Discussion in 'Cannabis News and Activism' started by Magic9, Mar 25, 2016.
The answer is simple.
Legal weed must be cheaper than illegal weed.
That is how you do it.
I voted for legal cannabis in my state. With the lawmakers trying to tax every aspect of our favorite flower its difficult for folks to make a profit. The medical patients were left out when all the decisions were made in my state. The positive is folks getting cannabis convictions taken off their records. I also don’t want kids taken away from their parents due to cannabis.
People still get busted for illegal growing and selling where I live. It needs to be legal period, without all the hoops and extra money folks have to pay.
Folks in CA are going bankrupt with all the laws associated with growing. Corporations are starting to take things over.
I was hoping California could show the rest of the states how to do things right. From what I read and hear it doesn’t sound like it.
I’m for legal cannabis but there needs to be reasonable taxes and less regulations. They need to do it right. It’s too difficult for those trying to stay in business having to compete with illegal operations.
I’ve been a cannabis user for 35+ years. I’ve gone from buying illegal to medical, now it’s legal.
Be careful what you wish for - it’s voting and assuming the laws will be one way, that the medical patients would be provided for then find out quite the opposite. The medical patients can’t find edibles at a an affordable price. If they have plenty of money there’s no problem.
I remember California FC members debating whether or not the legal cannabis would benefit them more than the medical. Some voted no because they worried it would screw their awesome system for medical in CA. I wouldn’t begrudge anyone of cannabis, it should be legal for everyone without excessive taxes and idiotic regulations.
While a bit less idiotic, it certainly could have gone under weird news category instead. I didn't read the actual decision yet so it may be a bit less weird, but...weird. (Edit: Read it. It seems a CA appellate court simply followed the law rather than make up new law to prevent an absurd result. That alone is more weird than the decision's result.) Kinda like my dog bringing me a toy when I get home. I can look at it, but I can't touch it.
California prisoners can possess pot but not consume it, appeals court rules
SACRAMENTO — California inmates can now possess marijuana without facing legal consequences from the state as long as they don’t consume it, thanks to a new appeals court ruling.
The 3rd District Court of Appeal overturned criminal convictions of five Sacramento defendants who had been caught with marijuana in their prison cells. The 20-page ruling says, “Consumption, not possession, is the act voters determined should remain criminalized if the user is in prison.”
The reason? The authors of California Proposition 64 — which voters passed in 2016 allowing recreational marijuana use — did not write in anything that outlaws marijuana possession for incarcerated folks, the court ruled.
But the ruling comes with a major caveat: Consumption of marijuana by California prisoners remains a violation of the state penal code, and possession can still be punished as a rule violation by the California Department of Corrections. But if inmates wants to keep a jar of weed next to their bunk, the district attorney can’t file charges, according to the ruling.
“The question of law we review de novo is whether the plain language of the statute leads to an absurd result. We conclude it does not,” the appeals court judges wrote in their decision. “A result is not absurd because the outcome may be unwise.”
The attorney general’s office could appeal the decision to the California Supreme Court.
But even if California inmates are free from state-level prosecution, there are still consequences for possessing marijuana: Prisoners can get in administrative trouble for it, which could result in good behavior credits revoked or even time in segregated housing.
Smuggling marijuana into prisons, and smoking, eating or otherwise consuming it remains a crime. And of course, prisoners could open themselves up to federal prosecution by possessing it.“It may be legal, but you can still ban it. Cellphones are legal. Pornographic images are legal. You can’t have either one in prison,” Lafayette attorney Dan Horowitz said.
Horowitz joked that the ruling, “may make Saturday night movies at low-security prisons much more entertaining,” but added there was a more serious issue at play: the fact the consequences for marijuana possession have become so drastically different throughout the United States. While Californians are toking it up, people in some other states can be convicted of a felony for the same conduct.
“I have a client who’s facing life in prison for allegedly shipping marijuana to Missouri, yet California inmates can have it in their prison cells. It’s insane,” he said.
It may be beginning to dawn on the minds of those looking for that sweet, sweet cash from recreational sales that things will have to change or else the experiment will fail as the government uses ever increasing resources to do the same thing they used to do; arrest people associated with pot.
Six Ways California Can Combat the Cannabis Illict Market
California’s illicit market for cannabis is booming—not just out in remote grows deep in the wilderness, but also in delivery and even brick-and-mortal retail stores in big cities all over the state. Our California cannabis attorneys regularly receive questions from licensed cannabis companies about what they can do to stay competitive in the face of unlawful operators who charge lower prices and operate (sometimes) 24 hours a day, seven days a week. There isn’t always a clear or easy answer since the illicit market is so rampant and even state and local authorities are having a hard time eradicating it.
When it comes to tamping down the illicit market, there is often little that legitimate, licensed cannabis companies can do besides out-market and sell a higher quality product. Instead, the ball is largely in the state’s court. And to date, the state has not really made a noticeable dent in that illicit market.Unlicensed cannabis is still pervasive.
