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Sonoma licensed cannabis dispensers optimistic that black market will diminish

State regulators erupted certain corners of the California cannabis industry earlier this year by threatening to fine Weedmaps.com and hundreds of its clients for unlawful advertisements.

Weedmaps provides an online advertising platform for cannabis retailers. While some of those retailers are operating legally, others are not, and Weedmaps has refused to shut out any of its paying clients. Businesses that disregard the state’s newly imposed regulations and evade taxes are able to undercut their licensed counterparts with far lower prices.

While some of the state’s licensed businesses have complained about the unfair playing field, others express optimism that the illegal activity will gradually self-correct as the cannabis market matures in California.

If an enforcement crackdown doesn’t solve the problem, retailers believe that other forces will. For one, cannabis distributors are increasingly reluctant to bear the risk of working with an unlicensed retailer. And customers seem willing to pay higher prices for the peace of mind of purchasing a lab-tested product in a friendly environment.

“Unlicensed businesses may be taking a chunk (of our profit), but I know they won’t be viable for much longer,” said Nicole Williams, lead supervisor at Sonoma Patient Group, a Santa Rosa-based dispensary.

Screenshot of Sonoma County cannabis delivery services listed on Weedmaps.com in April 2018.

Sonoma County cannabis delivery services on Weedmaps.com in April 2018.

Many of the unlicensed businesses targeted by the state Bureau of Cannabis Control in February are cannabis delivery services advertising on Weedmaps.com. The website currently displays over a dozen cannabis delivery services in Sonoma County. A March 2018 analysis by the Sacramento Bee showed only six licensed cannabis retailers in the same region.

The unlicensed marijuana deliverers advertising on Weedmaps or Craigslist are often young people illicitly growing marijuana in their home, Williams said. The customer accepts significant risk in that type of transaction, because the sale often occurs in a parking lot away from public sight.

“All our clients shop with us because they feel safe,” Williams said.

State officials say that a stronger crackdown on unlicensed activity is coming. Democratic Assemblyman Jim Cooper has introduced a bill to fine unlicensed cannabis businesses $10,000 for each advertisement that fails to display a state license number, as mandated by law.

Lori Ajax, chief of California’s Bureau of Medical Cannabis Regulation. (AP/Rich Pedroncelli)

Whether or not Cooper’s bill becomes law, the state Bureau of Cannabis Control (BCC) also plans to move forward with levying fines on unlicensed operators, though officials have not yet determined a timeline for doing so.

“At some point you say, ‘Okay, these folks aren’t getting into compliance.’ Then you have to take that next step,” said BCC Chief Lori Ajax.

While the state of California is considering fines for unlicensed businesses, Ajax noted that local governments can impose both civil and criminal sanctions for the same activity.

Eli Melrod, CEO and co-founder of Solful dispensary in Sebastopol, acknowledged that competition from unlicensed operators has proved a challenge to his business. But he also sympathizes with well-meaning growers and retailers who have struggled to become licensed due to the layers of regulatory hurdles.

Melrod said he would prefer to see the state focus on easing taxes and regulations instead of threatening fines.

“There will always be a black market, and if the taxes remain too high, the black market will continue to flourish,” he said.

Caity Maple, a lobbyist with the Cannabis Courier Association, a small Sacramento-based trade group of cannabis delivery businesses, lauded government regulators that are postponing civil or criminal enforcement while businesses work to become licensed. Maple said she would like regulators to offer a window of amnesty before issuing penalties.

“We should allow some padding time for people who are truly trying to get there,” she said. “A lot of cities and counties are working with people like that and the state is working with people. But it’s going to take some time.”

Briana Khan, a spokeswoman for the Sonoma County Administrator’s Office, said the county can assess civil or criminal penalties on unpermitted cannabis businesses, which start at up to $10,000 per day. No citations have been issued to date, however, because businesses who have been targeted by the regulators have ceased operations following a warning.

“Increased enforcement has been occurring and will continue to occur,” Khan wrote in an email.