In California, a person can now buy marijuana for recreational purposes legally – also known as “adult use” marijuana. This should definitely be a good thing, right? The answer is not that simple and changes depending on how you look at the situation. Just because recreational marijuana is now legal, it does not mean that every person that sells marijuana automatically becomes a legal dealer. They are still technically selling an unauthorized product until such a point that they apply for and meet regulation standards. By legalizing marijuana in any state, the black market which is existed previously is suddenly more pronounced.
Many people still exist in what is called the black market and this market is larger than you’d think. Each year, about $7.8 billion of marijuana is sold. $5.5 billion of this enormous amount is actually illegal marijuana. It is not regulated by the state and it, therefore, it does not meet the testing requirements that have been laid out by the state. It is also completely un-taxed, both in the form of business taxes and retail taxes.
The black market clearly makes up a substantial portion of the marijuana market, and according to certain people in the know, this is not going to change anytime soon.
What happens once a state legalizes marijuana?
Let’s consider for a second that some fictitious state has recently legalized marijuana. What happens next? Do people head out to their regular dealers and enjoy a blissful walk knowing that they are no longer technically committing a crime? Are there weed parties thrown on every street corner? Absolutely not.
As with any kind of law, there is a heap of bureaucracy that accompanies this glorious cannabis legalization. Potential are required to jump through a massive number of proverbial hoops before they can finally be considered licensed and reputable.
How does black market dealer join the legal market?
California is by no means the first state to legalize recreational marijuana. They are simply joining a rather long list that is made up of Alaska, Oregon, Colorado, Nevada, and Washington.
Just like these states, California will be required to go through a transitional period. During this time, regulations will be enforced that will either expand the legal market by encompassing dealers that previously resided in the black market, or they will hamper the overall supply of legal marijuana.
Permits for marijuana dealers
One might be quick to think that it would be easy for a black-market dealer to make the jump into the legal realm, but unfortunately, it is not. In fact, it is not easy at all, and it is an incredibly expensive affair. The first financial barrier is the permit. There is no one size fits all permit, and the cost of one will depend on the scope of the business in question.
Once this is considered, a permit can set a business back by anything from $5,000 to $120,000 a year. If a dealer is a relatively small one and only manages a couple marijuana plants, then the cost of a permit will simply be too much when considering the size of the business.
Where are they allowed to grow marijuana?
The second thing to consider is location. One cannot grow marijuana on any patch of land in California. There are selected zones which have been declared open for marijuana farming.
If a dealer happens to reside and grow marijuana outside of these zones, then they would have to consider moving in order to legalize their business. Real estate is astronomically expensive throughout California which may hamper even the most lucrative cannabis dealers’ relocation plans.
Added costs that will be lumped on prospective legal dealers
Even if a dealer were to get through the costs associated with the permit and the location requirements, there would be other added costs looming in their future. The first one being the tax. A legal dealer will be selling a legal product that is not exempt from taxes. The US tax code that encompasses marijuana distributors and dealers enforces an effective tax requirement that can be as high as 60%.
There is also the question of product compliance. Not just any gram of marijuana is considered compliant. Every product must first go through rigorous testing before it is labeled as a regulated and compliant product. Testing such as this does not come cheap and could possibly land up being the straw that breaks the camel’s back.
What options do dealers have, if any?
While these regulations may seem inhibiting, it is in the best interest of the state of California to have more legal than illegal dealers. It is for this reason that they have tried to set up protocols whose aim is to smooth the transition between the two markets. Dealers can acquire something called a temporary license.
This license has a 4-month lifespan and will allow dealers to sell unregulated products for a period of 6 months. These unregulated products must, however, be labeled as such. The state hopes that during this time dealers will start making moves to acquire an annual license thus allowing them into the legal market.
What is in store for the Californian marijuana market?
In the illegal market, the price of marijuana is relatively affordable. This, in turn, increases demand which further drops the price. The more demand that is stripped from the legal market, the higher their prices will be. This in itself will create a negative feedback loop which raises prices and thus further hampers demand.
The marijuana market in California is clearly going to go through considerable growing pains in the next few years. Whether it will stabilize in favor of the legal market is a question that can only be answered in time.