This may lie in the fact that the state’s biggest (and sometimes only) method to combat the illicit market is through enforcement of cannabis laws rather than using the legislature to deal with certain illicit-market problems (though, to be sure, there have been some attempts which I’ll get into below). In fact, trade groups in the City of Los Angeles are threatening to sue the city for not enforcing against local operators enough. This is a tricky issue, and it’s not always so clear. The limited resources at the state and local level mean that there is only so much enforcement that government agencies can do, and enforcement alone is not likely to do anything unless the cities and state can better incentivize lawful operations.
The biggest problem with enforcement over legislation is that it’s not a whole lot different from the prohibition era. Shutting down illegal pot shops is sort of like a game of whack-a-mole, which doesn’t get to the root of the problem. Creating comprehensive legislation that makes sales easier for licensed operators and eliminates barriers to entry for new operators could reduce incentives and opportunities for illicit-market sales and make the lawful market more competitive. I’ll take a look at some ways the state could do that below.
#1 Allow More Licenses
It almost goes without saying that the number one way to tamp down the illicit market is to just allow more licenses. I’m not just referring to retail sales, but to all license types. The more licensed operations there are, the less of a likelihood that there will be illicit-market sales. As our Washington and Oregon cannabis lawyers can tell you, it’s harder for the illicit market to survive in a state with high supply and lower prices, and having more licensed cannabis companies is certainly a way to accomplish that.
As readers of this blog are likely aware, there was recently an effort under way in the state legislature to force certain cities to allow retail licenses if more than 50 percent of their populace voted in favor of legalizing adult-use cannabis a few years back (the bill was AB-1530, which I wrote about here). Unfortunately, in April, the bill failed to pass. It could be re-introduced, but that will probably take significant time and even then, it may not be likely to muster sufficient votes to ever become law.
The bottom line is that prohibition doesn’t defeat the illicit market. It didn’t for decades while cannabis was 100% illegal, and it won’t now in the regulated market. Cities that don’t allow lawful cannabis sales aren’t going to block pot from entering their limits, they are just going to miss out on taxable sales, permitting fees, and job creation, and ensure that criminal activity continues to proceed. Another possible remedy for these cities is to allow even delivery, but as I’ll talk about below, there is resistance to even that across the state.
#2 Allow More Deliveries
Allowing deliveries is perhaps the best compromise for cities that want to eliminate the illicit market but get queasy when it comes to the idea of having a pot shop on main street. Allowing deliveries from other cities that license delivery retailers is a win-win for cities like this. Cannabis will still be available, and they won’t have to deal with it head on.
But many cities, again, oppose this concept. In fact, more than 20 cities banded together earlier this year and sued the California Bureau of Cannabis Control when the Bureau passed a rule allowing pot deliveries into any jurisdiction in the state. So far, not much has happened with that lawsuit and it may be quite a while before it’s resolved. But the point is that cities here are doing everything in their power to resist this compromise, and the result may be a bigger illicit market.
#3 Speed Up the Licensing Process
Even if the state can’t force cities to accept permit applications just yet, it can expend additional resources on assisting current state licensees with their applications. Earlier this year, it was reported that businesses across the state were losing their licenses because certain state agencies couldn’t process them fast enough. Our California cannabis attorneys see the same thing—cannabis companies press on to file applications and the applications seem to just sit there for a long time. There are obvious budget issues and the agencies are clearly under a lot of pressure, but the state can act to better fund the agencies to ensure that they can process licenses more quickly.
It’s true that the state has now begun issuing provisional licenses more quickly, but those are currently only available for cannabis companies that once had temporary licenses (see this update from the BCC). In other words, for any cannabis company that didn’t get a temporary license in 2018 (they can no longer be issued), provisional licenses aren’t currently available, and those companies will have to sit in line for who knows how long.
If licenses aren’t issued and companies can’t operate, then the same problem that I identified in points 1 and 2 above exists. The illicit market will continue to flourish where there’s a lack of competition.
#4 Broaden Hours of Operation
Cannabis stores across the state have very restrictive permissible hours of operation. The Bureau of Cannabis Control allows retailers (including delivery drivers) to make sales only between 6 AM and 10 PM. Cities can’t allow broader sales, but many of them restrict those hours even further. This is a problem, when illicit sales are available 24/7. If a customer wants to purchase cannabis at 10:30 PM, they may just look to the illicit market rather than wait. There is no great reason for cutting sales off at 10 PM or earlier and expanding the permissible sales hours could reduce the illicit market.
#5 Lower Taxes
Probably one of the bigger reasons that the illicit market can survive is the price of cannabis. Illicit-market sellers probably aren’t paying taxes or charging sales tax, and therefore can charge much lower prices. Even taxes on cultivators here in California will ultimately drive up the price of cannabis sold at retail. So, California lawmakers introduced a bill recently to lower the excise tax and temporarily suspend the cultivation tax, but that bill effectively died last month. It looks like, for now, we’ll still have high taxes on cannabis here.
