California’s cannabis industry raked in a whopping $5.2 billion in 2021, making it the largest legal cannabis market in the world. Coincidentally, California is also home to an illicit cannabis market worth a staggering $8 billion. Experts estimate that up to 90% of the cannabis sold in the state falls into a legal gray area.
California officials are having none of it anymore. State tax collectors have been specifically active against black market sellers, intensifying enforcement against unlicensed cannabis enterprises that owe the state millions of dollars in unpaid taxes. For the past couple of months, the California Department of Tax and Fee Administration (CDTFA) has ramped up efforts against underground businesses that have been raking in billions of tax-free dollars every year.
The agency has carried out raids on underground operators and auctioned off hundreds of thousands of dollars’ worth of assets in a bid to collect unpaid taxes. For example, in late March, the CDTFA auctioned off a Whittier property for $310,000; the property belonged to illegal cannabis operators who owed $850,000 in unpaid taxes. Later in May, the agency also auctioned off a Compton property for $50,000 before auctioning a second Compton property a few weeks later for $256,000.
According to the CDTFA, unlicensed operators used the latter property to sell unregistered and illegal cannabis products. Speaking to “MJBizDaily,” CDTFA spokesperson Tamma Adamek said that the agency is enforcing tax laws on illicit cannabis businesses to level the playing field for licensed operators. However, Adamek says that identifying and locating illicit sellers can be a challenge because they operate underground. Even so, the agency has managed to seize at least $32 million in cash and products since 2020.
Although some assumed that a legal and regulated cannabis market would deal a major blow to the illicit black market, illicit operators have continued to rake in billions of dollars from black-market sales. Illegal cannabis growers often use banned pesticides on their products, and they steal hundreds of millions of gallons of public water every year.
California’s tax man has also set his sights on licensed operators who have fallen behind on their tax obligations. CDTFA figures show that licensed and unlicensed operators owe the state $187 million in back taxes. Adamek states that the agency had put a stop to its tax collection activities during the COVID pandemic but it is resuming collection efforts now that the economy is starting to recover.
As the state cracks the whip against illicit players on the California marijuana scene, licensed companies such as American Cannabis Partners will have a better playing field within which to operate and thrive.
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