After CA Legalizes Weed, Local Dealers Brace To Compete

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When it comes to doing business, Leaf isnt discrete. The friendly 25-year-old saunters around Dolores Park in San Francisco with a big teddy bear on his shoulder and a ring of plastic marijuana leaves around his neck. You cant miss him.

Selling weed is his game, one he wont quit anytime soon. Yes, recreational cannabis was just legalized in California on Nov. 8, heralding a new era of pot consumption in Americas most populated state. But hes not worried.

Ill still be out here, because what happens when you dont want to go out to the club? Leaf said of recreational dispensaries. Its about convenience, and I always have stuff on me. Im right here.

Many Bay Area dealers like Leaf whose full name has been withheld to protect his identity are confident that they can compete with the onslaught of pot clubs that will open in the wake of Proposition 64s passing. Thats because their informally sold, tax-free goods are cheaper than anything that will be sold legally.

This has proven true in other places that have legalized marijuana. Experts say the black market is alive and well in Colorado and Washington, and theres little reason to believe that California will be any different. If theres still money to be made underground and as long as it costs upwards of $500,000 to open a pot club its likely that dealers will keep up the hustle.

Typically, dealers are not looking at legalization and saying, Where do we go next?, said Francisco Gallardo, who helps young men of color escape gang violence in Denver. Theyre thinking, Im going to make the most money I can until the market dont bear it anymore.

Still, there are some dealers who want to go legal, even with the odds stacked against them. And then there are those who might leave for states with greener pastures; states that havent legalized, that is.

The excise tax and the black market

According to Prop. 64, recreational – or as some pot gurus call it, inspirational – pot products at state-licensed shops will carry a 15 percent excise tax on top of regular sales tax; municipalities can charge additional taxes. A levy will also be imposed on licensed cultivators.

This is all to say that legal weed, because of its hefty taxation, will be pricier than what you can buy off the so-called black market. In Colorado and Washington, the price differential has motivated many weed consumers especially those who cant afford dispensary premiums to stick with the illegal stuff, even if it puts them at risk of arrest.

A lot of your traditional pot smokers say, I already have a guy when its legalized. They trust their dealers, said Brian Yauger, president of Front Runner, a business intelligence company for the legalized cannabis industry.

To some extent, you get what you pay for, Gallardo said. You can peruse strains with varying potencies and effects at a dispensary. Yet price reigns supreme.
They could care less what it is, Gallardo said of those in Colorado who continue to buy from dealers. If it fires them up, theyre all good.

In a report released by Front Runner in July, economists estimated that 34 percent of the pot sold in Washington is illegal. Although the average consumer would prefer to purchase legally, given the price sensitivity, there is little to no incentive to convert away from the black market, economist Beau Whitney writes in the report.

Without local and sales taxes figured in, Washingtons excise tax on marijuana sits at 37 percent, more than double Californias proposed rate. Learning from other states mistakes, ballot initiatives across the United States now propose rates between 10 and 25 percent.

Still, experts say the black markets in California and Washington have weakened since legalization. As larger grows have come online, pot club prices have dropped a bit, making them more competitive with dealers, Gallardo said.

It remains to be seen how Californias tax on marijuana which is expected to bring in annual revenue of $1 billion will influence underground sales. And we dont know how much towns and cities will tack onto the price with local taxes. But its clear that the closer Californias pot clubs can get to street prices, the more the black market will shrink, Yauger explained.

People will pay the extra dollar or two for something that is tested or proved, Yauger said of regulated marijuana. But they wont pay double.

Still money to be made

Some California dealers are paying attention to Prop. 64, and what has played out in other states. Others are hanging on and hoping for the best.

And then there are those who want to go legal, but find the paperwork, regulation and costs daunting.

Two dealers in San Francisco Leaf, and another called Rolando expect their cash flow to remain strong if recreational marijuana is legalized. Leaf said he makes about $5,000 a month, half of which goes to his mom. Rolando, 30, would only say that he brings in quite enough.

Although both are willing to bet that they will stay afloat, Rolando and Leaf have different views on legalization. Rolando, who also grows, said he never intends to go. He knows what pot goes for at the clubs, and he knows he can compete on the street with much lower overhead costs.

A registered retailer has no way to sell the product for a good price. And I know how to sell it out here, he said, later adding, I dont want to pay taxes, or pay the monthly rent.

Rolando also sells cocaine, LSD and MDMA providing some extra financial security. And those under 21 will still want weed after legalization, he said. Hell hook them up.

Leaf, on the other hand, seesaws between wanting to open his own shop and using legalization to his advantage on the street. Because he mainly sells at Dolores Park – often to tourists he expects his business will take some sort of hit once recreational dispensaries open up.

But Leaf still fully supports legalization, in part because hes been busted by police several times for selling. He keeps going back to the game, because thats what he knows. But his real passion is Hip Hop, and his weed sales finance his fledging music career.

Leaf expects police will pay less attention to him once cannabis is legal, even though his enterprise isnt licensed. Making less money for a little less hassle by the cops man, Im down for that, he said.

But Gallardo said for minorities like Leaf, that may not be the case. In Denver, weed is still being used to target people of color, he explained. Police can still employ probable cause to search inner cities for illegal cannabis grows and sales, Gallardo said, and at disproportionate rates.

A related problem is that weed dispensaries tend to be owned by affluent white people, Gallardo added. So Leafs goal of opening a pot club one day may be, well, a pipe dream. He brings in around $60,000 a year right now, but thats not nearly enough. It costs about $500,000 to $1 million to start up a pot club, Yauger said.

I almost feel bad for the black market growers and dealers who fought and fought and fought for legalization, he went on. Then it becomes legal, and because they didnt have the backing or the money for the facilities they dont stand a chance.

Another dealer, who goes by Keith, also wants to go legal. After years of selling in North Carolina, the 30-year-old moved to Oakland when he realized most of his supply was coming from the Bay Area. He decided to cut out the middleman.

Keiths goal was go grow, farm, and sell to medical marijuana dispensaries here. But the associated costs and regulatory hoops overwhelmed him.

He also tried to get an Oakland permit for extracting and selling cannabis concentrates, but the process was too complicated, he said.

Then Keith was convicted of two felonies after being caught with three pounds of marijuana in his car. He says he was transporting the goods between a legal grow operation and a dispensary. Now, most of Keiths money is made from buying marijuana in bulk from Northern Californias Emerald Triangle and shipping it to other states. North Carolina and Florida are his big ones.

Keith says he could make $20,000 on a good month. Until weed is legalized across the United States, he can count on that business.
But the out-of-state money isnt worth the risk, Keith said, and he will keep trying to go legal. His goal it to produce cannabidiol, or CBD, pills for cancer patients. The capsules wont get you high, but do treat pain and nausea. I want to have a company where I hire people, pay taxes, Keith said. Something I can be proud of, you know?

Theo, a 64-year-old, has a much smaller sales radius than Keith. The veteran deals only at San Franciscos Hippie Hill, as he has done for 15 years. Hes against legalization, as he thinks it will cause his business to dry up.

But Theo isnt stressing. If his sales go south, he says, so will he to states where his product isnt regulated.

Ill go someplace else. Theres more states in the world that I can go to, he said as he pet his beard, his eyes shining beneath weathered eyelids. And everybody on Earth smokes weed.

News Moderator: Katelyn Baker
Full Article: After CA Legalizes Weed, Local Dealers Brace To Compete
Author: Laura Newberry
Contact: Mission Local
Photo Credit: Laura Newberry
Website: Mission Local