I know I said above that enforcement isn’t the answer to the illicit market, and that’s generally true. Enforcement alone will never be the solution to illicit-market sales, if there is also prohibition. We’ve already seen enforcement efforts across the state, but they’ve generally been few and far between and not too successful given the flourishing illicit market. Simply increasing them isn’t likely to do very much unless the state can ramp up its efforts to get more cannabis businesses licensed.
However, enforcement combined with active and broad licensing will be a way for states to eradicate the illicit market. If the state and local jurisdictions adopt policies that make it easier for a sufficient number of legitimate cannabis companies to survive and operate, while going after the companies that don’t follow the rules, that’s the best thing they can do to ensure the viability of the legal market.
Yea, that's it. "Nobody" is happy because cheaper, non-regulated pot is available to those who want it and there are not enough arrests of those selling it.
I guess the only ones who count are the "legal" sellers and those in the government seeking cannabis money.
Here’s why nobody is happy with the current state of the Los Angeles marijuana industry
Los Angeles marijuana czar Cat Packer did an impromptu Oprah Winfrey impersonation during an appearance at a Mendocino County retreat earlier this month when asked what she’d do with an unlimited budget and staff.
“Everyone would get licenses!” the director of the Los Angeles Department of Cannabis Regulation said with a smile, spurring the audience to giggle, cheer and clap.
“You get a license! You get a license! You get a license! Everyone would get licenses, and no one would get arrested.”
But the reality is, this is anything but a laughing matter for Los Angeles cannabis businesses.
To the California Minority Alliance (CMA), for instance, it’s an issue that rises to legal action.
The trade group announced plans to sue City Attorney Mike Feuer’s office, contending that South Central L.A. has been “ignored” when it comes to cracking down on unlicensed MJ shops.
The lawsuit’s filing isn’t far off, CMA President Donnie Anderson told Marijuana Business Daily last week, noting his organization has met with several “powerhouse” lawyers interested in taking the case.
“We’re declaring war,” Anderson said, adding that the CMA has the support of both Gov. Gavin Newsom’s and L.A. Police Chief Michael Moore.
Soon after the CMA telegraphed its legal plans, the Southern California Coalition (SCC) sent a separate, more conciliatory letter to Feuer’s office, suggesting a number of different enforcement tactics it hopes will be more successful in closing rogue marijuana shops that have been undercutting legal retailers.
“We feel like it’s the only avenue left,” SCC Executive Director Adam Spiker said with a tone of resignation.
Feuer’s office declined to comment on its “proprietorial decision making,” a spokesman wrote in an email to MJBizDaily and then referred to an April news release outlining Feuer’s efforts against the illicit MJ market.
Anderson and Spiker said they’ve received no response from Feuer’s office to their letters.
The CMA and SCC’s actions represent an industry at the end of its rope, having been frustrated since the 2017 passage of Proposition M, a local ballot measure that was supposed to set the stage for a new regulatory structure and usher in a new era for L.A. marijuana businesses.
But it hasn’t.
Instead, insiders such as Anderson spent tens of thousands of dollars trying to get into the legal market while watching helplessly as unlicensed shops continued to lure away customers with lower prices. The rogue shops don’t pay taxes or compliance costs.
It’s a story that’s been ongoing since California’s legal market launched in January 2018.
Some L.A. industry insiders said they don’t expect the two letters – or even CMA’s expected lawsuit – to have any effect on the illicit market.
One called the California Minority Alliance lawsuit an “empty threat” and said it’s the district attorney’s job, not the city attorney’s, to charge criminals with felonies, as the Southern California Coalition suggested.
“Everybody is at the same point … where we’re at a boiling point,” said Avis Bulbulyan, CEO of Siva Enterprises, a marijuana consultancy.
Increased enforcement on the horizon?
There may be reason to hope that matters will improve, said Jerred Kiloh, president of the United Cannabis Business Association and operator of The Higher Path, one of L.A.’s 182 licensed retailers.
That’s because Feuer’s office is – for the first time – pursuing a civil case against one of the more “egregious” rogue shops, Kush Club 20, which Feuer’s office targeted in a lawsuit filed in April.
So far, that’s the only known case of the city attorney attempting to use a $20,000-a-day fine against an unlicensed MJ retailer.
But it may not be the last, Kiloh said, because the city has to see what kind of ruling it can get.
“Let’s say this court case, which is a slam dunk, you get a judge who (fines Kush Club 20) $10,000, and the city attorney goes, ‘We just spent $70,000 and a jury trial and the LAPD and the SWAT team and lab testing for product, and we got $10,000 in return?’
“So, they’re waiting to see the (return on investment),” Kiloh said.
“We’re all waiting for that.”
Kiloh hopes authorities make an example of Kush Club 20, which could lead to more actions.
Bulbulyan, meanwhile, said he’s heard a big sweep of raids against illegal operators is in the works, with federal, state and local law enforcement agencies combining their efforts for a major crackdown on the illicit market.
“With all the frustration that’s been building up, all the ‘Whac-a-Mole’ enforcement, I think it’s gotten to a point not too different from what we saw in Anza (Valley),” Bulbulyan said, referring to a multiagency raid earlier this month on unlicensed MJ farms in that Southern California region.
