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Nearly 3,000 illegal marijuana businesses found in California audit, dwarfing legal trade

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Nearly 3,000 illegal marijuana businesses found in California audit, dwarfing legal trade

California’s black market for cannabis is at least three times the size of its regulated weed industry, according to an audit made public Wednesday, the latest illustration of the state’s continued struggle to tame a cannabis economy that has long operated in legal limbo.

Pedro Loyo

The audit, conducted by the United Cannabis Business Assn., found approximately 2,835 unlicensed dispensaries and delivery services operating in California. By comparison, only 873 cannabis sellers in the state are licensed, according to the Bureau of Cannabis Control

The figures are the latest sign of California’s rocky rollout of its legal marketplace, which promised better regulations and control beginning in 2018. Legitimate marijuana businesses have repeatedly criticized state leaders and law enforcement for failing to curb unlicensed dispensaries and delivery services, which sell cannabis at a much lower price by skirting state and municipal cannabis taxes

Earlier this year, an industry-backed financial audit projected that roughly $8.7 billion will be spent on unregulated cannabis products in California this year, compared with just $3.1 billion spent on cannabis sold by legal businesses

Advertisement Officials have also warned that cannabis products sold in the illegal marketplace can pose health risks because the edible products, vaping pens and flower on shelves of illicit stores have not been subject to state testing. Since June, the California Department of Public Health has linked more than 60 cases of acute lung disease to patients who had recently used vape pens, and warned that many of those people had recently purchased products from unlicensed shops

The UCBA, a trade association that represents dispensary owners, cultivators and other licensed marijuana businesses in the state, conducted its audit by scouring the popular and controversial website Weedmaps, which functions as a Yelp-like service for cannabis dispensaries and products

Lawrence Mansour, chief technology officer for APOP Media, a UCBA member focused on cannabis advertising, said he calculated the estimate of illegal operators by compiling a database of every California-based listing for a cannabis dispensary or delivery service on Weedmaps. Mansour said he found 3,757 listings, a number far higher than the total list of approved cannabis sellers registered in the state

Any attempt to quantify the number of unlicensed cannabis sellers in the state would be an estimate. The BCC does not track such data, and there are illegal marijuana businesses in California that do not advertise on Weedmaps

Advertisement The UCBA presented the audit’s findings in a letter to Gov. Gavin Newsom and the cannabis agency early Wednesday and called for a crackdown on Weedmaps, which many in the cannabis industry have criticized for amplifying the reach of illegal sellers

“Every day that Weedmaps continues to advertise for unlicensed retailers they are putting consumers at risk and suppressing the growth and very existence of the legal market,” the letter said. “The unlicensed operators on Weedmaps do not pay taxes or the cost of compliance with local and state regulations, do not follow required worker or consumer protections and do not allow labor unions to organize workers, in turn allowing them to charge a fraction of the cost. Put simply, these retailers, that are allowed easy access to the public through Weedmaps, profit without contributing to California while risking the health and safety of our state’s residents.”

A Los Angeles Department of Water and Power worker shuts off electricity to of an illegal marijuana dispensary earlier this year. (Allen J. Schaben / Los Angeles Times) The trade association also called on the state to retroactively impose millions of dollars in fines on Weedmaps under AB 97, a bill that passed in July and allows for $30,000 in penalties for each day a cannabis retailer operates without a license. Some have interpreted the law to mean that Weedmaps should also be subject to those fines for allowing unlicensed dispensaries to advertise without a license

Alex Traverso, a spokesman for the Bureau of Cannabis Control , said the agency has been diligent in trying to combat the state’s sprawling illegal marketplace

The bureau would love to be able to license more cannabis retail locations in California,” he said. “Unfortunately, there are a number of factors that prevent us from doing that. It’s not all under our control. As far as illegal activity is concerned, the bureau will continue its enforcement efforts and continue looking out for the public’s health and well-being.”

Earlier this year, the agency said it had served 19 search warrants at illegal dispensaries and seized roughly $16.5 million in unregulated cannabis products in the first six months of the year. Both totals were more than the entirety of enforcement actions taken by the agency in 2018

The BCC also sent a cease-and-desist letter to Weedmaps last year, demanding that the website stop working with unlicensed operators. But Weedmaps has argued in the past that it is protected from such orders under Section 230 of the 1996 Communications Decency Act, which has shielded platforms like Facebook and YouTube from responsibility for the content their users post

Advertisement Late last month, however, Weedmaps said it would stop allowing unlicensed businesses to advertise on its platform, an announcement met with a mixture of praise and skepticism from those who consider the website the bane of California’s legitimate cannabis industry

In a statement issued Wednesday, the company said that in addition to requiring new advertisers to provide a state license number, customers will also need to provide a state identification. Despite the effort, Weedmaps Chief Executive Chris Beals said California’s black market would not truly be affected until more municipalities allow legal cannabis sales

“While these policy changes will only have a symbolic impact on the size of California’s unlicensed market without more licensing opportunities and other large listing platforms following suit, we want to continue to lead by example,” Beals said in a statement

Fewer than 20% of cities in California — 89 of 482 — allow retail shops to sell cannabis for recreational use. While many large cities, including Los Angeles, San Diego and San Francisco, allow for the sale of commercial cannabis, even those cities have struggled to curb the black market

Earlier this year, a Times audit of Weedmaps found there are at least 220 unlicensed dispensaries in Los Angeles. By comparison, the city has issued only187 temporary licenses for legal storefronts

Queally reported from Los Angeles and McGreevy from Sacramento. Times staff writer Ben Welsh contributed to this report.