California's Illegal Weed Industry Is Doing Better Than Ever

It was 2004 when William P. first got into the weed game. He was 18 years old and spent much of his life on the road, traveling between Oakland, Los Angeles, and San Diego to deliver chocolate edibles and sell weed. In the 14 subsequent years, he tried his hand at nearly every aspect of the cannabis supply chain, from starting a delivery service to hauling pounds of weed from the Emerald TriangleNorthern Californias famed farming epicenterto dispensaries and buyers across Southern California.

Its an adrenaline rush that you cannot describe, William told me. That becomes a drug. And the money is good too.

His plan was to secure a license and join Californias newly created legal market this year but money talks, as William said, and instead he ended up working with a illicit medical marijuana collective that funneled weed out of state, tapping into that OT or out-of-town money, as he calls it.

William, who operated largely out of Southern California, is just one small part of Californias booming illegal market. Even though recreational (or adult-use) marijuana has been legal in the Golden State since January 1, the cannabis industry is still functioning largely as it has for for decadesin the shadows.

In fact, the situation become so dire that earlier this year, Governor Jerry Brown proposed allocating an extra $14 million of the state budget to policing unauthorized weed. The money would fund five teams within the state attorney generals office that would focus on effort like complex, large-scale financial and tax evasion investigations, according to a statement from Brown. In June, however, the proposal was scrapped after a dispute over how to pay for it.

So cities throughout the stateincluding Los Angeles, widely recognized as the largest legal marijuana market in the UScontinue to grapple with a unsanctioned industry. Six months into legalization, LA remains besieged by illegal businesses, said Adam Spiker, executive director of the cannabis trade group Southern California Coalition (SCC).

Its still a majority of the market, said Spiker. Theres no doubt about it.

One reason isas many predictedthe cost of legalization is daunting for would-be cannabis entrepreneurs. There are a slew of financially demanding requirements borne out of regulation, including required building and security upgrades, as well as attorneys fees to ensure compliance. Theres also operating costs that the illegal weed industry has never had to deal with, like having to pay workers compensation and pass pesticide testing standards required by the state.

Then theres hefty taxes, which include a 15 percent excise tax in addition to sales tax and local fees that some say discourage customer spending and encourage illegal sales, where profit margins are wider. A bill introduced earlier this year in Sacramento proposed slashing the excise tax to 11 percent to help permitted businesses compete with illegal operations, but that effort was shelved in May.

To avoid these costs, some licensed LA dispensaries are double dipping, said Williamworking as an above-board shop out the front door while selling illegal weed out the back to supplement their income.

Even the ones that are operating as a legal club, theyre still operating in the black market, he said.

But industry veterans resistance to legalization is about more than money; its a disdain for the overall corporatization of cannabis by big-box chains like MedMen, which go against the founding principles of the industry, said William.

The marijuana system used to be one of the last vestiges of the mercantile system, he said. That free market, fucking capitalism. [A] transaction between two parties.

For Diego, a distributor who purchases cannabis flower and concentrate en masse and then sells it wholesale to dispensaries in San Diego and beyond, theres not much attractive about the regulated marketbesides the fact that since legalization, his illegal operation has actually picked up a bit.

The unlicensed dispensaries are buying up pretty much anything and everything, he said. Because theyre making a quick profit right now.

Hes been distributing cannabis for the last two years, and as the demands of the industry have evolvedfrom mostly old-school cannabis flower to a wider variety of manufactured products and consumption methodsits actually become easier to transport large amounts, he said. Items like vape pens and edibles are low-profile and much safer to ship, even via the US Postal Service.

Theyre really hitting on the black market, he said.

Every three days, Diego drives from San Diego to Riverside County to pick up about 30 pounds of cannabis flower and concentrate. For each 30 pounds of flower that he sells, he nets about $30,000. While that money is divided up among a team of people, he said, some simple math shows hes bringing in about $300,000 a month on unprocessed pot alonethats without having to pay licensing fees, taxes, or traceable employee wages (everyones paid in cash under the table).

With continued access to quick money, no notable run-ins with law enforcement, and little concern over getting robbed because, he says, he works only with people he trusts, Diego sees no reason to get licensed.

I never really liked working for anybody but myself, he told me. I need money to survive and take care of my kids.

A lack of licensed options and the absence of a fully developed regulated market leaves illegal operations with the lions share of business.

While the demand for cannabis hasnt waned, Los Angeless slow regulatory rollout (including a more than five-month delay in the second phase of licensing) has contributed in part to the survival of illegal operations, said SCCs Spiker. A lack of licensed options and the absence of a fully developed regulated market leaves illegal operations with the lions share of business, he said.

Policing these shops will fall largely on the shoulders of the very legal operations theyre undercutting.

Theyve all rightfully been barking... about the illegal shops that ...