Though Anderson, Kiloh and others agree there has been progress in L.A., stakeholders would prefer more.
Packer’s DCR has issued 111 temporary approvals for Phase 2 nonretail business license applicants, as well as 186 retailers that received permits under Phase 1.
But Phase 3 – when more social equity permits will be granted and licensing will also open for the general public – won’t begin until at least September, a DCR spokeswoman wrote in an email to MJBizDaily. And there’s talk the timeline could be pushed further.
Once Phase 3 launches, Packer expects to hit an “undue concentration” limit for licenses that will automatically put a cap on permits.
Packer believes that will happen in the coming fiscal year, which means there likely won’t be room in L.A. for everyone who wants a marijuana business license.
John Schroyer can be reached at email@example.com
Government: We have top men working on it now.
Government: Top. Men.
How can the Great State of California fight the scourge of cheap and plentiful cannabis?
Run an ad campaign!
Get ready to be #weedwise that will encourage those who are wise in the ways of weed and who want to help out The Man to check on if their purchase was from a licensed shop. They'll provide a tool at CApotcheck.com where you can check to see if a shop has its license.
The ads will all revolve around the theme, "You don't know what you're getting if you buy illegal products."
Of course, this is just one leg of the stool which will include increased enforcement on "illegal" shops and a speeding up of the licensing process.
There is little doubt in my mind as of if the Top Men have found the answer to how badly the state's regulatory regime is failing. Top. Men.
bet that pot check website conveniently compiles data for the cannabis task forces to decide which shops to raid first...
Too true. Except, there will be an app for that.
On Tuesday, Spain's premier soccer league, La Liga, was hit with a 250,000-euro fine — about $280,000 — for using its mobile phone app to spy on millions of fans as part of a ploy to catch venues showing unlicensed broadcasts of professional matches.
The country's data protection agency said the league's app, which was marketed as a tool to track game scores, schedules, player rankings and other news, was also systematically accessing phones' microphones and geolocation data to listen in on people's surroundings during matches. When it detected that users were in bars, the app would record audio — much like Shazam — to determine if a game was being illegally shown at the venue...
Yet another way the market is skewed with heavy regulations:
A growing trend among California cannabis retailers to charge brands for shelf space – and, thus, access to customers – has some in the industry decrying the practice as “pay-to-play” that threatens to crowd out smaller companies from the market.
According to several industry sources, the practice first cropped up in early 2018 and quickly caught on among California retailers, many of whom are desperate for any income stream because the illicit market is undercutting legal shops.
Some retailers in San Diego and Los Angeles, according to several sources, are asking anywhere from $1,000 to $50,000 a month from brands, depending on how much shelf space they want and in how many stores.
The most common fee request identified by sources was an average of $5,000-$10,000 a month for prime real estate inside shops, with the highest fees reserved for space in retail chains with multiple storefronts.
“We first encountered it last summer,” said Karli Warner, co-founder of Garden Society, a boutique edibles and pre-roll brand based in Sonoma County. “Over the last year, it’s really taken off.”
Warner said her company can’t afford to pay thousands of dollars a month to get their product into Southern California shops, where such fees are more common than in Northern California.
Warner noted the trend is tilting the playing field in favor of larger companies attempting to buy up as much market share and brand loyalty as possible, while smaller companies like hers are limited to shops that don’t charge such fees.
“In a new burgeoning industry, the fact that there’s already this sort of creep of brands that are able to pay these high prices to buy shelf space – it’s setting the industry up for bad business practices,” Warner said.
“It’s going to be the demise of the craft brand, frankly.”
Known in other industries as “slotting fees,” the practice is common in mainstream grocery and department stores but is largely banned in the liquor industry. It remains a gray area under California cannabis law.
“In about 10 years of practice, this is the first time I’ve seen this crop up, and crop up so voluminously,” said Hilary Bricken, a Los Angeles marijuana attorney who wrote a blog post about the practice in December because she had clients who were negotiating slotting fees.
Several cannabis manufacturers suggested to Marijuana Business Daily the practice could be illegal under state law that prohibits unfair business practices. (See code citations here and here.) But Bricken said there’s no clear-cut answer.
Rather, the legality of slotting fees will likely have to be determined on a case-by-case basis, given how vague California state law is around anti-competitive marijuana business practices, she said.
Cannabis industry attorney Khurshid Khoja also noted that California liquor laws prohibit slotting fees and pointed out that one of the state’s top marijuana regulators, Bureau of Cannabis Control chief Lori Ajax, previously was a deputy with the Department of Alcohol Beverage Control.
A primary question with regard to slotting fees could be whether California wants to pattern its marijuana regulations after either the grocery or liquor models, Khoja said.
“It’s likely a ripe issue” for litigation or regulation, Khoja said.
Alex Traverso, a spokesman for the Bureau of Cannabis Control, wrote in an email to MJBizDaily that his agency “hasn’t heard much about this,” and none of the industry sources for this story said they had filed complaints with regulators over the practice.
Bricken, however, said she believes it’ll take a lawsuit to get some legal clarity for cannabis companies when it comes to slotting fees.
