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Despite Pot Legalization, CA's Black Market Estimated at $8 Billion

In greenhouses on an isolated California farm, hundreds of head-high cannabis plants stand in precise rows, each rising from a pot nourished by coils of irrigation tubing. In the five years since voters approved a legal marketplace for marijuana, thousands of greenhouses have appeared across the state. The cultivator who operates the grow north of Sacramento holds a state license to to produce and sell its plants. It’s been impossible for the grower to turn a profit in a struggling industry where wholesale prices for cannabis buds have plunged as much as 70 percent in a year, taxes approach 50 percent in some areas and customers find better deals in the thriving underground marketplace, reports the Associated Press.


The company has two identities — one legal, the other illicit. “We basically subsidize our white market with our black market,” said a cultivator. Industry insiders say the practice of working simultaneously in the legal and illicit markets is all common, a financial reality brought on by the difficulties and costs of doing business in a heavily regulated product. The state requires legal businesses to report what they grow and ship, and it’s entered into a vast computerized tracking system. “It’s not too hard” to operate outside the tracking system’s guardrails, the grower said. The system is so loose, some legal farms move as much as 90 percent of their product into the illicit market. The passage of Proposition 64 in 2016 was seen as a watershed moment in the push to legitimize and tax the state's multibillion-dollar marijuana industry. In 2018, when retail outlets could open, California became the world’s largest legal marketplace. Most Americans now live in states with at least some access to legal legal marijuana — 18 states have broad legal sales for those 21 and older, while more than two-thirds of states provide access through medicinal programs. Kristi Knoblich Palmer of the edibles brand KIVA Confections said the migration of business into the illegal market was damaging the effort to establish a stable, consumer-friendly marketplace. California’s illegal market is estimated at $8 billion.

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