Marijuana: A legal business still racked by crime

Marijuana. Tony Savino/Corbis via Getty Images

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Six years after California legalized recreational marijuana, the cannabis business has badly failed in its promises, said Patrick McGreevy in the Los Angeles Times. California continues to expand and fine-tune its laws; last week, Gov. Gavin Newsom signed 10 separate bills to bolster the legal cannabis market. But what was supposed to be a profitable legal business has turned into a nightmare of "organized-crime operations that run massive unlicensed farms and storefront dispensaries in plain view." Illegal operations proliferate, and legal ones are controlled by a small number of politically connected players. A legal loophole let just 10 companies acquire 1,862 growing licenses, or 22 percent of the state's total of 8,338 permits. Decisions on whether to allow local sales were left to cities and towns, and most "rejected allowing cannabis businesses in their jurisdictions." Meanwhile, in rural communities, "criminal enterprises operate with near impunity, leasing private land and rapidly building out complexes of as many as 100 greenhouses," said Paige St. John, also in the Los Angeles Times. Decriminalizing a profitable industry opened the door to "a global pool of organized criminals and opportunists." Robberies, kidnapping, "squalid" working conditions, and environmentally ruinous practices are the norm. The small growers the law was supposed to help have been pushed out. Noel Manners, a pioneering licensed grower, found men with bandanas and an assault rifle setting up an illegal operation on his land. "That was my cue to leave," Manners said.

"Cannabis legalization was supposed to make a slew of entrepreneurs rich," remove the criminal element from the business, and bring in billions of dollars in taxes to boot, said Will Yakowicz in Forbes. On all this — except, arguably, the last part — America is "blowing it." Marijuana is now a $72 billion-a-year in revenue industry, but only about $25 billion of that is legal. In practice, states have regulated most legal cannabis businesses into oblivion. Sales taxes are as high as 37 percent. "And although marijuana remains illegal under federal law, Uncle Sam still holds out his hand"; unable to deduct most of their expenses, legal pot companies end up paying a tax rate of 60 percent or more.

Access to legitimate banks has been one of the biggest barriers to legal businesses, said Fred Thys in Vermont's VT Digger. Take the example of Vermont. One bank that has opened its doors to marijuana businesses, Brattleboro Savings & Loan, "estimates that it needs one full-time employee specializing in compliance with federal regulations for every 15 accounts." That has meant a profusion of fees, and for many smaller operators they're just not worth it. "A lot of the growers are saying, 'I'm not going to pay $1,000 or $1,500 a month in bank fees,'" says one lawyer specializing in the cannabis business. "I'm going to take this cash and keep it in a safe in my house."

The marijuana legalization movement "looks unstoppable," said J.D. Tuccille in Reason, but other states appear determined to repeat the mistakes made by California. Recreational marijuana is now legal in 19 states and will be on the ballot in five more this November. "Whether ballot-box decisions result in functioning, aboveboard markets is another matter."

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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