Why California’s legal pot industry is struggling against the black market

California's legal cannabis revenue isn’t growing as fast as many state officials anticipated, recent data suggests. And one industry expert believes that taxes and a still thriving black market for marijuana, are partly to blame.

“The legal market is struggling with the set of regulatory rules and tax rates that are pretty onerous and make it fairly uncompetitive versus a thriving black market that’s had the whole industry for 60 years now,” Tom Adams, BDS Analytics managing director, told Yahoo Finance’s YFi PM in an interview this week.

California’s marijuana excise tax produced $74.2 million in revenue for the second quarter of this year, according to the California Department of Tax and Fee Administration.

California’s marijuana excise tax produced $74.2M in revenue for Q2 2019.

Yet back in January, Governor Gavin Newsom's proposed budget predicted the state would generate $355 million in excise tax revenues for the fiscal year. That projection was later revised down again to $288 million back in May.

The shortfall is reminiscent of Michigan, where a nascent medical marijuana market has resulted in lower than expected revenue.

Adams contended the legal market faces additional expenses like the cost of testing, that the illegal market does not.

“I think the one thing that could be done about it easily would be for local regulators who really hold the keys to allowing stores to open, is to get over the idea that they’re preventing cannabis consumption by not allowing legal cannabis consumption,” he told Yahoo Finance.

“They’re not of course -- there’s been illicit cannabis consumption all over California for decades,” he added.

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McKenzie Stratigopoulos is a producer at Yahoo Finance. Follow her on Twitter: @mckenziestrat

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