In California pot market, a hazy line between legal and not

LOS ANGELES (AP) — 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.

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.

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.

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.

The passage of Proposition 64 in 2016 was seen as a watershed moment in the push to legitimize and tax California’s multibillion-dollar marijuana industry. In 2018, when retail outlets could open, California became the world’s largest legal marketplace and another steppingstone in what advocates hoped would be a path to federal legalization, after groundbreaking laws in Colorado and Washington state were enacted in 2012.

Today, most Americans live in states with at least some access to legal legal marijuana — 18 states have broad legal…