However, neither she nor Khoja expect a suit anytime soon because of the hefty legal fees it would take to support such a case. And the stakeholders hit hardest by the slotting fee practice are small companies that are already struggling financially.
Cost of doing business?
Though multiple executives in the California supply chain slammed the practice as a “cash grab” or “pay-to-play,” others defended it and said it’s just part of doing business.
“This was always going to happen. I don’t see this as retailers gouging their manufacturers or their product providers,” said Adrian Sedlin, the CEO of Canndescent, a large-scale cultivator in Southern California. “You don’t think Procter & Gamble isn’t paying for shelf space?”
Sedlin said the cost of paying for shelf space is built into his company’s marketing budget, and the hurdle for other companies is to calculate the return on investment from slotting fees.
Jerred Kiloh, the owner of The Higher Path in Los Angeles, also said he charges some brands $1,000 a month for space in his shop, and a big motivator for his retail colleagues is financial survival.
“The parity between legal and illegal is so far apart that we don’t have a way to compete with these illicit retailers, so if brands are trying to get their products to the top of the shelf, that’s a business decision,” Kiloh said.
Kiloh and others also said the practice began last year when some manufacturers started offering payments to retailers in exchange for the best real estate inside shops.
“It’s not like retailers created this trend. The manufacturers and the brands did. And I think it’s trickling down to brands that can’t necessarily afford it,” he said.
Bryce Berryessa, who sees both sides of the issue as both a manufacturer and retailer in Santa Cruz, said his shop also tacks on slotting fees, but he maintains it’s not hard to structure such agreements in ways that bolster marketing and brand exposure for small companies.
“If it’s not a win-win, if they have generated more sales and revenue through the shop in the program, we failed them,” Berryessa said. He also said some retailers have definitely adopted “predatory” slotting fees.
But Chris Coulombe, CEO of Santa Rosa-based distributor Pacific Expeditors, predicted “a large-scale problem in the industry if it continues.”
“Now it’s a capital arms race,” he said. “Whoever can buy the most space for the longest period of time, they can effectively choke out the smaller brands who are not as well capitalized and deny access to other brands that precludes anybody else from stepping in.”
Product placement is big money everywhere. It is not inherently illegal or wrong for a store to ask for payment of some sort to stock a product, or place it on a middle shelf, or get the cashier to ask if you wouldn't like a Coke with that. The real problem develops when the regulatory market is so limited in store/retail licensing. Where there is a limited number of retail outlets, it is far easier for a big bucks company to come in and squeeze out all but the top competitors.
While the whole regulatory regime was destined to limit choice to the big boys, that was done TO us by the ones making the rules in order to further their control of the market. This "gray area" of the law here needs to be stomped down by the regulators. They're the ones who created the artificial scarcity in the first place.
For a legal perspective:
"The audit found that as of January, the BCC had brought in just about $2 million in business licensing fees, far shot of the total $201 million that was expected to materialize by June 2019"
As Bob Uecker would say, "Juuuust a bit outside"...
A new audit by California’s Department of Finance found regulators have a long way to go before they have a solid handle on the state’s cannabis industry.
The report concluded – despite having established a “structural foundation” for managing the legal marijuana industry – the California Bureau of Cannabis Control (BCC)’s “current status and location of personnel is not sustainable to provide effective and comprehensive oversight of cannabis activities.”
It noted the agency’s enforcement staff has dozens of unfilled positions and a vacancy rate approaching 80%, making it harder for regulators to ensure the legal supply chain is running the way it’s supposed to do.
Here are the basics of the situation:
The audit was aimed at determining the effectiveness of the BCC’s enforcement program and cost.
The audit report, released in early July, focused solely on the BCC, which is responsible for licensing and overseeing marijuana retailers, testing labs, distributors, microbusinesses and events.
It didn’t take into account the two other agencies that regulate growers and manufacturers.
The audit period was July 2016 to January 2019.
The report highlighted that as of January, only 75 out of 219 authorized personnel had been hired at the BCC, and suggested that more staff is required before the agency can do its job properly.
BCC spokesman Alex Traverso said that as of early July, staff levels had increased to 87, meaning the BCC still had 132 positions to fill.
The report also found that revenues to the BCC were lagging far behind projected income.
The audit found that as of January, the BCC had brought in just about $2 million in business licensing fees, far shot of the total $201 million that was expected to materialize by June 2019.
Traverso said as of July revenues had grown to a total of $15.3 million, out of which more than $10 million was collected last month.
The BCC was founded in 2016 as part of the Department of Consumer Affairs (DCA), originally to oversee the state’s medical marijuana industry, but then was also tasked with regulating recreational cannabis businesses after voters approved adult-use MJ in November that year.
Since then, the industry landscape has transformed substantially, with final regulations adopted in January, and thousands of temporary MJ business licenses expired or transitioned to provisional or annual licenses.
The illicit market, meanwhile, has continued to flourish as agencies like the BCC ramp up.
