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Is A Legal Cannabis Industry Unrealistic?The Los Angeles Times recently highlighted the disappointing experience of Costa Mesa, a town that had expected to benefit greatly from the legalization of marijuana in California. In the first year, 2018-2019, the city budgeted for a  $1.56 million tax windfall but instead collected $163,803. During the 2020 tax year, Costa Mesa’s budget projects cannabis tax revenues of $1.143 million but after the first six months of the year, tax revenues amounted to only $217,511.

Other California communities are experiencing similar disappointment. Legalization of marijuana put dollar signs in the eyes of municipalities that had been suffering poor tax revenues and escalating costs during the difficult economic times following the Crash of 2008. They viewed cannabis businesses as fountains of cash and, as former Costa Mesa City Manager Rick Francis told reporters in 2017, they had intended the license application process to be “grueling” so the city could get operators that are the “cream of the crop.”

According to the article in the Los Angeles Times:

After securing a facility in the green zone, operators are required to submit multiple corporate documents, including thorough business, floor and security plans, that could take months to gather. They are charged $21,525 as an application fee and $300 per owner for a background check.  Operators that clear that step then have to apply for a conditional use permit, which costs an additional $27,508 and requires approval from the city Planning Commission.  Even if the commission signs off, operators still need to complete the plan-check phase by getting city fire prevention, finance and building safety approvals.  At the end of the whole process, they can obtain a marijuana business permit.

 Such an expensive and demanding application process doesn’t necessarily guarantee high-quality applicants, but it does put them in serious hock to investors, lawyers, architects, landlords, and accountants before they even begin to operate the business. In addition, the costs of operating in compliance with regulations and paying taxes that can range 6% and higher on every sale, on top of heavy State costs, have forced legal businesses to charge higher prices than consumers are paying at the Black Market shops.

If there were as many pot dispensaries as there are liquor stores, there would not be such pressure on the few legal businesses currently operating to fund the huge financial expectations of state and local governments. Costs imposed by application, operation, and taxation could be lowered and the legal shops could compete with Black Market providers.

All the pearl-clutching over potential crime and addiction worries when cannabis was first legalized looks silly at best now that we know the reality. Unfortunately, the pearl-clutching has benefited the Black Market in cannabis, which currently appears to make up at least 80% of the industry’s revenues. Municipal greed is also contributing to the failing legal industry and resulting in our asking major questions about graft, bribery, favoritism, and a continuing War on Drugs aimed at ethnic and social class control.

 


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Author

George

Founder & CEO of 420 College.

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