• Gavin Kogan

The Tax Problem

The black and gray markets are the biggest winners in California’s newly regulated cannabis industry.

There are many factors suffocating the roll-out of California’s newly regulated cannabis marketplace. From overly local controls (leaving greater than 60% of the state counties and cities banning marijuana), to preventing regulated market participants from selling to unregulated shops (of 2,500 shops, only 400+/- are currently participating in the regulated market), to requiring the testing of cannabis to standards that are not themselves standard - the regulated cannabis market pioneers face a stiff headwind. But no wind is stronger or more bitter than the taxes which force consumers away from regulated shops.

The above chart tracks the sale of a pound of marijuana at $1,000 from the cultivator to the counter, compounding all the taxes it will suffer along the way. The result is a compounded tax exceeding 45% of the original cost. Why would consumers go to a regulated shop that is 45% more expensive than an unregulated shop? They don’t, and that’s one huge reason California’s gray and black markets are the winners in California’s newly regulated cannabis industry.