Before medical and now recreational sales of cannabis emerged in recent years, all sale and production of marijuana was illegal and conducted by criminal enterprise. But a new era began with the passage of the Compassionate Care Act in California in 1996.
As exceptions to the Controlled Substances Act in relation to marijuana broadened state by state over time, many legal, social, medical and business issues came to light.
Licensed and legal operations pay fees and have expenses associated with compliance, taxation and infrastructure that the black-market operators do not. On the flip side of that coin, drug dealers felt entitled to seek a higher profit margin to offset their risk of incarceration if they were found to be running afoul of the law and the risk to life, limb and property inherent in operating a criminal enterprise. For these reasons in times past, the price of marijuana was much higher than it had to be based on the true costs of production and administration of bringing the product to market.
In business, competition is a good thing—it leads to consumers being able to acquire the products and services they desire at the best price possible. Competition incentivizes operations in all industries to seek innovative methods for producing higher quality products and delivering them at the best price possible to gain market share and to be successful.
In Arizona, licensed dispensaries are subject to sales taxes, financial audits and income taxes that have special provisions which deny some—if not all—of the deductible business expense that other industries can use to limit their tax liability. These costs are then passed on to the consumer. Dispensaries have many benefits; their taxes support government programs such as education, healthcare and social services; they offer the consumer a wide range of product choices that the local drug dealer cannot produce and distribute; and these products are tested for purity and quality.
There is a lively competition among these operations for market share, but the real competition still remains against the black market—or perhaps the biggest competitor for these taxpaying and licensed businesses is a grey market that exists somewhere in between the legal market and black market. These operations utilize the legal protections afforded to consumers in the medical marijuana market as a cover to distribute products that come from the black market illegally; they advertise on Weedmaps and other online platforms by holding themselves out to be legal, licensed, taxpaying operations while illegally accepting reimbursement for their goods and services. These operations do not pay sales taxes and they are not subject to the audit requirements, licensing fees and other requirements legitimate dispensaries are. They do not pay federal income taxes; their products are not tested for purity and potency; and they tend to be fly-by-night operations and thus cannot be contacted if there were ever a customer issue. Police, who have bigger fish to fry, have trouble differentiating between these grey-market services and stores and the delivery services run by legitimate operators because they operate under the guise of being real medical marijuana operations.
This is an unfortunate situation for consumers and also for society at large. Legitimate operations lose out on business opportunities rightfully theirs, the black market has an outlet for its unregulated wares and consumers are being deceived and deprived of the opportunity to have the benefits of medical-grade products and services. If your local dispensary is licensed, they will have their permit proudly displayed in a visible place; they will be reluctant to sell you a product that is mislabeled or of low quality; and they will not risk their expensive and difficult-to-obtain permit by selling a product to minors or those without a proper medical marijuana card.
Having online ads, a Weedmaps page or even a storefront these days does not equal a respected, taxpaying, licensed business that is in compliance with our states laws. The lessons here are ageless: caveat emptor (or buyer beware), because things are not always what they appear to be.
Aari Ruben is the owner of Desert Bloom Re-Leaf Center.