tried it at some point in their lifetimes. But it's hard to see "tried once in their life" or even "a few times a year" as really falling in an equivalent "junkie" category, so I looked for "heavy drinking" which they defined as "4-5 or more drinks in 2 hours" a few days in a month, where a "drink" is a standardized measurement of ~14 grams of pure alcohol, equivalent to a single 12 oz 5% beer = 5 oz of 12% wine = 1.5 oz of 40% spirits (etc, whatever the percentage is). Just 7% of Americans reported heavy drinking in the previous month. Alcohol is regulated and taxed, but even so beer & wine at least is pretty trivial for adults to legally acquire in most of the country and relatively cheap spirits (like very low quality vodka) as well. I don't at all want to understate the harm of alcohol abuse, it's very real (and of course can extend beyond drinkers themselves due to their actions). Even so it seems like "make everyone into a junkie" would not be borne out by legalized alcohol. Based on popular culture it's easy to assume drinking is more prevalent to a higher degree then it is, at least personally I would not have guessed that heavy drinking was only single digit percentages here. It looks like, as in other areas, there is a strongly non-linear curve function in the population where relatively small percentages form an inordinate part of consumption. If that's the case for marijuana as well then it'd suggest we could get far more efficient harm reduction by general legalization focusing limited resources on that smaller slice?
mlindner 8y ago
Miraculously over-regulation causes supply shortages. I'm surprised this is even news.
ryanmercer 8y ago
Well, when you can't deposit your money into a bank without fear of it being seized by the federal government. Can't take credit cards. Can't take debit cards. Can get loans from financial institutions to expand your business. Have trouble finding landlords willing to lease to you because they don't want their doors breached by federal agents.
purplezooey 8y ago
Yet another thing the local, baby-boomer, middle aged home owning people bring us. Voting down all development. Banning cannabis shops. Prop 13. They vote in large percentages and have shaped the Bay area in a big way.
- masonic 8y ago
  Nobody under the age of 58.5 can possibly have voted for Prop 13. Few below 70 would have had any incentive to.
m3kw9 8y ago
It ain’t taking off because is still quite tabu to smoke that stuff. You won’t really see that at a family party unlike alcohol. The main reason is because that shit affects children when you puff it out and stink it up for people that doesn’t want it.
HNLogInShit 8y ago
Fuck off, L.A. Times.
mirimir 8y ago
Well, for the most part, that's because "legal pot sales California" aren't actually legal.
datavirtue 8y ago
Federal laws are also suppressing the industry. If employees are drug tested and sanctioned according to federal workers compensation laws the market will always be paltry.

126 points by petethomas 8y ago

justizin 8y ago

California has had the world's leading cannabis industry for decades, we're just now paying 38% tax.

