$1.5 Billion in Black Market Weed Seized in California

$1.5 Billion in Black Market

Santa Barbara County Sheriff via AP

By Angela Underwood

Three cannabis attorney’s agree California’s recent $1.5 billion illegal weed bust shows that the illegal marijuana market is alive and thriving.

Attorney General Xavier Becerra announced Monday that through the illicit market eradication program Campaign Against Marijuana Planning (CAMP), nearly 1 million plants throughout 345 grow sites totaling $1.5 billion were confiscated in state raids.

“This year, our CAMP teams worked tirelessly across the state to vigorously enforce California’s laws against illegal cannabis activity,” Becerra said of the 148 arrests made.

Fox Rothschild Cannabis Law Practice Co-Chairs and Attorneys Josh Horn and Bill Bogot discussed how the CAMP seizure in California speaks to the unlevel playing field between the black and legal markets.

“In my view, it demonstrates that the illegal market is alive and well, and likely thriving, notwithstanding the legal market in California or elsewhere,” Horn said. “The size of the seizure certainly suggests that the illegal believes it has an advantage over the state-legal market because of, among other things, consumers are not being taxed to purchase on the illegal market.”

Horn suggests one answer to the unlevel playing field is “a greater enforcement against the illegal market together with greater availability and lower costs for the state-regulated markets,” while Bogot brings up the state of Illinois as a resolution.

“A good analogy is Illinois with illegal video poker machines,” Bogot said. “After decades of failed attempts to wipe out the illegal gaming machines, Illinois succeeded only after it made possession of the devices a felony, gave strict enforcement of such to the state police, and legalized and licensed squeaky-clean operators with a reasonable and profitable tax rate.” 

Former Senior Policy Advisor and Deputy Legal Counsel to the Speaker of the Michigan House of Representatives, Douglas Mains, said while the seizure is great in that it removes a significant amount of illicit cannabis from the stream of commerce; however warns that these types of law enforcement actions are like medicine that treats the symptoms of an illness, but not its underlying causes.

“We will never completely stamp out the black market, but as long as we have a patchwork of state laws that impose significant barriers to entry in the legal market, high taxes, and exclusionary zoning, we will continue to see a viable black market that undercuts regulated businesses,” Mains, partner and lead of Honigman’s Cannabis and Hemp Industry Group, said.

The seizure comes only a week after Mexico proposed legalizing weed, and according to Horn, Canada’s recent certification and Mexico’s pending support can help put pressure on the U.S. to have real cannabis reform. 

“Otherwise, overflow in the legal markets in those countries may flood into the U.S.,” he said.

Horn added he believes the seizure is a recognition that there is a disparity in the playing field and that something needs to be done or else the state-regulated programs are at risk of being overrun. 

“Time will tell if continued enforcement against the illegal market will make a difference,” he concluded. 

Bogot boasts Illinois’s success again.

“There is much we can learn from the legalization of the previously prohibited gaming and alcohol markets: it can successfully be done, we just have to flip the economics and make the costs of working in the illegal markets (either economically or criminally) greater than working in the legal markets,” he said. 

Mains, who assisted in creating the Michigan Medical Marihuana Facilities Licensing Act, and helped draft and served as counsel to, a number of successful state and local ballot initiatives to legalize cannabis, said a major part of the problem is the patchwork of state cannabis laws.

“On one end of the spectrum, you have states where demand far outstrips supply, and these states generally limit the number of available licenses, have high barriers to entry, and have been slow to roll out programs,” he said. “On the other end of the spectrum, you have states where supply is outpacing demand, resulting in cannabis prices plummeting.”

Even if individuals in these states wanted to move from the illicit market to a regulated system, it’s often hard to do, Mains said.

“It’s often difficult for licensed cannabis businesses to compete with the black market in terms of price and product quality,” he added.

In Michigan, there is such a dearth of product available, the state actually allows product from the gray market to supplement that grown by licensed cultivators in order to meet patient demand, according to Mains.

“As the industry matures, it is imperative that licensed businesses work with state legislators and executive officials to not over-regulate the system,” Mains said, adding after decades of prohibition, it makes complete sense that state governments would want to strictly control cannabis in the name of public health and safety.

“However, significant barriers to entry, high taxes and fees, and exclusionary zoning all indirectly allow the black market to thrive by making it almost impossible for law-abiding businesses to adequately compete for cannabis consumers,” he concluded.