Illegal dispensaries have become a major problem in Los Angeles.
The city estimates that it's lost at least $80 million in revenue from ilicit pot shops, according to a CBSLA report.
As a result, LAPD Chief Michel Moore and Los Angeles Mayor Eric Garcetti have vowed to shut down every illegal dispensary in their jurisdiction.
“We’ve closed 36 illegal dispensaries in this last period. We’ve sent out 231 letters to cease-and-desist,” said City Councilman Marqueece Harris-Dawson, according to the CBS report.
Garcetti has designated a $3.5-million budget to the task.
The city is targeting landowners, Moore said on CBS.
"It’s the landlord that is unlawfully allowing that space to be used for this nuisance activity," Moore said on CBS.
“Since the beginning of this year, the Los Angeles Police Department has conducted 161 search warrants. At those 161 locations, we seized nearly $900,000 in currency, we seized 10 tons of cannabis and we’ve recovered 79 firearms.”
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Worth The Risk?
To understand why illegal shop owners are willing to stick their necks out, we reached out to Growth Network Holdings, a holding company that owns The High Note, a legal chain of LA cannabis dispensaries, among other brands across the cannabis supply chain.
Erin Fay, the company's vice president of external affairs, explained why the barriers to entry for a startup looking to become a licensed and compliant operator are so high.
“The capital required to open doors and operate according to the rules and regulations are insurmountable for many startups. Add in the tax rates, and compliant operators are getting priced out of the competitive market.”
The process of obtaining a retail license is a competitive, expensive and arduous one, Fay said.
“Operators are motivated to take the risk in the illicit market because they can open doors fast and make a profit until they get caught.”
Fay emphasized the market weight behind illegal pot shops. A demand for lower prices keeps the black market going, she said.
“Customers want to pay lower prices, so they are motivated to buy from illicit operators. As long as there are illicit dispensaries with customer demand, the market for illegal grows to operate remains as a result. It's an ongoing conundrum between government and the illicit market that will continue until major progress is made in the industry.”
One Conflict, Two Approaches
Both the LAPD and Garcetti’s office did not respond to requests for comment from Benzinga.
Fay said there are other avenues of dealing with illicit pot retailers. One of them: the SAFE Banking Act, which she said would alleviate some of the financial pressure on the industry.
The licensing process could be improved as well, she said.
"It is inhibiting good operators from entering the space because of the limited number of licenses awarded and the laborious process overall. Government needs to work with the cannabis industry to incentivize operators to enter the legal market because many licensed operators are struggling, while some illicit operators are thriving.”
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Photo via Wikimedia.
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