Scoundreller 8y ago
38% tax when sold legally in the local market. Black-market local sales and exports still don’t raise much tax revenue.
- bcOpus 8y ago
  And of course that black market is on average actually cheaper, often by 2x than the “legal” sources. Nobody gets taxed for growing a little on the side, or buying on the black market. As usual local greed is strangling an emerging market with the potential to net billions. As usual small operators are kept behind until the big boys (Altria et al) can dominate the market and slash prices and quality. IMO that’s what this is about; a delaying game until federal laws change and the multi nations can take over.
- phil248 8y ago
  The total tax amount in San Francisco is about 25%, nowhere close to 38%. Where did you get that number?
  - Scoundreller 8y ago
    > Montes, who received his city and state licenses in January, says his business faces a 15% state excise tax, a 10% recreational marijuana tax by the city of Los Angeles and 9.5% in sales tax by the county and state — a markup of more than 34%.
- pdshrader 8y ago
  I was curious about the details of this, so I looked it up. There's a 15% excise tax statewide in CA. It used to be a straight 15% on top of the sale price, but now it's calculated based on the average market price for an arm's length transaction.[1][2] This is usually calculated based on the wholesale price plus a markup of 60%.[3] On top of that, there's (normal) sales tax applied to the whole purchase, including the excise tax amount.[2] In California, that means a statewide sales tax of 7.25%, plus county and sometimes city sales taxes that can add on an extra 0-3.25%.[4] In places with very little additional county and city sales taxes, e.g. Newport Beach[5], that means paying 15% excise plus 7.75% sales tax, for an effective total retail tax rate of 23.9125%. In places with higher county and city sales taxes, e.g. Santa Monica [6] that means paying 15% excise plus 10.25% sales tax, for an effective total retail tax rate of 26.7875%. San Francisco is on the lower end of the middle of the pack with a sales tax of 8.5% [7], so that means the effective total retail tax rate is 24.775%. Of course, there are other cultivation taxes, use taxes, special local marijuana excise taxes and other permitting costs that apply to cultivators and distributors and retailers that may get passed along to customers[8][9][10], so you could say that "total taxes" are closer to 40%. But most retail buyers are paying about 24-28% on top of retail list price in sales + excise taxes. Note: Prop 64 made it so most medical cannabis sales aren't subject to sales tax, so medical users only have to pay the 15% excise tax. [8] [1] https://www.cdtfa.ca.gov/formspubs/l537.pdf https://www.cdtfa.ca.gov/formspubs/l537.pdf [2] http://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers http://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers [3] http://www.cdtfa.ca.gov/industry/cannabis.htm#Facts http://www.cdtfa.ca.gov/industry/cannabis.htm#Facts [4] https://smartasset.com/taxes/california-sales-tax https://smartasset.com/taxes/california-sales-tax [5] https://www.avalara.com/taxrates/en/state-rates/california/cities/newport-beach/ https://www.avalara.com/taxrates/en/state-rates/california/c... [6] https://www.avalara.com/taxrates/en/state-rates/california/cities/santa-monica/ https://www.avalara.com/taxrates/en/state-rates/california/c... [7] https://www.avalara.com/taxrates/en/state-rates/california/cities/san-francisco/ https://www.avalara.com/taxrates/en/state-rates/california/c... [8] http://www.cdtfa.ca.gov/industry/cannabis.htm#Started http://www.cdtfa.ca.gov/industry/cannabis.htm#Started [9] https://www.latimes.com/projects/la-me-weed-101-tax-location/ https://www.latimes.com/projects/la-me-weed-101-tax-location... [10] http://blog.margolinlawrence.com/all-about-california-cannabis-taxes http://blog.margolinlawrence.com/all-about-california-cannab...

itslennysfault 8y ago

Probably because it's been "legal" in CA for years. The "medical" cannabis was a joke. There were people on the beaches holding signs "$50 medical cannabis card". Being legal recreationally didn't really make it any more accessible. Anyone that wanted a medical card could get one in a few minutes.

Scoundreller 8y ago
Is the medical cannabis tax exempt?
- Rebelgecko 8y ago
  I believe its exempt from sales tax but not the various excise taxes
  - edoceo 8y ago
    These taxes which apply vary from region to region, in USA each state has unique rules
jaxn 8y ago
Except that you had to have a California drivers license. Marijuana tourism seems to be a big thing in CO.
- alexanderwept 8y ago
  Not true, I found an online doctor who offered California medical marijuana recommendations at $39/pop 'or your money back' - and I got one while passing through San Francisco for a conference. At the time I was a resident of another State and the doctor even shipped my official medical recommendation to my home state.
- scythe 8y ago
  You didn't need a CA license, just an address. I actually got my card the day after I moved in to my apartment. (In my defense, I have scoliosis.)

aphextron 8y ago

It all comes down to local control of licensing. To even operate a 100% mobile business, you have to be licensed out of a specific city. This involves all the associated cronyism, NIMBYism, and the like which goes along with local politics, and grinds the whole system to a halt. We need to adopt a statewide system like Oregon or there will be no room for smaller distributors left and we will be stuck with monopolized pricing.