The audit’s scope did not extend to the California Department of Food and Agriculture (CDFA), which regulates MJ growers, or the California Department of Public Health (CDPH), which oversees MJ manufacturers.
No audits of those two agencies regarding their cannabis industry duties are being performed, a Department of Finance spokesman said.
It also didn’t take into account enforcement efforts by the Division of Investigations (DOI) at the Department of Consumer Affairs, which is where industry complaints about unlicensed MJ operators get forwarded, BCC Chief Lori Ajax noted.
That means it’s an incomplete picture, according to Ajax.
“Close to 80% of our complaints are on unlicensed (operators) and get referred to the (DOI), but they didn’t look into that or how effective that is, and they didn’t look at CDFA or CDPH, so it was just on one portion of enforcement,” Ajax noted.
She also said that a big reason the BCC hasn’t completed staffing is because it is still working on opening new regional offices around the state, including in Los Angeles and the Bay Area.
“The biggest takeaway is … how much work got done, how we constantly – even though the priorities may have changed and the statute may have changed – we still got the job done,” Ajax said.
Perhaps most notable in the audit is the picture painted of the BCC’s inability to effectively combat lawbreaking cannabis operators, a situation expected to change over time and a job shared with the DCA’s Division of Investigations (another wing of the state MJ regulatory landscape not included in the audit).
Out of 68 authorized enforcement staff positions, only 15 had been hired as of January – a 78% vacancy rate, the audit noted.
In a response letter to the audit, DCA Chief Deputy Director Christopher Shultz noted the number of authorized staff positions has increased every year since the BCC was founded.
It was originally less than 10 staff positions, and went to 10 in the 2016-2017 fiscal year.
It was 102 in 2017-2018.
It’s 219 in the current fiscal year.
Shultz defended the performance of BCC staff, and wrote: “The Bureau has consistently met and exceeded its statutory mandates.”
The report also found the BCC had, as of January, not taken any “formal disciplinary actions” against any MJ companies, but had initiated 120 investigations and performed 824 license inspections.
By the end of January, 5,680 business complaints had been filed with the BCC, and 3,232 were resolved or referred to another agency, leaving “a backlog of in-progress complaints totaling 2,448 … with 559 complaints greater than six months old.”
A majority of the complaints filed were from Los Angeles County.
BCC’s Traverso reported:
The latest figures include 8,665 complaints filed with 6,097 closed and 245 still open.
Of the total, 2,323 were forwarded to the DCA’s Division of Investigations.
Shultz objected to a finding in the audit that the BCC wasn’t prioritizing certain complaints that could impact consumers, and stressed: “Complaints that are determined to be under the Bureau’s purview are reviewed and prioritized by the potential impact on public health and safety.”
The BCC also expects the number of complaints to keep increasing as the industry grows, according to the audit.
The BCC has continuously expanded its staff and capabilities since 2016, Shultz wrote in his response.
“The Bureau’s management strategy has been, and continues to be, to meet its constantly changing statutory mandates,” Shultz noted, adding that laws surrounding the BCC’s responsibilities and specific authority “have changed significantly multiple times each year the Bureau has been in existence.”
The audit also reported “revenues are projected to increase as the program becomes more established and additional annual licenses are issued.”
Ajax said that not only is her office ramping up staffing, enforcement and licensing efforts, and more, but the DCA’s DOI is also going to be expanding, meaning there will be more search warrants served on unlicensed MJ businesses as time goes on.
regulate that fucking plant Dumb mothfuckers... go straight to Hell
Yeah, bunch of Dumb mothfuckers!
Grow your own if you can, and more than you need. Then give away most of it. That's what I do.
You should consider moving down to the LA area, specifically in my neighborhood. I need more friends like you.
Who knows? That could happen. Both my kids moved south. My daughter is in Pasadena. My son is in Huntington Beach. We are waiting for one of them to produce a grandchild. ;-)
The "worst" cannabis hazards in California. https://www.cannalawblog.com/the-worst-cannabis-hazards-still-around-in-california/
My mileage differs. But, I'm not looking to profit from the industry.
Commercial cannabis licensing in California kicked off on January 1, 2018. A few days later, former U.S. Attorney General, Jeff Sessions, rescinded all former Department of Justice guidance on federal enforcement of the Controlled Substances Act in states with legal cannabis. The industry reaction in California that day was all over the place, and chaos and uncertainty was in the air.
Interestingly enough, it’s safe to say that the chaos that commenced with initial licensing under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) has never really abated. In a given day, I get a good amount of client and would-be client feedback opining that California is still “a mess” or dysfunctional when it comes to cannabis licensing. All state commercial cannabis markets take time to establish and settle out, though. California is no different, it’s just bigger. The imminent maturation (and consolidation) of businesses and more concrete and consistent enforcement from regulators is taking longer.
In any event, certain bad and/or bizarre behavior persists. If you’ve seen any of this activity out in the marketplace, you’re not alone. And hopefully most if not all of these seven deadly cannabis sins will abate as the market goes on.
