An illicit grow room in California (Courtesy photo)
California is approaching its fourth year of legal recreational marijuana, yet the underground market is as strong as ever and is making it harder for licensed companies to eke out a profit.
Saddled by steep regulatory and compliance costs, legal marijuana companies in California can’t compete with illicit operators on product prices.
Administrative bottlenecks, substantial capital requirements and dysfunctional social equity programs have kept many legacy players out of the legal marijuana market.
At the same time, cheaper operating costs and limited legal risk continue to fuel the underground trade.
That picture emerges after MJBizDaily spoke with three longtime unlicensed operators who agreed to discuss their lucrative cultivation, sales and consulting businesses as well as the challenges of becoming a licensed company.
The three operators, who agreed to speak on the condition of anonymity to protect their businesses, are a fair representation of California’s legacy market – and they serve as a warning for marijuana entrepreneurs and regulators in new markets.
The three operators’ comments underscore why illicit businesses are choosing to remain under the radar versus becoming licensed growers or retailers.
“You’re facing the largest uphill battle to break something up that has been ingrained in this area for almost two or three decades,” said an unlicensed cultivator from Palmdale, in northern Los Angeles County.
“You can’t beat that monster.”
That operator is among thousands of illicit business owners who’ve grown and sold cannabis for decades as well as built networks of distributors and loyal customers – long before skirting the 20%-30% tax markups faced by licensed businesses in California.
Most of their bulk flower never leaves Southern California, reflecting the strong demand for illicit cannabis in that region.
Published: July 19, 2021
Founder & Interim Editor of L.A. Cannabis News