nine_k 8y ago
Some may see high monopolized prices and having to jump through hoops as "fair": that is, cannabis use is not "good" and thus should not be made easy or cheap. See alcohol and tobacco. IDK if this mindset is widespread enough in California. But coincidentally such an approach does improve the bottom line of large / established sellers.
- bcOpus 8y ago
  Then those people are actively seeking to maintain the supremacy of the black market, despite decades of evidence as to the inability of such measures to reduce consumption. Maybe people who have such ignorant and baseless beliefs shouldn’t be heeded.
  - noobiemcfoob 8y ago
    Yeah, but they don't and won't see it that way. The people with these types of reactions seem to think things go away when you make them illegal (probably aided by them having never actually seen the problem firsthand anyway). You can choose to heed their views or not, but they still get to vote the same as you.
- Nasrudith 8y ago
  Ah the classic baptists and bootleggers connection - making things worse for everyone except them.
wpietri 8y ago
I'm personally fine with local control, and despite the negative tone of this article, it all sounds pretty normal to me. I live in SF, where there are a variety of shops. The ones I walk by all seem clean, orderly, and well run. Certainly more so than some liquor stores I can think of. So I'm happy to have them as neighbors. That said, I understand why other cities would have been more reluctant to license. Not everybody needs or wants to be a pioneer. If we're still having the same problems 5 years out, I'll be more concerned. But personally, I'm a big fan of subsidiarity, the principle that decisions should be made as low down in the power structure as possible. [1] That different people are deciding differently right now is how we'll learn the best ways to do it. There's no urgent problem here that requires a centralized solution. [1] https://en.wikipedia.org/wiki/Subsidiarity https://en.wikipedia.org/wiki/Subsidiarity

MisterBastahrd 8y ago

Turns out that buying from your local dealer is cheaper than going to someone who had to jump through regulatory hoops. who knew?

rootusrootus 8y ago
Isn't that the issue, though? In places where legalization has gone smoothly (I have personal experience in Oregon), cannabis shops are a dime a dozen, weed is cheap, easy to find, and certainly better quality. There are over 10 shops within a 10 minute drive of me, I can go buy an ounce for $50.
donarb 8y ago
You mean the local dealer who doesn’t have any at the moment, doesn’t answer his phone, can’t get the good shit like he had last time and this batch costs more but weighs less? Like 7-11, you’re paying for convenience and being able to get the exact same potent batch for the same price every time.

RcouF1uZ4gsC 8y ago

Another big issue might be the financial industry. Marijuana is still illegal at the Federal level so banks might be reticent to get involved with providing loans or services to these businesses. Without access to credit and banking services, a lot of people who might otherwise go into business, won't.

xyhopguy 8y ago
Didn't stop Oregon. We've got 5x as many dispensaries as California and wayyyyyyyy less people. Oh and the prices are like 75% lower.
chiph 8y ago
A former coworker's brother-in-law ran into this. He was a finance officer and got laid-off back during the Great Recession. He found a position as the CFO of a dispensary, and one of the first problems he had to address was employees doing cash pickups from the stores using their personal cars. So there were people moving $20k+ daily in their Toyotas (not especially safe!) So he called some of the armored car firms to inquire about hiring them, and they all turned him down flat because they didn't want the chance of his cash getting intermingled with that of Wells Fargo, etc. What he did was set up a wholly-owned subsidiary to do the transport, buying a couple of armored cars to move both the money and the product.

dclaw 8y ago

Yeah, well that's what happens when you let local cities/counties shit all over it, and have the laws/regulations written by the alcohol and tobacco lobbies.