1. Straight up unlicensed actors.
It’s no secret that California has a large illegal market problem. And maybe it always will given its size. However, we have multiple cities and counties in California that will not get on board with legalization, and these places are hotbeds for real drug dealers and criminal operators. In addition, in a place like the City of Los Angeles, you have a culture of persistence still that is more than happy to set up fly-by-night shops and delivery services only to be shut down and then re-open again and again. Luckily, the state has upped the ante on illegal operators with steep fines, penalties, and even potential jail time, but it’s going to be a hot minute before we eliminate even a small portion of the black market (if ever).
2. The “collective hangover”.
Shockingly enough, our cannabis business attorneys in California still get calls from people who want to set up non-profit “collectives” under the Compassionate Use Act of 1996. Unless you’ve been living under a rock, you know that the “collective model” died on January 9 of this year, and it’s not coming back. Of course there are those folks who would still set up collectives anyway knowing that they’re violating the law, but this is one cannabis sin that should burn away pretty quickly for obvious financial and organizational reasons. And if you’re an investor and someone is still pitching you on investing in their non-profit collective in California or an attorney is telling you to set up a non-profit collective, you can safely flee from that proposition.
3. Screwy M&A.
We have written a lot about California M&A on the blog. It’s not a straightforward situation because of state and local licensing laws and resulting changes of ownership protocol, but a ton of people are breaking state and local laws left and right through M&A in California. It’s only a matter of time before regulators catch on to people’s recklessness here, which will lead to license cancellations and a good amount of lost investment, but until then (because of inconsistent enforcement combined with buyer momentum), many cannabis businesses that have sold ownership interests are likely sitting on significant rule violations.
4. Crappy legal advice.
Cannabis is still an emerging marketplace. And the fact that it’s federal illegal has still mostly kept the large, white-shoe law firms out of the scene (unless they form small practice groups to advise on things like employment and financing, which we see on occasion). This has led to a significant amount of legal hacks and newbies joining the industry holding themselves out as “legal experts” in the field. And don’t get me started on the volume of criminal defense attorneys that now claim to do legitimate business, corporate, and securities work. I’m constantly in receipt and reviewing legal work being produced in California relative to intellectual property licensing, M&A, inventory purchase agreements, distribution contracts, and a number of other transactions between licensees, and some of it is still terrifying coming from attorneys who are not competent in the area (in that they completely ignore applicable regulations) or unethical in their dealings altogether. Again, as the industry matures, the hope is that bad and unqualified actors fall by the wayside.
5. Regulators shuffling the deck (at your expense).
It’s a common annoyance in the state legal cannabis industry where state regulators constantly change the rules or, more accurately, their interpretation of certain rules as time goes on (and you better learn “regulatory language” now to better deal with this issue). California, again, is no different. Our firm has had conversations with each state agency regarding change of ownership laws, distribution rules, testing requirements, the ability to return products, and other lucrative day-to-day licensee tasks where we literally get different answers almost every time we touch base. As industry issue arise and fall and the political powers change, so too will the state’s interpretation of its own rules. It’s not easy being a regulator, but I can promise you that the state agencies will eventually even out and remain fairly consistent with their rule interpretations (eventually).
6. Local authorization headaches.
California is a local control state. This means that before you can get a state license, you have to secure local approval for your cannabis operation from your city or county. And each of the 482 cities and 58 counties in California is doing regulation or prohibition differently. Local authorization is no picnic. It seems that certain cities have really dragged out the process to no end, either flipping their position from allowance to prohibition or significantly changing the entitlement process at the expense of applicants. In some cases, third party litigation has halted commercial cannabis activity in cities that allow it (see El Monte). The City of Los Angeles is another prime example of municipal change in that it has navigated complex issues relative to three phases of local licensing and implementing a social equity program that it’s had to refine for months and months (as opposed to L.A. County, which commissioned a group to study the impacts of legalization and regulation and even has an Office of Cannabis Management, but still has a ban in place).
7. No real banking options.
California’s regulations for its licensees are not super tough. There’s a lot of red tape, but the state as a whole isn’t as strict as it could be (when compared to other states) relative to owner and financier reporting requirements and just general day-to-day compliance issues (for example, we have no residency requirement and you can vertically integrate your licenses). This means that our rules probably aren’t the strongest to satisfy the 2014 FinCEN guidelines that enable cannabis banking, and this is why we don’t have really robust banking options in California. Thus, many cannabis companies still open management companies that secure phantom banking for the actual cannabis operations (which is a terrible idea because of 280E reporting to the IRS and for a number of other reasons). And if folks aren’t using these convoluted structures, they’re dealing in all cash, which is a major pain and public safety hazard.
A few of these hazards cannot be avoided right now in California, but most will go away with time as the market stabilizes. In the interim, compliance is king and that, alone, will help you avoid getting into most of the foregoing trouble.
Bad boys, bad boys, what ya gonna do? What ya gonna do to avoid the tax on you?
Raids, arrests, seizures and fines have caught the attention of the California cannabis industry in recent months, as the state’s legal marijuana market continues to grapple with financial challenges caused by business lost to the state’s enormous number of illicit MJ companies.
