Legal Insurrection readers will recall that California voters went for Hillary Clinton and legalized pot in a big way during the November 2016 election.

As the state is poised to open up it pot market, it seems “high” isn’t in reference to the marijuana’s effects…but the state’s taxes!

State and local taxes on marijuana could surpass 45% in some parts of California, jeopardizing efforts to bring all growers and sellers into a state-licensed market in January, according to the global credit ratings firm Fitch Ratings.

“High tax rates raise prices in legal markets, reinforcing the price advantage of black markets,” the firm said in a report Monday. “California’s black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production.”

The report said that increased enforcement may blunt the illegal market, “but high taxes may complicate such efforts by diverting in-state sales to the black market.”

But I thought that legalizing pot was going to kill the illegal drug trade!

The rules related to the legal sale of pot are still not entirely clear, despite officials having a full year to craft the regulations.

…In general, California will treat cannabis like alcohol, allowing people 21 and older to legally possess up to an ounce and grow six marijuana plants at home.

Come January, the newly legalized recreational sales will be merged with the state’s two-decade-old medical marijuana market, which is also coming under much stronger regulation.

But big gaps loom in the system intended to move cannabis from the field to distribution centers, then to testing labs and eventually retail shops.

The state intends to issue only temporary licenses starting in January, and it has yet to release its plan to govern the estimated $7 billion marketplace, the nation’s largest legal pot economy.

If businesses aren’t licensed and operating in the legal market, governments aren’t collecting their slice of revenue from sales. The state alone estimates it could see as much as $1 billion roll in within several years.

Operators have complained about what they see as potential conflicts in various laws and rules, or seemingly contradictory plans.

Furthermore, the federal statutes making marijuana illegal make it a challenging business environment, especially in the wake of the wildfires. Banks and insurance companies do not do business with pot farmers, which force them into a cash-only financing and leave them struggling to recover from total product loss.

It is a recipe for economic disaster:

Because the marijuana culture of Northern California has survived in secrecy for the last 50 years, and mostly still does, no one can know the exact loss to the industry.

The threat of losing a year’s crop and cash reserves pushes many growers to take risks a grape farmer neighbor might not.

When the fires broke, farmers thrashed over four-wheel-drive roads with horse trailers full of hastily cut marijuana. Some defied evacuation orders to save the crops.

Others left, and lost everything.

The owners of Mystic Spring Farms expected its 900 marijuana plants to bring in more than $2 million this season.

The 12-acre farm in the mountains of eastern Sonoma County had its own spring for irrigation, buildings for indoor growing, greenhouses and open fields for outdoor farming. The farmers had investors, distributors, attorneys and business consultants.

But they had no crop insurance. When the Tubbs fire roared through the farm this month, they could only count it as a complete loss.

“Everything is gone,” said Kelvin Craver, 36, a onetime Hollywood producer who co-founded Mystic Springs Farms.

So, despite the fun, new legal status pot has in this state, the industry has many challenges to its profitability.


Donations tax deductible
to the full extent allowed by law.