Timestamp: 26 November 2022 @ 1626 Pacific
It appears that illegal pot growers are giving thanks this holiday for California lawmakers who legalized pot only to fuel demand for illegal cannabis due to massive taxes.
It is the same problem that I wrote about in New York's program in an earlier Wall Street Journal column.
Politicians continue to pile on taxes as if they have no impact on pricing and demand. It just seems like free money if you ignore every economic metric and principle.
Even with a recent recognition that they have killed their own market, California lawmakers are being criticized for offering too little too late in terms of tax relief.
Sgt. James Roy of the Riverside County Sheriff's Department is quoted in Fox News as saying that "The illegal industry is competing with the legal industry and essentially putting them out of business."
Why? As with bathtub gin after Prohibition, few people would prefer bootlegged products rather than the safer lawful alternatives. The only reason is economics - and the refusal of the California lawmakers to recognize basic rules of supply and demand. Not only is pot cheaper due to the massive taxes imposed on lawful businesses, but it is also being sent to the East Coast where similar price differentials are also fueling the illegal trade.
Despite being a relatively new industry, state and city officials imposed thick layers of regulations, charges, and taxes on the budding businesses. Some estimates put the taxes at 70 percent of current costs.
Even with a recent recognition that lawmakers strangled the industry, a temporary tax cut is not expected to be enough to make lawful businesses competitive. There remain a host of other taxes, required regulatory obligations, and even bars on claiming certain expenses used by other businesses. The result, according to one study, is that "the effective tax rate on marijuana in California ranges from $42 to $92 per ounce, depending on the jurisdiction, compared to an estimated wholesale production cost of $35 per ounce."
So you have a high demand product that has been strangled out of the legal market by politicians who cannot resist adding their own taxes and demands on these nascent businesses. The result is a bonanza for illegal cannabis growers. The alternative was to show a modicum of restraint and allow this industry and market to stabilize and grow. It would then might produce greater revenue even with lower taxes. That, however, requires the one thing that is seemingly beyond our current political environment: restraint.
Keywords: Humboldt California US Ziosphere marijuana production taxation costs
Comment: Current California law permits each adult to cultivate up to twelve (12) undifferentiated seedlings and up to six (6) gendered, or adult plants, the last time we checked.
That struck us as fairly well thought out, as six plants might result in anywhere between six ounces and six pounds of marijuana, but for the less experienced, six ounces is plenty, and for the more experienced, six pounds is plenty, and there would be a small black market from people selling what they did not want or need to fill the gaps. If that's not enough, one could do another, more expensive winter crop, indoors.
It seems to us that if the State of California bent its efforts towards helping every citizen who wants to grow up to eighteen marijuana plants, they would quickly determine the market saturation point, create a huge body of expertise amongst the citizenry, and possibly revitalize the economy, too, by legalizing the buying and selling of marijuana - up to, say, five pounds, bulk - so that it was not a black market, but, instead, a farmers' market - a free market - with posted prices, and competition.
The State of California could purchase trim and leaves and stems at fixed per-pound prices, shred the stems and make the shredded stems available for use as hempcrete, and process the trim and the leaves to extract and separate, in volume, the cannibinoids and terpenes that are valuable to the pharmaceutical and medical industries, and generate revenue from these activities, too.
So why aren't we doing these obvious next steps?
In our experience, it is not the State of California that is making these decisions. It often comes down to specific groups of people or specific individuals. Credit for success accrues to individuals; whereas when bad things happen and blame needs to be apportioned, it is "the committee", or "the voters" or "the legislature" - never specific individuals' names. We need to identify the people who would claim credit if credit were due and ensure that they are held responsible for failure as well. Otherwise, it's just rinse and repeat, over and over.