The Cannabis Black Market in California: Challenges for 2022 and Beyond

In 2019, California’s Bureau of Cannabis Control reported that upwards of 80% of California’s cannabis industry remains illegal. Spurred by the inability to obtain permits at the local level, high taxes, and inability (or unwillingness) to comply with the law, these unwelcome entrants to the industry have made remain a significant impediment to those cannabis business owners that seek to comply with the law.

The impact of the black market on California’s legal industry cannot be understated. Legal business owners absorb costs for compliance (both employment and environmental), local taxes, security, permitting, and business organization. As with other industries, legal business owners pass those costs on to customers. But black market growers and sellers who are unfettered by these issues can and do underprice legal operations, resulting in inexpensive, illegal cannabis flooding the market at the expense of the legal industry.

The only meaningful solution to the problem is enforcement. Thus, expect 2022 to be a year where the state if California attempts to find its footing in this area.

California authorities have shut down illegal grows near lakes and rivers, where use of illegal and unapproved pesticides are used on cannabis crops which are released directly into the waters, and in which water is frequently illegally diverted. It has been widely reported that this has deleterious impacts on wildlife and water.

 

Source: CA Water Board, 2018

Illegal grows have been identified (and in some cases, shut down) in nearly all areas of the state. Between December 20 and 26, 2021, the San Bernadino County Sherriff’s department arrested nearly 33 suspects in the ongoing enforcement action Operation Hammer Strike confiscating more than 14,000 cannabis plants, 21 pounds of extracted THC concentrates, more than $350,000 in cash, and firearms. In 2019, more than $1.5B worth of illegal cannabis was confiscated.

The widespread shutdowns during the pandemic have hamstrung law enforcement efforts, but an outcry from legal business owners – many of whom have been driven to the brink of financial ruin by the black market – have cried out for more enforcement. As the pandemic crests and (hopefully) recedes during 2022, state regulators will attempt to step up enforcement – first by getting local businesses licensed, and then by bringing enforcement actions to push back against the illegal industry. California cannabis business owners are well advised to consult their local regulations and make sure they maintain compliance.