When Californians voted in 2016 to allow the sale of recreational marijuana, advocates of the move envisioned thousands of pot shops and cannabis farms obtaining state licenses, making the drug easily available to all adults within a short drive.

But as the first year of licensed sales comes to a close, California’s legal market hasn’t performed as state officials and the cannabis industry had hoped. Retailers and growers say they’ve been stunted by complex regulations, high taxes and decisions by most cities to ban cannabis shops. At the same time, many residents are going to city halls and courts to fight pot businesses they see as nuisances, and police chiefs are raising concerns about crime triggered by the marijuana trade.

Gov.-elect Gavin Newsom, who played a large role in the legalization of cannabis, will inherit the numerous challenges when he takes office in January as legislators hope to send him a raft of bills next year to provide banking for the pot industry, ease the tax burden on retailers and crack down on sales to minors.

“The cannabis industry is being choked by California’s penchant for over-regulation,” said Dale Gieringer, director of California NORML, a pro-legalization group. “It’s impossible to solve all of the problems without a drastic rewrite of the law, which is not in the cards for the foreseeable future.”

After voters legalized marijuana two years ago under Proposition 64, state officials estimated in there would be as many as 6,000 cannabis shops licensed in the first few years. But the state Bureau of Cannabis Control has issued just 547 temporary and annual licenses to marijuana retail stores and dispensaries. Some 1,790 stores and dispensaries were paying taxes on medicinal pot sales before licenses were required starting Jan. 1.

(Los Angeles Times)

State officials also predicted that legal cannabis would eventually bring in up to $1 billion in revenue a year. But with many cities banning pot sales, tax revenue is falling far short of estimates. Based on taxes collected since Jan. 1, the state is expected to bring in $471 million in revenue this fiscal year — much less than the $630 million projected in Gov. Jerry Brown’s budget.

“I think we all wish we could license more businesses, but our system is based on dual licensing and local control,” said Alex Traverso, a spokesman for the state Bureau of Cannabis Control, referring to the requirement that cannabis businesses get permission from the state and the city in which they want to operate.

Less than 20% of cities in California — 89 of 482 — allow retail shops to sell cannabis for recreational use, according to the California Cannabis Industry Assn. Cities that allow cannabis sales include Los Angeles, Oakland, San Francisco and San Diego.

Eighty-two of Los Angeles County’s 88 cities prohibit retail sales of recreational marijuana, including the City of Inglewood, according to Alexa Halloran, an attorney specializing in cannabis law for the firm Solomon, Saltsman & Jamieson. Pot shops are not allowed in cities including Burbank, Manhattan Beach, Alhambra, Beverly Hills, Inglewood, Compton, Redondo Beach, El Monte, Rancho Palos Verdes and Calabasas.

 

California has also issued fewer cultivation licenses than expected in the first year of legalization, with about 2,160 growers registered with the state; an estimated 50,000 commercial cannabis cultivation operations existed before Proposition 64, according to the California Growers Assn. Some have given up growing pot, but many others are continuing to operate illegally.

The trade group hoped to see at least 5,000 commercial growers licensed in the first year, said Hezekiah Allen, the group’s former executive director who is now chairman of Emerald Grown, a cooperative of 130 licensed cultivators.

The legalization of recreational pot has also created tension in areas of the state where cannabis growers are operating close to residents.

Meanwhile, despite concerns from law enforcement, the state is finalizing a proposal to allow deliveries throughout California — including in cities that ban retail stores. The new rule by Lori Ajax, chief of the state Bureau of Cannabis Control, is expected to be implemented in January.

Ajax says she believes that as the system is refined and is shown to operate successfully in some cities, other local governments will allow retail pot sales. But opponents of pot legalization, including Kevin Sabet, president of Smart Approaches to Marijuana, are happy that most cities are saying “no” to selling the drug.

“The residents of Compton and these other cities have seen the ills that come with allowing marijuana in the door,” Sabet said, “including skyrocketing drugged driving; the promise, then failure of social justice; and the targeting of children through the use of colorful and deceptive candies, gummies and sodas.”

Another problem hampering the legal market is a lack of banking for cannabis businesses. Federally regulated banks are reluctant to handle cash from pot, which remains an illegal drug under federal law.

“Banking continues to be an issue in terms of creating a real public safety problem with significant amounts of cash being moved for transactions,” said Bonta, who co-wrote a bill this year that would have created a state-sanctioned bank to handle money from pot sellers. It failed to pass after legislative analysts said the proposal faced “significant obstacles,” including no protection from federal law enforcement.

But Ajax, the state pot czar, says her agency has had a productive first year, issuing initial licenses, refining the rules and stepping up action against unlicensed operations, including partnering with the Los Angeles Police Department to seize $2 million worth of marijuana products from an unlicensed shop in Sylmar in October.

“I am optimistic about the coming year, where our focus will be primarily on getting more businesses licensed and increasing enforcement efforts on the illegal market,” Ajax said.

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