Image: Justin Cannabis / Shutterstock.com
As cannabis legalization continues an inexorable march across the United States and more jurisdictions embrace adult use, a multi-billion-dollar question repeatedly surfaces: How do we curtail the black market? In an industry where the average nationwide price of licensed products is two to three times higher than illicit replicas, an alarming number of consumers roll the dice with unregulated goods, using knockoffs and fakes that are untested and often unsafe.
California may exhibit the most egregious example of the problem. When voters approved recreational use in November 2016, it was a watershed moment—one that would have ramifications well beyond the industry’s bounds. Three years later, the results aren’t pretty.
Proponents of legalization in the Golden State projected an excise tax windfall of $1 billion a year, but revenue fell far short in 2019 at a paltry $288 million. For 2020, the state projects a modest $359 million. While some of the shortfall can be attributed to the limited number of retail licenses and the high cost of heavily taxed products, the elephant in the room is the black market and the growing presence of forged products.
The companies most frequently targeted by counterfeiters are extract-segment leaders that have created national buzz on social media platforms. For these companies, counterfeiters represent a real threat to the integrity of their brands and their very survival in hyper-competitive markets. For the groups manufacturing counterfeit products and profiting from the slick packaging and branding of legitimate products, things have never been better.
A one-stop distro shop
Strip malls and generic office suites are commonplace in U.S. suburbs. Hundreds of them exist in California’s East Bay area, scattered in cities from Oakland to Livermore. Some have bogus signage; others simply have tinted windows and nondescript façades. Neighboring businesses might be surprised to learn cannabis companies have been using these office suites for years to blend into the suburban landscape, and they use the spaces for everything from packaging products to storing cash in vaults. Such locations also are popular with black market and counterfeit product makers.
As we walked into one clandestine facility recently, the owner—who wishes to remain anonymous—was quick to point out the wide variety of cannabis vape cartridges stockpiled in the front room—thousands of them, stacked floor to ceiling, in knockoff packages that looked identical to those used by the legitimate brands. In the hallway, shelves brimmed with edibles and an array of tinctures. CBD products sat alongside those containing THC. The inventory rivaled some of the smaller dispensaries in the Bay area, and the owner said many of his regular customers are unlicensed delivery services that operate in cities all across the region.
Published: February 06, 2020
Founder & Interim Editor of L.A. Cannabis News