I just finished reading a post detailing the action taken by California lawmakers to roll back their recently enacted excise tax increase on the legal cannabis industry. The post reminded me just how much the black market loves state taxation. It is their best friend from a business standpoint.
The First State to Legalize
California became the first state to green-light cannabis when voters approved a medical cannabis proposition back in 1996. It did not take Golden State voters long to follow up with a successful recreational marijuana proposition.
Despite leading the way on legalization, California has a long history of its legal market fighting for survival against black market competitors. At the heart of the fight is taxation. Simply put, legal operators effectively cannot compete because taxes are so high.
For years, every business owner, from the local grower to the inner-city dispensary, has been begging Sacramento to ease up on taxes and regulations. But with every opportunity, lawmakers cannot seem to resist tax hikes. So why did they roll back their most recent hike, a hike amounting to 25%? I don’t know.
Regulation Stifles Business
Regardless of industry, the truth is that regulation stifles business. Not that all regulations should be scrapped. We cannot go to that extreme either because there will always be people who misuse and abuse their business opportunities. But the golden rule among lawmakers should always be as little regulation as necessary.
While California seems to have gone overboard on regulation and taxation, Utah has done just the opposite. Although the Beehive State is one of the most tightly controlled medical cannabis markets in the nation, all its regulations are reasonable and minimally restrictive.
Companies like Beehive Farmacy do very well. Beehive operates two medical cannabis pharmacies, one in Salt Lake City and the other in Brigham City. Likewise, all the licensed growers and processors in the state are thriving despite Utah having its own black market to contend with. Visit Beehive for more.
The Black Market Is Never Going Away
Utah’s medical cannabis environment is a clear demonstration that the black market is never going away. Utah regulators have built a medical cannabis environment in which legal businesses can succeed. But there will always be black market operators who sell more cheaply because they do not pay taxes or abide by state rules.
All of this is to say that states should not make the issue worse through overregulation or excessively high taxation. California should not continually raise taxes in hopes that consumers will willingly keep paying more for cannabis. At some point, prices are going to drive them to the black market.
A Hard to Ignore Cash Boon
Unfortunately, it seems like more states follow California’s model rather than Utah’s. They see the sheer amount of money cannabis taxes can raise, and they simply cannot avoid the temptation. You can see it in states all across the country.
California has learned the hard way that excessive taxes and regulation kill business. For years, their legal marijuana market is been on the verge of collapse. It still might collapse despite Sacramento rolling back the most recent tax hike. The truth is that states can only tax legal cannabis so far before consumers are no longer willing to buy it. They will go to the black market and take their chances instead.
I will be watching California to see what happens over the next couple of years. The tax rollback is only good for five years. We will see what happens in 2030 – if the legal market is still operating then.
