California Escalates Its War on the Marijuana Black Market

California’s marijuana black market has been utterly ignored by lawmakers. They have now decided to admit defeat and increase penalties for those operating outside the highly-regulated, expensive legal cannabis system.

California’s 2022 fiscal year will see an increase in taxes for legal marijuana cultivation, as well as new penalties against anyone “aiding or abetting any unlicensed dealer.”

A.B. was passed by lawmakers The September lawmakers passed A.B. Gavin Newsom signed it into law in September. It will take effect on the beginning of 2022. California law that legalizes recreational marijuana allows civil penalties for unlicensed cannabis dealers. A.B.1138 could result in civil penalties up to $30,000 per violation for anyone who provides assistance to unlicensed dealers. Each day you do this counts as one more violation.

California’s legalization of recreational cannabis, which was authorized in 2016 by Proposition 64, has proved to be an enormous mess. Although the initiative was approved by voters, municipalities could decide whether they would allow cannabis cultivation or dispensaries. Two-thirds still don’t want to open up shops despite being able to vote. High cultivation and excise taxes are levied by the state, which is further augmented in all municipalities that allow dispensaries.

It has led to severe price and availability issues that experts have estimated that anywhere from two-thirds to three-quarters (or more) of marijuana sales are made through unlicensed dealers. That means that the state doesn’t get its share of the revenues. This is a serious problem that The editorial board of the Los Angeles TimesRecently, it was acknowledged that black markets are fuelled by high prices for goods.

Banner 3

Instead of eliminating these taxes or decreasing them, the state takes a punitive approach. It’s not only lawmakers who want to ensure that the state gets its share of the funds. The bill was introduced by Assemblywoman Blanca E. Rubio (D–Baldwin Park), but the Assembly analysis of her proposal explains that it was co-sponsored by the United Cannabis Business Association and The United Food and Commercial Western (UFCW) States Council, the union that represents some licensed cannabis industry workers. Many licensed cannabis trade associations and industries have signed support.

“[T]The United Cannabis Business Association has sent a support message to the United Cannabis Association stating that it is necessary to shut down the illicit cannabis market in order for legal operators to see an increase in patients and consumers. This creates jobs and revenue for childcare workers. In order to safeguard children, police used to insist that drug dealers must be shut down in the early days of the war against drugs. A cannabis trade group now says that police must shut down illegal drug dealers to preserve state-funded childcare worker subsidies. While it is all about children, the support list for legal cannabis businesses and organizations is large and includes many people who are not affiliated with any child welfare agencies.

Many human rights groups opposed the bill, including Action California of the American Civil Liberties Union (ACLU), and the Drug Policy Alliance. These groups know exactly what will happen when the bill is enforced.

“A.B. “A.B. “The bill exposes employees without equity to the business to severe civil penalties, possibly higher than those that apply to the owners,” warns the ACLU in a State Senate analysis. Unpaid fines can lead to drivers’ license suspensions, arrests, jail and wage garnishment. This civil penalty would be filed by the same prosecutor that could charge criminal violations. Low-income people might face jail or heavy fines. To avoid being liable for large fines and other unpaid debt, they may be forced to plead unjustly.

“Moreover, the bill allows the proceeds from enforcement to be kept by the prosecuting entities instead of being deposited in the General Fund. This could lead to unfair enforcement efforts in certain communities or prosecution units that are solely aimed at generating cannabis fine revenue.

This bill also has a Section 230 side. Sites and platforms are generally protected from liability under Section 230 of Communications Decency Act. This applies to content that is posted by third parties even though they may be unlicensed sellers posting cannabis advertisements. Some representatives of the cannabis industry have been pushing California to make illegal marijuana sales impossible online.

Weedmaps was an important target. It is a California-based marketplace for sellers. It used to be home to more than 5,600 sellers from whom consumers could purchase marijuana. California is home to only around 1,200 licensed sellers, which meant that many listings belonged to unlicensed vendors. Weedmaps agreed to eliminate unlicensed sellers at the beginning 2020, despite pressure. Although many have disappeared, it seems that unlicensed vendors are able find ways around the restrictions of this self-publishing platform.

UFCW has made it clear that they would like the state to focus on online platforms in order to enforce A.B. 1138: “This bill ensures that illegal and non-licensed cannabis operators won’t be able advertise on an Internet website, online app, or mobile application.”

The state Assembly’s internal analysis warns against this happening in the manner that the bill’s advocates believe. Analysis shows that Kamala Harris, California’s attorney-general in 2016, tried to take down Backpage for posting sex trafficking advertisements. However, Section 230 protected the site. Congress intentionally removed these protections from H.R. SESTA/FOSTA is also known as H.R. 1865. SESTA-FOSTA makes it possible for the federal government to bring criminal charges against site operators hosting sex trafficking. But the bill doesn’t include drug dealing or drugs. According to the analysis, “federal law continues to be a significant impediment in enforcement against cannabis business advertisers.”

Although the state won’t likely be able pursue web platforms to satisfy licensed dealers or the unions, they will continue to resist the state (who would like the tax revenue directed towards unionized state employees and as such the state is unlikely to have the ability to take them down). PoliticoNotes, they have stubbornly resisted efforts to reduce taxes. Organizations like the ACLU or Drug Policy Alliance raise alarm bells because of this. The pressure on the state to prove that it is taking action to stop unlicensed dealers can trickle down into targets who don’t enjoy Section 230 protections. A.B. 1138 won’t end California’s marijuana black market. This will only increase the intensity of a drug war that has been mandated by both industry and unions.