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California May Impose New Fines on Businesses that Aid Illicit Cannabis Market

Licensed cannabis businesses struggle to compete with the black market, evidenced by the fact that roughly 80% of cannabis sales in California are illegal. Because they don’t pay taxes or comply with costly regulatory standards, unlicensed vendors can offer much lower prices than their licensed counterparts, thereby continuing to thrive despite state and federal crackdowns. California’s lawmakers have yet to come up with a solution that can adequately discourage the illicit operations without crippling licensed companies.

The latest attempt is a proposal to impose steep fines on landowners and other businesses that provide goods, services, and space for unlicensed vendors. These fines could be up to $30,000 per day. The state assembly approved this proposal unanimously, and it is currently under review in the Senate. Lawmakers should be voting on the proposal this month.

The United Cannabis Business Association supports this measure, explaining that licensed vendors can only expect to succeed if the illicit cannabis market is shut down.

Others would rather see greater rewards for those who sell cannabis legally—or simply fewer barriers to enter and succeed in the industry. One issue is that only a third of California cities allow licensing of cannabis companies.

Some have also pointed out that this proposal could penalize businesses for unknowingly supporting the black market, as many illicit cannabis companies will display fake licenses to pay for ads or rent space.

Supporters of the proposal emphasize the “aiding and abetting” requirement—in other words, a business would need to have known the cannabis company was illegal, and they must have possessed clear intent to support it.

Currently, legislators are limited in the number of measures they can pass that aren’t related to the COVID-19 pandemic. This proposal is one of the last to be considered this year that has to do with the cannabis industry. Another proposal would have reduced the state excise tax on cannabis sales by 4% and ended the cultivation tax for the next three years, but it won’t be moving forward.

Let Us Help Your Business Thrive

As a cannabis business owner, you contend with substantial challenges and compliance risks. You also might be struggling to grow clientele while unlicensed vendors dominate the market. At Purdy & Bailey, LLP, our job is to give your company the legal resources you need to succeed. We can help you devise a failsafe strategy, keep you informed of new and upcoming legislation, and develop a plan that encourages your company’s long-term growth.

Send us an online message or call our office directly at (858) 360-7080 today.

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