It seems former Attorney General Jeff Sessions was correct about one thing: Pot legalization has provided cover for criminals, allowing illicit production to thrive. Experts estimate that at least 30 percent of cannabis cultivated in legal states is being “diverted” to illicit markets across the country. The biggest problem has been the lure of higher wholesale prices in places where weed is still illegal, which often discourages growers and traffickers in legal states from going legit. Many of the growers that have been skirting the law for years could barely afford the costs of becoming legal even if they wanted to.
“The reality is I’ve been advocating for decades for exactly what’s happening right now,” says Guy Rocourt, chief products officer at California cannabis brand Papa & Barkley, best known for its topical salves. “But is it painful? Absolutely. We are trying to support small farmers who used to make $4,000 to $5,000 a pound selling illegally to New York. Now that a pound in the legal market is more like $1,000, how can they still have profitable farms?”
State governments have tried to make it difficult for legal farms to sell on the illicit market. As part of a compromise with the feds, states had planned “traceability systems” to track every legal cannabis plant from seed to sale. In practice, almost none of these systems work. Due to insufficient software, constant outages and a flawed premise, traceability systems have become a Potemkin village of the cannabis industry.
“The traceability mess is causing small businesses to lose money,” says Dominic Corva, executive director of the Seattle-based Center for the Study of Cannabis and Social Policy. In Washington state, he estimates, “A third of the producers are going out of business. They’re growing a final crop and getting out.”
Among the states that have legalized adult-use cannabis, each has struggled to keep track of the product in its own way. In Colorado, up until early 2018, anyone with a doctor’s recommendation could legally grow up to 99 marijuana plants — an amount that could produce about $500,000 worth of pot every year. In Oregon, a recent audit found that the agency charged with overseeing medical cannabis “has only four permanent staff to inspect roughly 14,000 grow sites.”
And in California, pretty much everything that could have gone wrong has. The Golden State waited 22 years to begin implementing a system of regulation for medical marijuana. In that time, the industry became accustomed to taking legal risks, underpaying taxes and enjoying the benefits of a free-for-all. Consumers now generally assume marijuana businesses with storefronts and advertising to be legal, even if they’re not. In L.A., city officials have estimated illegal storefronts outnumber legal ones by a factor of 10.
Rocourt knows California’s illicit market is driving dollars away from the legal business he’s fought so hard to build, but as a longtime marijuana activist, he sympathizes with the cultivators and dispensary owners who haven’t been able to make the jump because of profit margins and local bans.
“The illicit marketplace, I do want to see it die off,” Rocourt says. “But if you’re in a municipality that has not figured out the law or regulations or given you a clear pathway to make your business legitimate, I say keep doing what you’re doing until the will of the people is heard.”