KingMachiavelli 8y ago

For perspective Colorado has 549 retail establishments and 574 medical establishments (although many overlap) while having ~3/20 the population of California. While obviously Colorado has had retail cannabis since 2012/13, both states have areas strongly for and strongly against legalization. Considering that the cities that do allow rec cannabis include Los Angeles, Oakland, San Francisco and San Diego, the number of retail establishments seems very low even if they were limited to only these cities. Whats interesting is that California's licensing is done through their Food and Agriculture Department while Colorado's is done through the Department of Revenue.

jngreenlee 8y ago
Reporter from CO here. I think this is the crux of the matter. If the points about a strong underground market in the article are true, it's (IMO) due to a weakened attempt at decriminalization. Very much like bittorrents before netflix/prime were widely available with large catalogs. Here in Sunny CO, the prop was a Constitutional Amendment, guaranteeing the right of each state citizen to grow and possess their own Marijuana, which lead to sales. -Only two cities (Colorado Springs and a mountain town IDK)- created local exemptions against retail sales. They are now suffering with badly damaged roads and limited tax revenues to fix them, compared to cities right next door that capture all the sales. Hampered decriminalization does not rid us of the black market. The [THC] black market is _gone_ in CO because who needs it? Questionable products, limited availability, difficult logistics...no, you go to the local store and five minutes later can be higher than 5280'. EDIT: As CP says, there were more than two cities banning sales. Actually a lot more than I knew. I'll stand by my conclusion though. The full list is here: http://webcache.googleusercontent.com/search?q=cache:11yRzRkVAJgJ:www.cml.org/rmj-action-visual/+&cd=1&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:11yRzRk...
- bigfartchili 8y ago
  There are a lot more cities than Colorado Springs that don’t allow retail including many of the surrounding Denver cities.

obilgic 8y ago

Author, have you seen MedMen?

0x4d464d48 8y ago

Maybe this article overstated things and someone will clear it up in the comments but that was painful to read. I live in Vancouver and weed's been officially legal throughout the Canada for several weeks now. It's still relatively new but nothing noticeable has changed aside from fewer people discussing such a frivilous and previously mishandled issue. It's not perfect but far, far, far better than strict prohibition with draconian sentencing laws. What bothers me the most about this story is how marijuana is supposedly 'legal' yet some locals seem Hell-bent on treating it like an illegal and necessarily dangerous. Instead of vocferiously refusing shops to open in a municipality you'd think the free market would be enough to determine where there's not enough demand for a product. I guess if some people prefer being judgemental and pious to actually getting a handle on social issues that's their prerogative. It's a frustrating position to reason against, in fact that almost never enters the equation, but it sure seems to resonate with a lot of people.

jaggederest 8y ago
A lot of the concern is essentially about the precedent it sets. If you start questioning the logic of criminalizing cannabis, what's next on the list? That's the fear driving a lot of the reactionary opposition to a lot of things these days, and I think especially in the tech industry we have to remember that a lot of people don't have our appetite for risk. Personally I think we as a society have demonstrated a considerable capacity for adaptation, so there's little to worry about, but my extended family certainly disagrees. There are a lot of other linked issues that operate similarly and it's a bit of a tragedy.
- 0x4d464d48 8y ago
  "A lot of the concern is essentially about the precedent it sets. If you start questioning the logic of criminalizing cannabis, what's next on the list?" Plus ça change, plus c'est la même chose. It's ironic that for so many Americans the idea that people should be allowed to make their own choices would be such a tough sell...
  - jrace 8y ago

cbanek 8y ago

The other factor not talked about is that in general the prices seem to be going down due to a lot of supply (both on the retail/licensed market, and the grey/black market). About ten years ago, a really good pound (in bulk) could go for $3k-$4k to a dispensary. Now the high end seems to have fallen out and you're maybe lucky to get half of that. I think a lot of people ran their business plan numbers where they were, but now that there's a lot more supply, just the raw numbers are going down. There's also a lot more low quality product on the market, which pushes down prices on higher quality things slowly. And yes, the licensing, taxes, and testing are just insult to injury on top of that. Overall I think it's a good thing though. Since real medical patients never get their pot on medical insurance, the reduction in cost really helps consumers. Source: anecdotal data from friends that were in the industry, and prices at Harborside back in "the day."

