STATE SHOULD TARGET ILLEGAL CANNABIS SHOPS

Gov. Gavin Newsom’s remarks this week about reducing state taxes on legal cannabis sales to help the struggling industry were welcome because they recognized an existing problem. But while the industry has long demanded less taxation, taxes aren’t the root cause of headaches for legal shops. That distinction goes to the massive prevalence of illegal dispensaries that sell cannabis products for 40 percent cheaper than legal shops because they don’t pay taxes and fees and don’t always conform with costly packaging and product-testing rules.

In 2016, California voters approved making recreational use of cannabis legal for adults. That same year, the San Diego City Attorney’s Office began targeting the landlords of the illegal dispensaries, not just their owners. This reflected an understanding that civil fines were not effective in deterring illegal sales because they were seen as a manageable cost of doing business in a very lucrative industry. This tactic was so effective that by the next year, illegal stores in the city were mostly eliminated.

When taxes are equivalent to nearly half of the cost of cultivated cannabis because increased supplies have reduced its price since 2016, it is easy to see why legal shops are concerned. But with demand as high for cannabis as it is in California, such taxes would not suppress sales if buyers didn’t have an easy way to get cheaper products at illegal shops.

It is common for governments to struggle in figuring out how to address basic problems. But it is baffling to see a government struggle to fix a problem when there is a solution in plain sight.