The Black Market for Marijuana Persists in Los Angeles
The unmistakable scent of marijuana lingered in the air outside a warehouse in Compton, South Los Angeles, where a long line of people had formed. For months, crowds gathered at this unremarkable building in the industrial district each evening. But inside, it wasn’t a bar or nightclub—this old house had become a hotspot for local youth because it hosted an underground shop openly selling marijuana.
Suddenly, police officers in full tactical gear stormed the scene. “Los Angeles County Sheriff’s Department, we have a search warrant!” they shouted, as they began handcuffing everyone present.
The underground shop, Compton 20 Cap Collective, had been shut down before, with a similar raid taking place in spring 2017. Like hundreds of other gray-market marijuana shops in Los Angeles County, this Compton establishment tried to serve adult recreational users while attempting to follow the region’s legalization rules. However, lacking a formal business license from the county, they operated outside the law.
Although marijuana use and distribution were officially legalized earlier in the year, there remains a significant shortage of legal, certified marijuana in the region. As a result, gray and black markets for marijuana continue to thrive throughout California, and Los Angeles County—the most populous county in the U.S.—is no exception.
There is logic behind the police actions: a handful of legal shops struggle to compete with 150 illegal establishments that pay no taxes and don’t test their products. To protect the future of legalization, law enforcement continues to crack down on underground operators.
Unfair Competition
Recently opened legal shops are losing customers, as many prefer to buy from gray-market stores offering lower prices on all types of marijuana products. Adam Spiker, a representative of the Southern California Cannabis Business Association, notes that these establishments can afford lower prices because they don’t pay taxes or excise fees, nor do they test their products for quality.
“Simply put, we’re facing extremely unfair competition from the gray market,” Spiker explains. “Unfortunately, the government isn’t in a hurry to help level the playing field between these market segments.”
Low Tax Revenue
Many Californians supported full legalization, hoping the reform would create a new industry and generate revenue for the state. However, initial figures show that the legal marijuana business has not delivered the expected profits: in the past quarter, the industry brought in only $34 million in taxes, far below the $175 million forecast at the start of the year.
In April, state authorities sent over 1,000 letters urging various gray-market marijuana shops to cease illegal activity. About 64% of these establishments were located in Los Angeles County. As a result, police in the county and city of Los Angeles arrested around 142 people during raids at the end of May. Still, many violators simply ignored the authorities’ warnings, continuing their underground operations by changing their shop names and locations.
Shortage of Law Enforcement Resources
Even though the Los Angeles County Sheriff’s Department is the largest in the U.S., it still lacks the personnel and resources to effectively combat illegal businesses. Lieutenant Frank Montez notes that his team shuts down only about one underground shop per week on average.
State law also stipulates that possession of up to 28.5 grams of marijuana is not a criminal offense. As a result, cautious entrepreneurs face only fines and product confiscation during raids, since they don’t keep large quantities at their sales points.
“It’s actually a pretty profitable and safe business, which is why it keeps attracting new entrepreneurs,” says Los Angeles Police Captain Holly Francisco, who also leads operations to close gray-market marijuana shops.
Officer Montez believes that, beyond fighting illegal businesses, police are also protecting the public from health risks. Many seized marijuana samples contain traces of fertilizers and pesticides, which can be dangerous to human health. Montez argues that replacing illegal businesses with certified enterprises will help society avoid many future problems.
“At the very least, we can influence legal shops and regulate their locations and quality of service. Gray-market shops, on the other hand, are essentially magnets for criminal activity and serious health violations,” he asserts.
Operating in Plain Sight
The recently closed gray-market shop in Compton had a sign stating it would not serve customers under 21 or those without ID and a doctor’s note. Like many other gray-market shops in California, Compton 20 Cap Collective did not hide its operations from the public, even advertising online.
Inside, a board listed daily prices for various strains and products. On the day of the raid, vape extracts were priced between $15 and $30. The shop also had large jars of dried marijuana buds, such as Purple Dragon, which sold for $160 per 28 grams.
“Many people don’t even realize they’re using unregulated shops,” Montez notes. “They assume that after legalization, every shop is certified, but in reality, they’re giving their money to lawbreakers and risking exposure to counterfeit products.”
Many gray-market shops, especially those closer to central and commercial areas, try to appear as legitimate as possible despite their illegal status. The easiest way to distinguish them from licensed businesses is by their much lower prices per gram of premium marijuana.
While some shops produce their own products, the vast majority of gray-market establishments in Los Angeles and California buy marijuana from underground growers in the mountains of Northern California. Lake County, located 125 miles north of San Francisco, stands out for its underground production. Its developed agricultural industry and mountainous terrain help illegal growers hide their plantations. The local sheriff’s department lacks the resources to effectively find and shut down these illegal farms.
According to Lake County Sheriff Brian Martin, his team managed to arrest only 46 suspects and destroy 250,000 illegal marijuana plants in the past six months. He believes that many times more plants are being cultivated in the area.
Many local officers hope that federal agencies will soon pay attention to the region’s problems and provide the necessary resources to address them. “We need more people to fight the underground operators,” the sheriff says. “The sooner we get reinforcements, the better.”