Double dealing: Legal, illicit blur in California pot market

On an isolated farm, greenhouses stand in regimental order, sheltered by a fringe of trees. Inside are hundreds of head-high cannabis plants in precise rows, each rising from a pot nourished by coils of irrigation tubing. Lights powerful enough to turn night into day blaze overhead.

In the five years since California voters approved a broad legal marketplace for marijuana, thousands of greenhouses have sprouted across the state. But these, under their plastic canopies, conceal a secret.

In this April 15, 2019, file photo, a vendor makes change for a marijuana customer at a cannabis marketplace in Los Angeles. (AP Photo/Richard Vogel, File)

The cultivator who operates the grow north of Sacramento holds a coveted state-issued license, permitting the business to produce and sell its plants. But it’s been virtually impossible for the grower to turn a profit in a struggling legal industry where wholesale prices for cannabis buds have plunged as much as 70% from a year ago, taxes approach 50% in some areas and customers find far better deals in the thriving underground marketplace.

So the company has two identities — one legal, the other illicit.

“We basically subsidize our white market with our black market,” said the cultivator, who agreed to speak with The Associated Press only on condition of anonymity to avoid possible prosecution.

In this March 15, 2018 photo, two undercover Los Angeles County sheriff’s deputies dump marijuana into an evidence bag during a raid at an illegal marijuana dispensary during a raid in Compton, Calif. (AP Photo/Jae C. Hong,File) (AP Newsroom)

Industry insiders say the practice of working simultaneously in the legal and illicit markets is all too commonplace, a financial reality brought on by the difficulties and costs of doing business with a product they call the most heavily regulated in America.

CALIFORNIA POT COMPANIES WARN OF IMPENDING INDUSTRY COLLAPSE

For the California grower, the furtive illegal sales happen informally, often with a friend within the tight-knit cannabis community calling to make a buy. The state requires legal businesses to report what they grow and ship, and it’s entered into a vast computerized tracking system — known as “seed to sale” monitoring — that’s far from airtight.

“It’s not too hard” to operate outside the tracking system’s guardrails, the grower said. Plants can vary widely in what each one produces, allowing for wiggle room in what gets reported, while there is little in the way of on-site inspections to verify record-keeping. The system is so loose, some legal farms move as much as 90% of their product into the illicit market, the grower added.

In this March 15, 2018 file photo, an undercover Los Angeles County sheriff’s deputy loads two evidence bags into a van after raiding an illegal marijuana dispensary in Compton, Calif….