How big a hit to the bottom line are licensed marijuana firms taking from illegal operators?
Exact numbers are extremely difficult to pin down, but one statistic comes from BDS Analytics, which estimated that – as of June – a whopping 74% of marijuana purchases in California were made through the underground market.
The only other state-legal recreational MJ market that has a higher percentage is Massachusetts, with 77%, followed by Washington state at 51%, Oregon at 48% and Colorado at 34%, BDS noted.
Here are some of the recent enforcement actions taken in California against the illicit market:
The weeklong “Operation Clean Sweep” that occurred in Mendocino County netted over 42,000 illegal cannabis plants.
The state revealed it had seized more than $30 million in illegal MJ products since January 2018.
In a bust in Santa Barbara, law enforcement officials seized 20 tons of cannabis.
Raids in Sonoma, Siskiyou, Riverside and Trinity counties came away with roughly 237,000 illegal MJ plants.
A first-ever civil lawsuit was filed in Los Angeles against an illegal storefront for selling pesticide-laden marijuana.
That doesn’t touch on all the local actions by police and sheriff’s agencies against unlicensed storefronts and other businesses that have operated outside the law.
And it’s difficult to get a complete picture of the enforcement landscape because the actions aren’t all run by the same agencies.
Some are conducted solely by locals, while others are in conjunction with state authorities.
Has it made a real difference?
It’s unclear whether enforcement efforts have actually increased with the onset of the legal market or stayed roughly the same.
“It does feel as though there is some escalation,” said Lindsay Robinson, the executive director of the California Cannabis Industry Association (CCIA).
“We don’t have a lot of data on it. What we tend to see – and what most folks tend to see – is when it hits the newspapers or is announced by the (California Bureau of Cannabis Control) or people experience it themselves, because there’s multiple levels of enforcement.”
The problem is looming large enough that Gov. Gavin Newsom in June signed into law a bill that includes a new tool for regulators to use against lawbreaking businesses: a $30,000-a-day civil fine, which state regulators have yet to utilize.
Donnie Anderson, an L.A. marijuana executive and co-founder of the Southern California Coalition, said the Los Angeles Police Department has been raiding illegal shops “every day.”
“There’s been some good enforcement going on in L.A.,” said Anderson, who threatened a lawsuit in June against the L.A. city attorney’s office over an alleged lack of enforcement in parts of the city. The lawsuit was never filed.
But are those efforts actually having the desired impact, and are they quashing the untaxed and unregulated cannabis market?
The short answer: Not really.
“I’m not going to say yes. I’m going to say maybe,” Anderson said when asked if legal operators are doing better business-wise thanks to enforcement efforts.
Some of the numbers, but not all
According to the California Bureau of Cannabis Control, since January 2018, the agency has:
Issued 4,000 cease-and-desist letters to unlicensed MJ businesses.
Executed 58 search warrants through the Department of Consumer Affairs’ Division of Investigations.
Sifted through 9,000 complaints.
Assisted in the seizures of $30 million of illegal product.
The L.A. city attorney’s office – which has jurisdiction over the heart of illegal marijuana retailers in the state – filed 312 cases against unlicensed MJ shops and has 1,199 defendants facing misdemeanor charges since May 2018.
The California National Guard – which has assisted in many of the raids on illegal grows, including the 20-ton seizure in Santa Barbara County – did not immediately respond to requests from Marijuana Business Daily about how many operations it may have worked on statewide in recent years.
The LAPD also did not immediately provide information about how many illegal shops it has closed.
Jackie McGowan, a Sacramento-based industry consultant, said the available evidence indicates that hundreds – if not thousands – of illegal cannabis operations exist across California.
McGowan’s team created a map of licensed and unlicensed cannabis businesses in California based on state licensing info and listings from Weedmaps.com, which allows advertisements for both legal and illegal MJ retailers.
Though McGowan emphasized that, although the map is not 100% accurate because of conflicting and sometimes incomplete information, it illustrates that the underground market is alive and well.
“Not only do I think it’s not going to have any sort of effect on the duty-free market, I think it’s a waste of money,” McGowan said of California’s enforcement efforts, including the new fines authorized by Newsom.
“If we were to lower taxes and put (illegal operators) out of business through an economic strategy, that’s how we win.”
‘Multipronged approach’ needed
CCIA’s Robinson said enforcement alone has never been the answer to establishing a sustainable and legal marijuana industry in California.
“We’ve never been able to enforce our way out of illegal cannabis operations,” she said. “We’ve struggled with that for 30 years.
“That’s a part of the puzzle that needs to be put in place with these other pieces … in order to have a real substantial effect.”
She said what’s needed is a “multipronged approach” that includes decreased state taxes, lower barriers to entry for entrepreneurs and a wider industry footprint, since roughly two-thirds of California’s cities and counties still maintain bans on all types of marijuana companies.
Even then, she and other sources said, there will likely be some form of an underground market if for no other reason but to satisfy marijuana demand in parts of the country that still have complete MJ prohibition.
Which means the illicit market is almost certainly here to stay until, if and when federal legalization comes about.
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