Pot legalization in California

Besides the state itself, more than 500 other government entities are now working on local rules that govern the commercial cannabis market with a January 1 2018 implementation date. The state itself has already admitted it won’t be finished, but will be issuing temporary licenses. For those locales that can’t finish, they usually opt to ban the whole market until they can get around to it.

I’d be surprised to hear of another plant species that has so many pages of regulations that have to be read before you can plant a seed. There are far more than any previous state has attempted or needed, and they come with many fees and specialty charges making entry into the “legal” market an extremely expensive endeavor. All licensees will have to hire business professionals and attorneys.

It’s said that California grows 13 million pounds of marijuana, but that might be as high as 20 million this year. The guess is that people in the state consume 3 million pounds a year, about 25% of the production. The remainder is exported to the “illegal” states and provinces in North America.

So pretending that the state achieves 100% success in regulating the market, it will only capture 25% of the product grown there. You can’t get or hold a state license if you export product out of state. Similarly, the state will only capture 25% of the potential tax revenue.

To cover the expenses of creating and administering all these rules, taxes are levied. As befits the scope of this project (and this being California), many new and innovative taxes are being invented. Some are levied and ear-marked for law enforcement to eradicate the 75% of the crop that is not regulated, which, as has been demonstrated for the last few decades, is only about 5% effective. It will not be a surprise to see the total taxation running 50 to 70 percent at the point of sale, making it higher than Washington.

Customers in California buy from the 100% of the producers that do not pay steep start-up fees, they don’t pay onerous taxes, and the cost of product is subsidized by higher wholesale prices out-of-state. That market has been serving the state for 20 years and can be considered quite mature. Prices are low for what is regarded as the highest quality product in the world, yet there is a huge gifting market for those with small means. The agronomic and technical innovations coming out of California right now are breathtaking. On the economic side, dozens of communities have replaced their logging, fishing, and extraction industries with marijuana.

So what we have is a perfectly fine market the state is attempting to replace. It will raise costs, add big taxes, stifle innovation, and charge the consumer too much. Luckily, the state will be unable to touch 75% of the existing industry (even if succeeds totally); the consumers will be able to make their choice.

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