And although marijuana remains illegal under federal law, Uncle Sam still holds out his hand for a big cut pot companies are not allowed to take most normal business deductions, leaving them with an effective tax rate of 60% or more. State taxes on retail sales are as high as 37%. So much for “legalization.”Īmid collapsing prices, the legal weed industry shoulders a tremendous tax burden that its illicit competitors don’t.

The numbers nationally are similarly tilted toward the black market, with $25 billion worth of pot sold legally last year and almost twice that much moved the old-fashioned way, according to research from investment bank Cowen Inc.ĭespite the fact that 60% of Americans support legalization for recreational use and 91% for medicinal purposes, the Drug Enforcement Administration recorded 6,606 marijuana arrests in 2021, a 25% increase over the prior year, with Black and brown people making up a majority of those arrested. In the United States’ largest cannabis market, consumers spent $5.1 billion on legal weed last year-and an estimated $15 billion on illegal bud. Thus, legal prices are plummeting-by 35% in California in the second quarter alone compared with the year before. With so much pot chasing so few retail outlets, a lot of the extra weed funnels into the black market, which was supposedly going to be eradicated when marijuana went legit. One result is that California is home to just 1,000 dispensaries-one for every 40,000 residents. Weed Chipper: Huckleberry Hills Farms' Johnny Casali routinely pulps huge portions of his cannabis crop because California is growing too much. As such, most dispensaries are cash-only-a dangerous absurdity in an increasingly cashless world. Third is the continued federal ban on marijuana, which makes building a business extremely difficult and limits access to the mainstream banking system. Second is regulation: Many states make dealing with weed more complex than handling weapons-grade plutonium. First, there’s Nimby-ism: Even in weed-friendly California, nearly two thirds of municipalities have refused to allow legal dispensaries within their borders. But gaining approval to sell it is complicated for retail outlets. Many farmers therefore began growing it in search of green riches. It’s easy enough to get a permit to grow marijuana, a crop that proliferates abundantly if you know what you’re doing. The trouble boils down to simple supply and demand. With the wholesale price of pot per pound in California down 52% since 2017, the year before legal recreational sales started in the state, squeezing out a profit is nearly impossible. Some 95% of California cannabis cultivators operated at a loss last year, according to Jonathan Rubin, CEO of New Leaf Data Services, an institutional-grade wholesale price tracker.

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