California is one of the best examples of just how much a state-legal marijuana program can achieve if it’s done right. The state has been at the forefront of the efforts to legalize cannabis in the U.S., with the country’s first ballot initiative to legalize marijuana taking place in California in 1972. Although the measure was unsuccessful, California was still the first state to allow medical cannabis in 1996, and recreational marijuana has been legal in the state since 2016.

The recreational program has been especially successful, generating over $1 billion in tax revenue after just two years of operation. These funds have gone towards environmental initiatives like wild-land restoration and park maintenance, childcare and anti-drug programs, and safety grants for fire departments and local police. However, despite all the good it has done, more people prefer to get their marijuana from the black market than the state legal circuit. Why?

Taxes are super high. Most, if not all of the states with legal adult-use cannabis tax cannabis sales at exorbitant rates. It is one of the most compelling reasons for legalizing cannabis, and tax revenue from cannabis sales has been dedicated to several worthy causes. California, for instance, charges cultivators a state tax of $9.25 per ounce of flower, $2.75 per ounce of leaves, and $1.29 per ounce of fresh plant material. It also requires retailers to charge customers a 15% excise tax on top of the market price of any cannabis product and allows counties and cities to levy their own taxes.

Most of these taxes are passed on to the customers and as a result, they end up paying between 40-80% above the standard price for marijuana. The black market, however, is not subject to any taxes and sells at much lower prices, and this attracts a large number of customers away from legal cannabis retailers.

There are few licensed dispensaries, and this limits the supply of legal weed to the market. Every state with legal weed requires the sale of cannabis to be carried out at a licensed dispensary, but municipalities seem to be dropping the ball. The current amount of licensed facilities is nowhere near enough to fulfill the demand for cannabis, and municipalities are failing to provide more licenses to alleviate this. This means that in many places, people do not have access to a licensed dispensary despite weed being legal, or they are subjected to interminably long lines, so they opt for the black market.

Not all cities have legalized cannabis. Although the sale of cannabis is indeed legal statewide, not all counties and cities are required to provide licenses to prospective retailers. By 2019, only half of all counties in California had opted in on commercial cannabis sales, and this has left customers in numerous places with only one alternative, the black market. While the state’s legal cannabis program has been largely successful so far, excessively high taxes, over-regulation, and inequitable access may be its ultimate undoing.

Analysts say that cannabis sector players like Round Meadow Holdings Corp. and Plus Products Inc. (CSE: PLUS) (OTCQX: PLPRF) hope that other jurisdictions which are planning to legalize marijuana consider the lessons observed in California and design ways to stifle the black market more effectively.

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