Realist, not conformist analysis of the latest financial, business and political news

Only California Could Expand The Black Market By Legalising Cannabis

Quite clearly if you just say that growing, buying, possessing and selling cannabis is now legal then you’ve entirely destroyed the back market in cannabis. Sure, some people might then carry on without paying taxes but that is, by definition, grey market, not black. And sure enough, people will want to tax that now legal cannabis because politicians have a near unlimited desire for more of our money to spend.

But it takes real skill and talent to both make cannabis sales, growing, purchase and consumption legal and yet also at the same time expand the black market. Of course, given that California is the most progressive of the states, hires more into the bureaucracy, this is the place with the skills to be able to manage that feat:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] In the forests of Northern California, raids by law enforcement officials continue to uncover illicit marijuana farms. In Southern California, hundreds of illegal delivery services and pot dispensaries, some of them registered as churches, serve a steady stream of customers. And in Mendocino County, north of San Francisco, the sheriff’s office recently raided an illegal cannabis production facility that was processing 500 pounds of marijuana a day. It’s been a little more than a year since California legalized marijuana — the largest such experiment in the United States — but law enforcement officials say the unlicensed, illegal market is still thriving and in some areas has even expanded. [/perfectpullquote]

So, how do you manage to do this?

Well, first, you start with a fairly extensive black market. It’s long been said that pot was California’s second largest product, or largest agricultural one, that sort of number at least. Then you add the sort of regulations and licensing regime that a progressive bureaucracy thinks is necessary. Add the sort of tax rates that progressives demand. And you get that legal and expanding grey market. Actually, given that they’re ignoring all that regulation as well, a black market.

Yep, it really is true, Californian regulation can be worse than outright black markets.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Now many cannabis businesses are reluctant to go through the cumbersome and costly process to obtain the licenses that became mandatory last year.[/perfectpullquote]

Yep, bureaucracy is worse than running an illegal – and sometimes dangerous – business. Well done the politicians then.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]His dispensary pays a cumulative state and local tax rate of 32.25 percent. Unlicensed shops pay no tax.[/perfectpullquote]

Who is surprised then?

Actually, we could predict this. There’s a reason why nowhere even tries to have a VAT rate above 25%. Because the temptation to simply ignore it and work illegally will be too strong. Don’t forget, every tax has its own Laffer Curve rate peak and the one for consumption taxes is lower than that for income.

But, you know, progressive California. The place where legalising pot increases the size of the black market for pot. Well done to the governing classes, eh?

0 0 votes
Article Rating
Notify of

Newest Most Voted
Inline Feedbacks
View all comments
5 years ago

A few years ago, I ran a pulp mill in Humboldt County (northern California). Workers made $26/hour with 600 hours of annual overtime – a great job in an area where unemployment was high and the alternative employment was going into food service at $7/hour (“Do you want fries with that?”). When the environmental regulators made it too difficult for us, we sold to the Chinese at fire sale prices – the personal risks for EPA violations in California are felony level and I saw reason to jeopardize my future for a taxable salary. The Chinese turned out to be… Read more »

5 years ago

That’s my State! Right idea, totally wrong implementation.

Leo Savantt
Leo Savantt
5 years ago

Hungary has a VAT rate of 27% on most products and services, not of course marijuana. VAT harmonisation will be high on the 2019 Commission agenda, with a pan-EU target rate of 25%; good for Hungary but bad for most. The EC also take a dim view of zero rated products, so expect food, medicines, printed matter and children’s clothes to become much more expensive. VAT is probably the most damaging of all taxes, inhibiting the trade in goods and services directly, forcing the service or goods provider to become unpaid tax collectors and of course hitting those on low… Read more »

Would love your thoughts, please comment.x