California Gives Up on the Illegal Cannabis Market: Another Update

07 Feb California Gives Up on the Illegal Cannabis Market: Another Update

California publishes quarterly data concerning its “enforcement” efforts against the illegal cannabis market. Over the last couple of quarters, I’ve gotten in the habit of analyzing this data (see here for Q3 2023, and here for Q2 2023). I’ve been blogging here since 2018 and my opinion is that the state is doing very, very little to stop the illegal market. And I’ve got data to support me.

What does California’s Q4 2023 data show?

California published Q4 2023 data just a few weeks ago. In a press release, the Department of Cannabis Control (DCC) director claimed (without strong evidence, I should say) that the state was “effectively decreasing the illegal cannabis market”. Here is the state’s own data for Q4 2023 and 2023 as a whole:

For reference, here is the data from Q3 2023 as compared to Q2 2023:

First off, I don’t really think we should pay much attention to the retail value columns, since it’s not clear how the state is calculating retail value. Obviously, the state has an interest in calculating it in a way that increases the number and makes it look like a “win.” So unless they give us the formula, I think it’s safe to discard that information.

Now let’s break the rest of this down. With respect to search warrants served, within the last three quarters, the state went from serving 92 search warrants, to 60 search warrants, to a depressingly low 24 search warrants. This means that Q4 saw fewer than 1/3 of the search warrants of Q2.

Likewise, the amount of pounds seized went from approximately 66,000, to approximately 61,000, to approximately 13,000 over the corresponding period. Like with the retail volume, I am a little skeptical over the “pounds seized” category because I don’t know how the state calculates this – does it only mean harvested pounds? How does it treat the difference between dried and non-dried cannabis? You get the picture. But either way, the numbers just keep going down.

We see a similar trend with cannabis plants seized. The amount of money seized is up from Q3, but is far less than Q2. And the amount of firearms seized greater than Q2, but way less than Q3.

What to make of all this data? Well, the bottom line is that the state is doing a lot less. I think the most critical point here is the number of search warrants served, which has gone way down. Q4’s 24 search warrants means that the state served about one every three days. That’s in a state where the illegal market is orders of magnitude larger than the legal one. There’s really no good reason why the state is doing this little.

New proposals, but none pan out

California always seems to have some new proposal to tackle the illicit market. Last fall the state proposed a local enforcement program that would draw on the state’s attorney general for support. I predicted that the program wouldn’t work. Now, months later, I don’t have any data on the success of that program, but it was by definition very limited in scope. And if it had been a huge success, we’d have heard a lot more about it.

The state is now considering passing more laws to allow for enforcement. For example, SB-820 would allow the DCC or local jurisdictions to seize property used in connection with illegal cannabis activities. Like we’ve seen over the last few years, expect lots more of these efforts. But don’t expect them to do a whole lot.

The issue here is not that the state does not have tools to adequately combat the illegal market – it does. It’s that it does not use them.

Meanwhile, the illegal market festers

While the state is busy passing laws it probably won’t use effectively, the illegal market continues to grow. Occasionally, a story related to the illegal market makes its way into the mainstream news. For example, the San Bernardino Sheriff recently discovered six dead bodies in a remote area deep within the high desert – all of whom were killed by gunshot wounds. The Sheriff recently announced that the incident appears to relate to the illegal cannabis trade. I recently talked to the Associated Press about this news, and you can read that story here.

It’s important to take a step back and realize that the illegal market isn’t just composed of people who don’t want to deal with the expense and burden of a vastly over-regulated state market. The illegal market can be a pretty grim place, as evidenced by this newest reported development.

Where thing stand on California cannabis enforcement

I expect that some of you might read this and think that I’m an enforcement hawk. I’m not. Here’s what I said in one of my last posts on this matter:

To be clear, I am not a fan of enforcement. I think that incentives work a lot more than disincentives. If the state wanted to eliminate the illegal cannabis market, it should have never required costly licensing or allowed local control. But at this point in time, it’s not really realistic to think that the state will ever do things like eliminate licensing or taxes or do away with local control. Even putting aside the difficulties in changing the law, too many people have spent too much money getting licenses. Can you blame them for wanting to keep the market small?

If the state’s not going to do that, then it needs to embrace enforcement, but with a big caveat. Enforcement on its own didn’t work during prohibition, and it won’t work here. If the state wants to ease up on the illegal market, it will combine incentives and disincentives. In this model, it would eliminate nonsense requirements such as the 6AM to 10PM sales window that the illegal market obviously ignores. It would also be much more aggressive about seizing unlicensed product, even if it didn’t necessarily put people behind bars for decades (which it shouldn’t).

To me, it seems clear that the best way to defeat the illegal market is to widen the tent and make legal participation easy. But if that’s not going to happen, then the state has an obligation to its stakeholders who pay taxes and license fees. And for now, it’s not living up to that obligation.