akira2501 8y ago
> Now the high end seems to have fallen out and you're maybe lucky to get half of that. Barely. I do lots of work with growers.. the sweet spot for a pound these days is $600 to $850, depending on quality. On top of that, transaction volumes are increasing too.. before you could make a deal on a handfull of pounds, now purchasers are interested in buying a "box" or a hundred pounds at a time.
treis 8y ago
>could go for $3k-$4k to a dispensary. Now the high end seems to have fallen out and you're maybe lucky to get half of that. For comparison, bulk price of tobacco is a few bucks a pound. Admittedly I am not an expert in marijuana vs tobacco cultivation, but I doubt it's 1,000 times more expensive. Ultimately, the problem with profiting in a legal marijuana industry is that people simply don't smoke that much pot. Say that there's 260 million adults in the US and they all smoke 1 joint per day. Assuming: 1 joint = 1 g of marijuana 1 lb = 454g 1 acre can yield 600 lbs of marijuana 1 farm is 1000 acres If you do the math, that means we need roughly 350 farms worth of marijuana. Or in terms of acreage, roughly 0.04% of all the acreage in the U.S. under cultivation. In other words, even if we assume a ridiculous level of smoking there's simply not a huge demand for pot. Using more realistic amounts, a handful of large farms could produce all the marijuana consumed in the country.

simplecomplex 8y ago

Marijuana policy is the epitome of broken American politics. Obsession with money and morality, racism and ignorance driving policy, a tiny minority out-of-touch with what they’re regulating writing the legislation, business regulations that are designed for business not people, and on and on.

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newnewpdro 8y ago

My personal issue with how legal pot has played out is I have no interest in becoming a patron of these lifestyle shops for a variety of reasons. I also don't want my ID to be scanned for buying something still federally illegal. If I could occasionally buy marijuana products at the grocery store as part of my normal shopping, no different than my occasional purchase of whiskey or wine, then I would have at least bought legal weed a few times since it was legalized here in CA. Even if it were relatively expensive. Instead, today I'm far more likely to either not acquire any marijuana products at all (it's been years already) or buy some from the guy on the street who might also have shrooms.

swebs 8y ago
You could just have a friend get it for you from the store. Who the hell knows what's in the stuff off the street corner or who's blood had to be spilled to get it to you.
- robdachshund 8y ago
  Its pot, not crack. There's nothing to gain from tainting it. Most of the black market stuff comes from legal states too.
donarb 8y ago
In Washington you have to show ID to prove you’re over 21, but nothing is scanned.
- rcw4256 8y ago
  The law doesn't require retailers to scan IDs, but many of them do, in my experience.
  - edoceo 8y ago
    Yep, these scans are a forcing function to prevent underage sales, many POS have this feature, maybe even tied to a loyalty program

suff 8y ago

Why is California perpetually mystified that more government means less service? Because, it is hard for people to understand something when their paycheck depends on them not understanding it.

deleted 8y ago

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DigiMortality 8y ago

The government of California is extremely inefficient, no surprises. Glad I left CA I'm in Colorado now (I'm from NY originally) CO did it right, but like someone said above - CO Springs was against it (pretty conservative, military area)and are now suffering the consequences of not doing so, worse roads, worse everything... And hey, I'm pretty conservative myself and I live in Boulder. Boulder is wrong about other things though, like thinking they can ban AR-15's

fetus8 8y ago
I hate to break it to you, but Colorado Springs has been worse in most ways, roads and otherwise, long before recreational/medical weed was legalized. They've had issues with crime and meth, for a very long time as well.
- jngreenlee 8y ago
  Yeah but it sucks to sit there and watch Manitou Springs get rich fast. CS city council is trying now to undo that choice. CS is weird and beautiful in its own ways, and I would only live there now for the mountain access (far better than 95% of Denver metro).
- FlyMoreRockets 8y ago
  From what I understand, Colorado Springs has tried to make an industry out of churches. Unfortunately for the town, churches don't pay taxes for things like roads.
scythe 8y ago
IIRC Colorado Springs had some other... interesting policy choices unrelated to marijuana: https://www.politico.com/magazine/story/2017/06/30/colorado-springs-libertarian-experiment-america-215313 https://www.politico.com/magazine/story/2017/06/30/colorado-...

