California Cannabis Regulators Commit to Combating Unregulated Market in 2022

During an hours-long meeting of California’s cannabis regulators and advisors on Monday, one topic came up repeatedly: the state’s persisting unregulated market. 

On Monday, the Department of Cannabis Control (DCC) hosted a Cannabis Advisory Committee meeting, during which DCC director Nicole Elliott gave a report on priorities, from equity to the unregulated market. This summer, Elliott took the helm of the newly-formed DCC, which consolidated cannabis-related regulatory activities of ​​the Bureau of Cannabis Control and the Departments of Consumer Affairs, Food and Agriculture, and Public Health.

California voters approved adult use cannabis in 2016, and has been legal since 1996, but the majority of California’s cannabis industry remains unregulated. This has posed a significant challenge to the viability of legal operators.

“There’s been a lot of work to address the illicit market since the department was formed,” Elliott said, laying out that their team was involved in the serving of 152 search warrants specifically targeting unlicensed cannabis activity. These warrants led to the seizure of more than 74,000 pounds of cannabis and products that were worth almost $428 million. Members of law enforcement also eradicated 12,000 plants and seized just over $985,000. In the process, police also seized 115 firearms, Elliott said. These targeted activities were part of “focused efforts” in areas like Mendocino County, Siskiyou County, and the Southern California High Desert Regions to “support enforcement against water diversion,” Elliott said.

“The enforcement division continues to partner with local law enforcement agencies to address unlicensed activity and will be increasing their efforts moving forward,” Elliott said. 

Elliott said that the DCC currently partners with local sheriffs and police, the California Department of Tax and Fee Administration, Fish and Wildlife, the Water Resources Control Board, the Department of Forestry and Fire Protection, the Department of Industrial Relations, among others. 

“As we proceed in the future, the division and the staff will be out in the field engaging with licensees on all issues related to compliance, as well as continue its field work in collaboration with other state agencies to mitigate the impacts of unlicensed cannabis activity on the environment, and to further address gray market activity,” Elliott said. 

Elliott also covered a bit of what the state’s cannabis industry and policy stakeholders can expect in 2022. The DCC, for example, will continue streamlining the application process, and will implement a fee waiver for equity applicants, with an eye toward whether the DCC will need to “iterate that program.” Also, the DCC will “support locals as they look to onboard regulated activity in their jurisdictions and to meet our statutory mandates.” The DCC also anticipates a “huge push” on recruitment related to hiring for cannabis-related operations. 

Elliott also talked about the implementation of the $100 million Local Jurisdiction Assistance Grant program, which will “drive resources” to 17 localities with the “greatest need for transitioning provisional licenses to annual licenses in the years to come.” 

In October, the DCC opened the application window for $100 million in local grants, earmarked in the state’s -22 budget, which is aimed at bringing the state’s unlicensed operators above board. There were also legislative attempts to fix the unregulated market problem, including AB 1138, which will fine those “aiding and abetting unlicensed commercial cannabis activity” up to three times the cost of a cannabis license fee, but no more than $30,000 total.

“California’s illicit cannabis market is out of control, being three times the size of the state’s regulated market,” Assemblymember Tom Lackey, who co-authored the bill, told Cannabis Wire when lawmakers sent the bill to Newsom’s desk. “This bill allows enforcement officials to penalize those who assist the illegal market in jeopardizing the health and safety of our communities.”

Darren Story was one of several public commenters who drew attention to the problem that the unregulated market creates for the regulated market, members of which say they have been buckling under the weight of taxes and regulations, in addition to the unregulated operators.

“You don’t beat the illicit market with enforcement. That’s nothing but a drop in the bucket. We must focus on competition,” Story said, directing his comment toward Elliott specifically, adding that the director’s report is “nothing but lip service until she gives us a competitive advantage to quash the black market with the only thing that matters in business, which is economics.”

Story referred to the search warrant numbers as “measly” and suggested that cultivation taxes be scrapped. In recent weeks, several groups, including Cal NORML and Cannabis Business Association of Sonoma County, have pushed against a cultivation tax hike expected to kick in next month.

Story continued, “ Pathetic compliance and enforcement actions won’t prevent consumers from purchasing illicit products when they are at least 50% less expensive than what we can sell.” 

Another commenter who didn’t share their name said that taxes account for “way more than what I’m even making,” so lower taxes will “help farmers to be able to sell their product.” 

When the conversation shifted to topics of discussion for next year, and possible new committees, the unregulated market again came up. 

Cannabis Advisory Committee member Avis Bulbulyan said that “the solution should not be more regulation.” 

“The black market is undermining the legal market, but we never have a conversation about how the regulatory environment on the regulated side is actually fueling the black market side of it. And these days, a lot of the sound policy takes a backseat to politics. Whenever one is saying that the problems are over-regulation, the solution should not be more regulation,” Bulbulyan said. 

Multiple people speaking during one of the public comment windows asked for a future proposed topic of debate to be focused on public health and youth use. 

Member La Vonne Peck, Tribal Chair of the LaJolla Band of Luiseno Indians, also requested a conversation on how to lift up Indigenous Californians. 

“It’s a billion dollar market in this state and we are not at the table,” Peck said. “We have people that are growing on Indigenous lands. The tribe has passed rules and regulations. But even at that, they can’t sell to licensed dispensaries. So I would really like us to have somewhat of a conversation next year on this issue.” 

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