From dispensaries to delivery services, illegal cannabis businesses have plagued California’s marijuana industry since medicinal usage became legal in 1996. Now that recreational marijuana is legal in the Golden State, high taxes have fueled concerns about the strength of the black market.
At the behest of licensed cannabis businesses, California’s Bureau of Cannabis Control (BCC) recently sent out nearly 900 cease-and-desist letters to companies that haven’t started the legal application process. The BCC also targeted dispensary finder sites like Weedmaps, signaling that it will no longer tolerate advertising “gray market” businesses to state residents.
Sounds good, right? Unfortunately, BCC Chief Lori Ajax has also predicted supply chain disruptions due to the current lack of properly licensed businesses. It may be tempting to work with non-compliant businesses to avoid disruptions, particularly if you have previous working relationships. However, Caliva Compliance Manager Jessica Box puts it plainly: “To avoid trouble down the line as a state-licensed entity, only do business with state-licensed entities.”
So what’s a licensed company to do? Let’s take a closer look at what illegal business are, how they harm both consumers and legal businesses, and what you can do to keep your customers happy while also combating the black market.
What Is an Illegal Marijuana Business?
An illegal marijuana business is one operating without a state-issued license. BCC Chief of Communications Alex Traverso told Marijuana Business Daily that the bureau locates unlicensed companies through Weedmaps and similar sites like Leafly: “We’ve been going and looking at those folks that are listed there and double-checking in our system to see if they have a license, and if they don’t, they’re getting a letter.”
Traverso classified illegal businesses in two categories: those who aren’t aware/don’t fully understand the changes in the cannabis marketplace, and those who are deliberately operating without a license with no plans to come into the legal fold.
Unlicensed Businesses Hurt Consumers and Honest Companies
Legal marijuana businesses in Los Angeles face a particularly uphill battle, with the LAPD recently estimating that anywhere from 200-300 dispensaries are illegally operating within city limits. This sharp rise in illegal dispensaries hurts legal businesses in two big ways: unlicensed businesses avoid the costs associated with complying with 2018 rules (product testing, new packaging, etc), and they’re able to sell cannabis at lower, untaxed rates.
Though applying for a license and remaining compliant can be a headache, it’s necessary for creation of a mature, thriving multi-billion-dollar industry. Illegal, unlicensed operations damage the industry’s reputation and its bottom line: black market sales aren’t subject to taxes or contaminant testing, both of which increase the price of legal marijuana. Unlicensed businesses also present a large trust issue – if a business isn’t being honest with the state, can you be sure they’re being honest with you?
Licensed Businesses Will Have to Wait It Out
The cease-and-desist letters, though lacking any clear warnings or ultimatums, are the first step to eliminating illegal cannabis businesses in California. The letters informed proprietors that violations of the law could result in criminal penalties as well as fines that triple the total of a license fee for each violation – with licenses ranging from $500 to $125,000 depending on the size and type of business.
It’s still unclear what the state’s next steps will be for non-compliant companies. But for now, California seems content in taking a friendly, rather than adversarial, approach to compliance. Box’s advice to legal businesses: resist those shortcuts, perform due diligence and continue to weather the storm. “The state will eventually take care of things. The Bureau of Cannabis Control has begun to acknowledge the problem.”
Caliva Compliance Analyst Amy Zuffi adds, “Always verify that any company you plan to work with holds the proper license(s).” The BCC offers a complete database of state-licensed businesses online. You can also file complaints about unlicensed businesses with the BCC.
How Caliva Handles Compliance
Caliva currently holds 11 separate cannabis licenses, from nursery to retail. To track and maintain our compliance with a high level of transparency, we have a Compliance Department dedicated to helping us meet and exceed state regulations. The department’s mission statement is clear:
“Caliva’s Compliance Department is here to do the right thing, in the right way. Our objective is to achieve total compliance with relevant laws, policies, and regulations and to be the standard that the rest of the industry is compared to. We will achieve this by instilling a culture of consistency, transparency and access throughout the organization. We will partner together as a team to achieve these goals and ensure the success and sustainability of Caliva.”
Our successful execution of this mission statement is one of many reasons Business Insider ranked us as the best marijuana dispensary in America. To further fulfill our mission, we’ve conducted several compliance webinars addressing some of the most frequently asked questions about the industry.
Our next webinar, where we’ll talk about preparing for 420, will be held March 16 at 12 pm PST. For more information and to sign up for the webinar, visit our registration page today.