cyberpunk0 8y ago

Maybe stop trying to industrialize everything

DoofusOfDeath 8y ago

Honest question: Why do newspapers, NPR, etc. often refer to pot possession / sales as being legal in California and some other states, when they're clearly illegal under federal law? There are numerous other behaviors that IIUC are illegal under U.S. federal law but are not proscribed by California law, including: aircraft hijacking, carjacking, credit card fraud, and possession of destructive devices such as missiles and poison-gas weapons. And yet I don't hear those same news sources referring to carjacking, etc. as being legal in California. The cynic in my suspects that those news organizations are intentionally choosing language to push their own agendas, but maybe I'm totally missing something here.

Rumudiez 8y ago
It is explicitly legal in WA, CO, CA and others. Those states have successfully passed laws to this effect. Because the feds don’t/can’t enforce the federal laws prohibiting cannabis on residents of those states, it is for all intents and purposes legal, no scare-quotes required.
fjp 8y ago
Because California passed bills clearly delineating how, where, and in what quantities pot growing and selling can be done. The state issues licenses. In America, this is federalism at work. States can choose to do things that the federal government explicitly does not allow, and states can choose to not do things that the federal government explicitly tells it to do. When there is enough of a conflict, it gets resolved by the courts. In this case, the federal government has just chosen not to dedicate resources to cracking down on California's pot industry. California still welcomes the DEA's efforts in CA to crack down on other things, such as pot coming in from Mexico and harder drugs being trafficked.
- masonic 8y ago
  States can choose to do things that the federal government explicitly does not allow Not true at all. Take slavery, for one obvious example.
  - 8y ago

Animats 8y ago

The farming side is even funnier. The old-line potheads who are used to hiding, high margins, and inefficient farming are being pushed out by Central Valley farmers who look at it as just another cash crop.

MisterOctober 8y ago
Fact. What used to be junkyards and chop shops in South Phoenix [AZ] is now filled with state-of-the-art indoor horticultural installations producing this stuff at an industrial scale.

johan_larson 8y ago

I'm guessing investors are leery of funding expansion in an industry that is still illegal under federal law. The businesses themselves also have all sorts of trouble because banks don't want to deal with them.

sonnyblarney 8y ago

The market was already functioning - now with taxes, regulations, overhead ... who wants to have to find a new supplier and pay for all of that? There may be real competition between the black market and over the counter market that will play out, particularly if the former networks are already well established. The regulations and controls on advertising are fairly strong here, for 'vaping' in Quebec for example, windows have to be covered, and there can hardly be any wording on the signage. No advertising, no way to get the word out. Now - for a very heavily established industry, with a very addictive product like smoking ... they can still thrive. But for a relatively new and established industry, we'll be able to see just how powerful advertising, branding, sponsorships really are in terms of influencing behaviour.

dgzl 8y ago

> Retailers and growers say they’ve been stunted by complex regulations, high taxes I can't say I'm surprised. As someone who grew up on the Oregon border of California on i5, locals here complain about California's influence on the local economy and politics. (E.g. buying expensive land, driving taxes up) However in Oregon, I believe our problem is with oversaturation of the market. From what I understand (not rehearsed in the subject), we literally have to give the stuff away because there's so much. For anyone who knows/cares, it's not unheard of for places to sell quality marijuana for as low as $48/ounce, which is very cheap.

stupidbird 8y ago
For comparison, you can easily pay $500/oz on the east coast.
- burfog 8y ago
  Dear my. Have you considered smoking saffron, truffles, beluga caviar, or Hewlett-Packard color inkjet cartridges? You're paying 2 to 10 times as much.
verbify 8y ago
> it's not unheard of for places to sell quality marijuana for as low as $48/ounce, which is very cheap When I look at other dried herbs on amazon, they're much cheaper. E.g. thyme is about $10 for 12 ounces, oregano is $13 for 5 ounces. Weed obviously has higher taxes, more regulation and I presume a smaller market (most people consume culinary herbs as part of their diet, not everybody consumes weed). But I'd expect the price to come down once the regulations disappear.
- ficklepickle 8y ago
  First off, marijuana is a flower, not an herb. Second off, much work goes into developing and stabilising a strain. Thirdly, high quality MJ is grown indoors, with artificial lighting. Fourthly, it requires a curing process.

