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5 years after California legalized weed, the illicit market dominates

MICHEL MARTIN, HOST:

Tomorrow marks five years since California voters passed Proposition 64, legalizing the use of recreational marijuana and paving the way for the eventual cultivation and sale of legal weed in one of the world's largest economies. Five years later, cannabis is selling in record amounts, but fully legal weed makes up just a fraction of the state's marijuana market, with some experts estimating that 80 to 90% of cannabis sales in California still fall into a legal gray zone. In other words, the industry is, quote, "a mess." That's according to reporter Amanda Chicago Lewis. She's been reporting on cannabis for some years now and recently wrote about this in The Guardian. And she's with us now.

Thank you so much for joining us.

AMANDA CHICAGO LEWIS: Great to be here.

MARTIN: So I mentioned that most marijuana sales in California are still happening illicitly. I know this from your reporting. So the big question is, how does this happen? How does a state with legal recreational sales still find itself with most of the market operating illicitly?

CHICAGO LEWIS: Well, the problem is the legal market is expensive to join if you are a seller, if you're a grower. And it's expensive to participate in as a consumer. The big problem, really, with California is not what's happened in the last five years since the legalization ballot initiative passed but the 20 years before that, when California legalized medical cannabis but only really legalized the possession of the plant or growing for yourself if you had a doctor's recommendation. But you can't legalize a commodity and not legalize sales because we live under capitalism, and that's not how anything works. And so these businesses just became entrenched. And this laissez faire market took over.

MARTIN: So when we say that the sales are illicit, what does that mean? It doesn't really mean what it meant back in the day. It's not like - what? - people handing off in the parking lot somewhere.

CHICAGO LEWIS: So the illicit market, it means a lot of different things. You've got cartels, gangs from China, from Bulgaria, you know, running in the hills with AK-47s to protect their enormous illicit farms. You've got mom and pop shops that are operating in cities and counties that decided they were going to ban legal sales. And it's everything in between those things.

MARTIN: So as a consumer, is it clear whether a shop is legal or operating in that gray area?

CHICAGO LEWIS: You have to be a very attentive consumer to distinguish between legal and illegal businesses. Take a delivery service. A delivery service is pretty easy to hide the illegality around. And you could essentially be ordering from a drug dealer. The website you order from might not make that clear, and the products might look identical. In fact, I'm told the factories in China that produce packaging for many of the biggest legal brands in California also will turn around and sell counterfeit versions of the same packaging to illicit operators. And that's to say nothing of the fact that many licensed, legal operators in the cannabis industry in California tell me the only way they can turn a profit is to have one foot in the illegal market and one foot in the legal market because the illegal market is so much more profitable.

MARTIN: Just from a consumer standpoint, that sounds dangerous.

CHICAGO LEWIS: Yeah. Take the vape crisis, right? We saw all of these lung illnesses emerge in the summer of 2019 caused almost entirely by illegal cannabis vape pens. Cannabis itself is not a very dangerous drug. But when you process it with gross chemicals and you do so as cheaply as possible, you might get something disgusting on the other end. I spoke to people in Los Angeles who were buying vape pens that, you know, had made them sick and didn't even understand that they were going to illegal dispensaries.

MARTIN: And is there also a federal-state issue here in terms of capitalization, the difference between federal regulatory frameworks and state frameworks?

CHICAGO LEWIS: Absolutely. The inconsistency between state and federal law is causing enormous problems in the cannabis industry everywhere. In terms of running a legal business, it's very difficult to get a bank account, right? So then you're operating in cash. That can be very dangerous.

And almost more significantly, you end up having to pay a 70% effective tax rate because you're not able to take deductions on your federal taxes. So most businesses might pay 35%. You're paying 70%. That can be a huge cost for a small business.

But almost more significantly, since we're doing this weird, piecemeal, state-by-state legalization, any state that legalizes is naturally going to attract traffickers who grow weed under the cover of legalization and then send that weed to a state where it's not legal. And therefore, the price of a pound of cannabis is much higher. The best-case scenario that we've seen in terms of containing the illicit market in illegal state is Colorado. And Colorado has about a 30, 35% illicit market rate. That's the best-case scenario.

MARTIN: Before we let you go, do you have a sense of why policymakers - what do they think would make a difference in making this less of a mess?

CHICAGO LEWIS: You know, I've spoken a lot with the woman who used to run Governor Newsom's cannabis policy and now is the director of the Department of Cannabis Control, Nicole Elliott. And she's certainly aware that the illicit market is a huge problem. But also, there are things that she can't control. You know, the law has already been established and written that cities and counties are allowed to opt out of legalization, essentially.

She can't force a county to allow legal sales. She can't force Los Angeles to license more of its illicit stores. There's only about 200 legal dispensaries in Los Angeles, and there's estimated anywhere between a thousand and maybe 1,500 illicit stores.

And then I think part of what cannabis suffers from is that it's oddly a complex issue that isn't going to be prioritized by Congress, might not necessarily be prioritized by, you know, state leaders. Like, we're still in the middle of a pandemic. I sort of see that, you know, parallel markets, legal market and illicit market and maybe an in-between market that seems legal but isn't will probably persist not only in California but in the rest of the country for quite some time.

MARTIN: That was cannabis reporter Amanda Chicago Lewis. Amanda, thank you so much for your time.

CHICAGO LEWIS: Thanks for having me. Transcript provided by NPR, Copyright NPR.