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:

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.

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.

Now many cannabis businesses are reluctant to go through the cumbersome and costly process to obtain the licenses that became mandatory last year.

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

His dispensary pays a cumulative state and local tax rate of 32.25 percent. Unlicensed shops pay no tax.

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?