Tsubasachan 8y ago

One of the most hilariously stupid arguments against legalisation of drugs is that it makes everyone into a junkie. Fact is most people don't do drugs, even if you can buy it in the supermarket.

bdhess 8y ago
I suppose you’re excluding alcohol from that pronouncement?
- Vadoff 8y ago
  And caffeine
- xoa 8y ago
  Your question really made me curious so I looked it up, the NIH keeps extensive records about this sort of thing. This is America only of course, which looks to be in the top third or so worldwide based on the WHO lists ("Western" countries or those with colonization history there and Russia seem to be higher then southern Asian and African countries in general). But in America while a majority use it, it's still lower then I actually expected digging into the definitions. In the surveys apparently 56% of Americans reported consuming alcohol, any whatsoever, in the previous month, 70% in the previous year, and 86% tried it at some point in their lifetimes. But it's hard to see "tried once in their life" or even "a few times a year" as really falling in an equivalent "junkie" category, so I looked for "heavy drinking" which they defined as "4-5 or more drinks in 2 hours" a few days in a month, where a "drink" is a standardized measurement of ~14 grams of pure alcohol, equivalent to a single 12 oz 5% beer = 5 oz of 12% wine = 1.5 oz of 40% spirits (etc, whatever the percentage is). Just 7% of Americans reported heavy drinking in the previous month. Alcohol is regulated and taxed, but even so beer & wine at least is pretty trivial for adults to legally acquire in most of the country and relatively cheap spirits (like very low quality vodka) as well. I don't at all want to understate the harm of alcohol abuse, it's very real (and of course can extend beyond drinkers themselves due to their actions). Even so it seems like "make everyone into a junkie" would not be borne out by legalized alcohol. Based on popular culture it's easy to assume drinking is more prevalent to a higher degree then it is, at least personally I would not have guessed that heavy drinking was only single digit percentages here. It looks like, as in other areas, there is a strongly non-linear curve function in the population where relatively small percentages form an inordinate part of consumption. If that's the case for marijuana as well then it'd suggest we could get far more efficient harm reduction by general legalization focusing limited resources on that smaller slice?

mlindner 8y ago

Miraculously over-regulation causes supply shortages. I'm surprised this is even news.

ryanmercer 8y ago

Well, when you can't deposit your money into a bank without fear of it being seized by the federal government. Can't take credit cards. Can't take debit cards. Can get loans from financial institutions to expand your business. Have trouble finding landlords willing to lease to you because they don't want their doors breached by federal agents.

purplezooey 8y ago

Yet another thing the local, baby-boomer, middle aged home owning people bring us. Voting down all development. Banning cannabis shops. Prop 13. They vote in large percentages and have shaped the Bay area in a big way.

masonic 8y ago
Nobody under the age of 58.5 can possibly have voted for Prop 13. Few below 70 would have had any incentive to.

m3kw9 8y ago

It ain’t taking off because is still quite tabu to smoke that stuff. You won’t really see that at a family party unlike alcohol. The main reason is because that shit affects children when you puff it out and stink it up for people that doesn’t want it.

HNLogInShit 8y ago

Fuck off, L.A. Times.

mirimir 8y ago

Well, for the most part, that's because "legal pot sales California" aren't actually legal.

datavirtue 8y ago

Federal laws are also suppressing the industry. If employees are drug tested and sanctioned according to federal workers compensation laws the market will always be paltry.