Illicit Sales vs. War on Drugs
Illicit Sales – War on Drugs – In October 2018, the California Department of Consumer Affairs’ newly-established Cannabis Enforcement Unit teamed up with the Los Angeles Police Department to carry
out a raid on an unlicensed shop in Sylmar, a predominantly Latino and working-class neighborhood in the San Fernando Valley.
After serving a search warrant at “One Stop Healers,” the authorities seized more than $2 million worth of cannabis and cannabis products, including almost 500 pounds of flower and 200 pounds of edibles. The shop’s owner was arrested on misdemeanor charges, along with six employees.
The seizure, notably, took place ten months after the state had begun allowing the sale and taxation of cannabis for adult use. The end of prohibition, it turns out, has hardly ended illicit cannabis sales. A nascent industry—not to mention local governments eager for tax revenue—is pushing for this kind of rigorous enforcement.
Illicit Sales vs. War on Drugs
But who gets hurt? Calibrating a crackdown that does not hurt the same people and neighborhoods that suffered in the War on Drugs is not so easy.
There is a tension between the crackdowns and one of the primary goals of legalization: redressing the harms done to economically struggling neighborhoods during the War on Drugs. In Los Angeles, for example, the crackdowns are being carried out at the same time as the city makes painstaking efforts to redress the socioeconomic effects of prohibition, and in some of the same areas.
When California legalized cannabis, the city set out to ensure that residents of areas that had been disproportionately targeted by law enforcement got to reap some of the benefits. Before issuing any licenses, Los Angeles hired a consulting firm to prepare a report with options for a program to support these communities. Then, in September 2017, the city hosted a meeting in Watts to share its proposed regulations and what it called its Cannabis Social Equity Program.
The choice in location was deliberate. As the city’s report underscores, Watts, along with South Central and Pico-Union (neighborhoods with predominantly African-American and Latino populations, respectively) had been subject to massive police sweeps during the War on Drugs. The day of the meeting, some 600 stakeholders gathered at the Watts Labor Community Action Committee, where city officials solicited written and verbal feedback. These comments were later incorporated in the final recommendations to the city.
With that information, Los Angeles honed its Social Equity Program. In addition to technical assistance and, potentially, capital and fee deferrals, the program prioritizes licensing individuals with low incomes who were arrested for cannabis-related crimes. Residents who have low incomes and live in what the city has identified as a “Disproportionately Impacted Area” also qualify. The article continues at source.
Illicit Sales – War on Drugs
A recent publication described California’s roll-out of cannabis regulation as maladroit. The description is apt. California’s failure to carefully heed all of the admonitions of the Report of the Blue Ribbon Commission in its implementation of cannabis regulation is a far more pervasive cause of the present chaos than tax rates that are too high and a lack of banking. California succumbed to the lure of tax riches in the same way as investors have succumbed to the lure of easy money.
A tax rate break is always helpful to the business that receives the break. Cannabis businesses involved in the legal market compete with other legal cannabis businesses. These businesses do not compete with the underground cannabis market. As we have described in another Post, California is going to have significant underground cannabis market for the foreseeable future. Reducing the state-wide taxes will have some impact on the underground market. However, complete elimination of the California Cannabis Taxes would not eliminate the underground market. As long as the street price for cannabis is under 60% of the total cost including taxes to the consumer, the underground market will feel no financial pressure from the legal market. California could accomplish far more by making it easier for those who are trying to become legal to do so, and by collecting all of the cannabis taxes that legal businesses collected from consumers, than the tax reductions proposed in AB 286.
“State officials have blamed the shortfall on exorbitant taxes placed on the legal pot industry as well as challenges due to limited access to banking.”
This statement is simply blame-shifting by unnamed state officials. It is our opinion the impact of a reduction in California’s taxes on cannabis will be minimal. The failure of CDTFA to compel licensed cannabis businesses to pay over all of the cannabis taxes collected from consumers is far more significant. A substantial portion of California’s missing taxes are losses from the grey market – locally licensed businesses or locally tolerated businesses that pay some local taxes and fees and perhaps some cannabis taxes, but are primarily doing what they have always done evading taxes – and not paying cannabis cultivation tax [“CCT”] and cannabis excise tax [“CET”].