HARBORSIDE CANNABIS in Oakland is a modern-day temple to the delights and possibilities of the botanical marvel that is the plant Cannabis sativa. Around the airy shop move a well-heeled clientele. They browse among offerings ranging from cannabis-infused chocolate to sparkling water and vape pens. California was the first state to allow sales of medical cannabis in 1996, and Harborside one of the first shops in America to sell pot legally. Since January last year, the firm has also been able to sell pot for purely recreational purposes. Thanks to its large number of “medical” users, California’s is the largest legal cannabis market in the world. But since the legalisation of adult sales, that market has been shrinking.
Allowing legal sales is supposed to increase the size of the market as they force illicit sellers out of business. That is the way it has happened in other states where cannabis is legal. But according to BDS Analytics and Arcview Market Research, legal sales in California were $2.5bn in 2018, down from $3bn in 2017. Josh Drayton, spokesman for the California Cannabis Industry Association, says that the state has gone from being the most loosely regulated market in the world to one of the most tightly regulated. Moreover, he says the regulations go above and beyond those for other products.
Bringing a messy market under control is likened by many in the industry to putting the toothpaste back in the tube. Many firms operating in the medical market find the new regulations challenging and the fees to get permits and licences too expensive. On top of regulations come taxes in great abundance. There is a retail excise tax of 15%, in addition to a sales tax that starts at 7.25%—rising according to the levels set by county and city governments. Taxes on cultivation are many and inventive, too.
On top of this federal taxes must still be paid, even though the product remains illegal under federal law. The federal government declines to allow firms to make deductions for running costs. Cannabis firms are thus taxed on gross profits. The upshot is that legal weed is expensive. Andrew Berman, boss of Harborside, says your correspondent (should she want to) could get an ounce of cannabis delivered outside his store for $150. In his shop the same product, legally bought, would cost $400.
These factors go a long way to explaining California’s incredible shrinking legal cannabis market. Another hindrance is that most cities across the state have decided, initially, not to allow recreational sales. Some cities, like Los Angeles, have allowed shops but have been slow to issue licences.
Other states planning to legalise cannabis seem likely to learn from this experience. In June Illinois became the 11th state to legalise recreational use—the law comes into effect at the start of 2020. Despite the problems in the country’s largest legal cannabis market, pot continues to gain acceptance around the country. Lisa Hurwitz, of Grassroots Cannabis, a retailer, says purchases are increasing fastest among the boomer-and-older generations. “They are either rediscovering it or using it for a variety of ailments that they face in older age,” she says. The plant, she says, is useful for everything, from pain to poor sleep to anxiety. It seems that cannabis is moving from the black market to the grey one.■
Correction: A previous version of this article spelled Harborside Cannabis incorrectly. Sorry.