The Solve to California’s “Guerilla Dispensary Problem”

How to Deal with California's Illegal Dispensaries from CannabisNet on Vimeo.

One of the biggest benefits of cannabis legalization is the fact that the legal market can compete with the illegal market. However, despite the fact that a legal market exists in California, they still have a problem with “illegal-unlicensed” dispensaries.

As you can imagine, this is pissing off the dispensaries that do have licenses and are forced to pay regulators for operating legally. This is especially true in L.A. County where illegal dispensaries outnumber the 150 legal ones.

According to Adam Spiker, executive director of the Southern Californian Coalition, “it's an "unfair competitive situation for licensed businesses…"

He also said, "I think if you turn the tables and took cannabis out of the equation — if it was another industry that didn't have the stigmas — the government would do everything they could to give those licensed business paying taxes a level playing field."

It’s true, if this was any other industry, the government would go out of its way to ensure that all businesses are playing by the rules. However, there is a deeper problem at work here that is creating the unfair advantage Spiker is talking about.

How Regulation Keeps the Illegal Market Alive

As cannabis is gaining traction in the public eye and more places are legalizing for medical or recreational purposes, the government is stepping in to create “regulations” to keep the industry in check.

While it might sound noble to regulate the marketplace, the government isn’t really doing it in the best interest of the people. With excessive taxation, the inability to use banking [so far] and application fees, there are many cannabis business entrepreneurs that are being left out.

The demand for the product still remains the same despite the limited number of dispensaries in L.A County. As a result, people who are willing to risk their liberty and open up guerilla dispensaries which has the ability to offer cheaper products and in turn takes the competitive advantage in the marketplace.

Of course, for any legal dispensary owner this is a huge problem. They had to play by the rules only to be outwitted by a savvy Guerilla Dispensary stealing their clientele. It makes it impossible for them to truly compete against these illegal businesses.

How to Solve the Guerilla Dispensary Problem?

The first thing we should understand is that the legal cannabis market doesn’t operate like any other “vice-related market”. You can virtually buy alcohol on every corner, cigarettes in every shop.

But if you decide to sell cannabis, there is a limit to the number of legal dispensaries available. This means, that if you weren’t one of the first people to step in line, you might not be granted a license to sell legally. Dispensehemp is a good source of how to start a dispensary in California.

This barrier to competition in turn inspires people willing to risk their liberty, to open up shop and make a profit regardless.

The problem doesn’t lie with the folks opening up guerilla dispensaries. It lies with the dynamics of supply and demand and a staunch regulatory process.

Cannabis, after all is just a plant. To place such staunch regulations on the books makes it difficult for the legal market to compete with the illegal market.

People claim that regulation is there to “protect the consumer”, but if guerilla dispensaries are selling to the consumer market at a higher rate than legal dispensaries…are the regulations working?

Short answer: no!

The excessive taxation, regulatory hurdles, license fees and the millions of other things a legal business owner has to deal with, the price per gram increases. Every regulatory hurdle adds more cents to the pound.

In turn, the average cost per gram comes out to $10-$20/g. Compare this to an illegal dispensary that can sell grams at $5-$10, as a consumer…where would you go?

Of course the place that’s got cheaper herb at roughly the same quality.

Why wouldn’t you? After all, cannabis can be grown at home. The actual value of a gram should be cents, not dollars. However, due to regulation and excessive taxation, an artificial inflation occurs and the losers in the equation are those businesses that are playing by the rules.

The ONLY way to deal with the guerilla dispensary problem is to reduce regulations, open up avenues for these illegal dispensaries to enter into the legal sphere.

Competition is always good for any marketplace. It protects us from monopolies and creates better products for the consumers.

We know, the world has been duped into thinking that cannabis is a dangerous drug. However, trying to regulate the market to death won’t create a safer space for the consumer…it only opens up a space for unregulated dispensaries to undermine the efforts of the legal industry.

Perhaps, politicians need to look out for what’s best for the people and not what’s best for their own pockets. We know that the tax incentives are like crack to politicians, but the truth of the matter is that if you want to eradicate the illegal market, you first need to compete with the legal market.

Instead of closing down the guerilla dispensaries, offering them a way to get legal would help undermine illegal activities, reduce the prices for the consumer market and generate more tax for the state. Embrace more competition, don’t try to limit the number of ‘points of sale’, treat cannabis like any other business…and over time the illegal market will shrink. However, it will never go away.

How to Deal with California's Illegal Dispensaries from CannabisNet on Vimeo.