Authorities Seize Cash Tied to Illegal Pot Shops from Vancouver to California
High tax rates is helping the proliferation of illegal pot shops.
As more and more states and territories shift toward the legalization of marijuana for medical and recreational use, there has also been a growth in the black market for the same. Even in states where there is full legalization, there has been a significant portion of consumers ready to take a risk on illicit providers.
For states like California, the proliferation of illegal pot shops has been primarily driven by the high tax rates that force legal dispensaries to hike prices just to break even. With an effective tax rate of around 50%, these shops are compelled to pass on this cost of doing business to consumers who can ill afford it.
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The Problem with Illicit Pot Shops
With illegal pot shops not subjected to the same kind of regulatory framework and taxation, they can afford to sell their products cheaper. As much of 75% of pot sales in California are said to happen in illicit shops, making for a huge dent in legal sales and a substantial shortfall in potential tax revenues to the state and local governments. There is also the risk of harm to human health, as illicit marijuana products do not undergo the same stringent lab testing as legal shops and manufacturers do. Without these tests, these products could be contaminated with chemicals, heavy metals, and even fecal matter.
In an attempt to curb this trend, authorities have taken a more aggressive approach to identify and shut down illicit shops. In Vancouver, the Civil Forfeiture Office just recently instituted proceedings against two illegal pot shop owners in Pemberton and Squamish, operating under the trade names Grass Roots Medicinal Inc. and Budzilla Cannabis Inc. They are looking to take possession of three properties linked to the owners and cash seized during Vancouver raids that they believe are proceeds from the illegal business. The business owners are also to be prosecuted for money laundering and tax evasion.
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Closer to Home
Closer to home, even more California raids have been conducted to help protect the state’s fledgling marijuana industry and consumers. One of the largest crackdowns took place in December 2019 when two dozen unlicensed shops in L.A. had warrants issued on them. Authorities were able to seize $8.8 million in cannabis products, $129,000 in cash, and around 10,000 in illegal vape pens.
Over the past year, the state has executed more than 120 warrants, arrested over 150 people, and seized over $1.5 billion worth of cannabis plants. This was in the form of over 950,000 plants collected from about 350 illegal growing sites. This effort was made possible by the Campaign Against Marijuana Planting (CAMP) program that is the nation’s largest illegal cannabis eradication program.
This move was lauded by industry players who have long pushed for more crackdowns on illegal operators that have been stealing much of their business. However, despite these cannabis raids across California, it will likely take a long time and considerable effort before the black market is quashed. Jerred Kiloh of the United Cannabis Business Association has confirmed that many rogue retailers will often be shut down, only to reopen a few days later in the same location or nearby.
To help discourage consumers from frequenting such establishments, the state, through the Bureau of Cannabis Control, is running an awareness campaign that seeks to educate the public on the risks of unlicensed operators. A reduction in tax rates may, however, be a better move as it would see licensed dispensaries become better able to price their products competitively.
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Proactive but Controversial
While for the most part, these raids have been to the benefit of the legal cannabis businesses, some federal action has proven controversial. Last year the California Highway Patrol was accused of having seized a large amount of cash from the transport vehicle of a duly licensed California Distribution company after it had made deliveries of cannabis products.
The employees in the vehicle were said to have been detained for over 6 hours and about $230,000 seized. The money was later said to have been transferred to the DHS, which is not prohibited from interfering with state-licensed marijuana businesses. The company is looking into what kind of legal action they can take.
Removing marijuana from the Controlled Substances Act would be the best option in resolving state and federal conflicts. One such legislation has been approved by the House Judiciary Committee and will likely get passed by the Democrat majority house. How it will perform at the GOP controlled senate is entirely another matter.