California Bears the Brunt of Federal Cannabis Eradication

Cannabis / California Legal Cannabis Market Projection - August 21, 2016

California Dominates DEA Cannabis Eradication, by MCRSA and AUMA Could Change That

Between 2009 and 2015 the number of cannabis plants eradicated in the U.S. by the DEA fell 59%, a decline that has been fueled by cuts in the DEA’s cannabis enforcement budget, as well as new Congressional restrictions which limit the agency’s enforcement of federal cannabis law in states where it is legal.  As the country’s largest cannabis producer, California has continued to be the focal point of federal cannabis enforcement activity. California accounted for 62% of the cannabis plants eradicated by the DEA in 2015. This was down from 72% in 2010 but still more than all other states combined. California also accounted for two-thirds (67%) of the processed cannabis seized.

The state’s opaque medical cannabis laws are central to why it has borne the brunt of federal eradication efforts. In 1996, California voted to legalize medical cannabis with a law that had little regulatory oversight of producers making it exceedingly difficult for law enforcement to distinguish between legal and illicit growers. The opaque laws enabled cannabis production to proliferate, and turned the Emerald Triangle – the region which includes Humboldt, Mendocino and Trinity counties – into the largest cannabis producing market in the country.

Acknowledging the challenges created by the ill-defined regulations, the state recently passed sweeping changes to the medical cannabis laws intended to bring the industry under clearer regulatory control. The Medical Cannabis Regulation and Safety Act (MCRSA) will create new operator licensing requirements, establish cultivation guidelines including capping grow sizes, and set new product quality standards. Additionally, this November, voters will decide on whether to legalize adult use of cannabis. If the Adult Use of Marijuana Act (AUMA) passes, the two measures, which are expected to take effect in early 2018, would be the most sweeping changes to the state’s 20-year old legal cannabis industry. They would also be the strongest challenge to California’s illicit cannabis market to date.

The new laws will disrupt the illicit market in three ways:

  • Clearly separate legal from illicit producers: Through the new licensing requirements, law enforcement will be able to more easily identify and target producers operating outside the law.
  • Increasing transparency and lowering risk: The new regulations will increase the transparency of the industry, enabling producers to operate more efficiently, while also reducing the need to charge the risk premium that has artificially inflated prices in the black market.  Greater transparency will drive down wholesale costs, making the legal market more competitive against illicit producers.
  • Transitioning consumers to the legal adult use market:  Nearly one in ten Californians (9.2%) report using cannabis in the past month according to the Substance Abuse and Mental Health Administration. By getting consumers to purchase their cannabis through legal channels, demand for illicit cannabis will fall, putting additional pressure on illicit producers.

The transition to a comprehensively regulated cannabis market will take time due to the size of the California’s cannabis industry. However, the changes that will come with MCRSA and AUMA should significantly constrict the illicit market and help reduce the need for sustained federal cannabis enforcement action in the state.