State's legal pot industry seeks rescue plans

Based only on the number of legal marijuana shops in Santa Cruz County, you could think that legalized pot is an unqualified success in California. But, it's not.

Answers as to why this is require a brief historical recap.

In 1996, voters approved Proposition 215, allowing the use of marijuana for medical purposes. But that measure offered little if any guidance about cultivation and distribution, product safety, financial transaction, or environmental degradation from illegal pot grows.

This situation — unregulated for the most part and chaotic — continued for nearly 20 years until 2016, when voters approved Proposition 64, legalizing marijuana for recreational use. We opposed this measure, arguing that pot would remain illegal according to federal statutes and that the health and safety implications of marijuana use, especially among young people, were obvious and harmful.

The measure created a new framework for the marijuana industry, and was touted as providing up to $1 billion a year in tax revenue, giving local control over retail pot sales and ending illegal grows on public lands that depended on dangerous pesticides, stolen water, armed guards and that were sometimes controlled by cartels.

More than six years later, many of the Prop. 64 promises remain unfulfilled. Growers report they haven't been paid for crops and fear that unless they return to illegal grows, they'll lose their properties. In response to a clearly flailing industry's concerns, California has pledged to reinvigorate law enforcement eradication of illegal grows.

But growers and sellers say taxes and red tape are a reason why wholesale prices have plunged — and that California produces far more pot, much of it illegal, than gets used here while exporting marijuana outside the state is not legal.

Complaints led to state legislators last summer eliminating a tax on growers, switching collection of the state excise tax from distributors to retailers and pausing for three years that tax at 15%. The industry says, however, taxes must be cut even further to compete on price with the illicit market.

As of last August, since January 2018, total cannabis tax revenue since January of 2018 was $4 billion, including $2 billion in cannabis excise tax, $494.1 million in cultivation tax, and $1.5 billion in sales tax.

Meanwhile, cities and counties struggle to enforce marijuana laws, because, among other reasons, the 2016 ballot measure reduced penalties for most pot offenses.

Several large pot companies — including one led by the family of the late Grateful Dead musician Jerry Garcia — have in recent months said they are pulling out of the California market because the lack of enforcement on the illegal market has impaired their chance at a decent return on investments.

Now, some legalized marijuana advocates are proposing an interstate agreement that will allow them to export their pot to help rescue the embattled industry.

Last fall, state legislators passed a law that would lift the state ban on marijuana exports and authorize the governor, with several conditions, to enter into compacts with other states where marijuana is legal to provide “additional legal outlets for cannabis and cannabis products produced in California.”

In a recent memo, the state Department of Cannabis Control argued that the federal government cannot “compel states to prohibit commercial cannabis activity as a matter of their own state laws.” In other words, while federal law enforcement would still be able to prosecute marijuana businesses, the state agency says that interstate compacts to sell a federally illegal drug would pose no legal risk to California, an extremely dubious proposition.

To say the least, none of this is working as Prop. 64 promoters promised.

California is not going to reverse course on the recreational use of marijuana, but the 2016 measure is clearly a failure. A better legislative and regulatory approach is badly needed.