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Growing Pains Part 2: Back to the Underground

Instead of welcoming the cannabis industry into the light, Oakland's new rules are putting many out of business, while others are disappearing into the illicit market.

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Sassaman, a former member of the Cannabis Regulatory Commission, said Oakland's new policies under legalization are contradictory and don't fit the behemoth marketplace and pervasive culture that existed around cannabis long before the state ever thought about regulating and taxing it. "People are turning to the black market; dispensaries are hurting," he said. "The city had a stupid plan."

In recent months, several permitted dispensaries have raised complaints about Oakland's Measure Z clubs, saying it's unfair that they've had to spend tens of thousands of dollars on taxes and the city's complicated permitting process, while Measure Z clubs have continued to operate unfettered, free from having to shoulder extra costs. Minor has responded by sending cease-and-desist letters to several Measure Z clubs in the city.

Sassaman worries that as Oakland's underground market grows against the artificial constraints and high taxes imposed by state and city rules, city officials might try to undo Measure Z, and regulators might more aggressively enforce pot laws.

The worst-case scenario is that most cannabis activity will remain in the underground market, untaxed. Cities and the state won't benefit from increased revenues. Consumers won't be guaranteed safe, quality products. And unpermitted businesses, from street corner dealers to big growers, will continue getting busted by cops and regulators instead of being able to make a go at operating a legitimate business.

Ironically, all after legalization.

Sassaman's proposed solution is simple: lift the cap on dispensaries and other cannabis business permits, let the market figure out what the right number is, and stop citing or arresting anyone for weed crimes.

Hummel said his commission has recommended lifting the cap on dispensaries for years. But the existing handful of dispensaries have grown wealthy and powerful, operating somewhat like a cartel with control over the legal market.

So far, the city shows no sign of reconsidering how it's trying to shrink the already massive cannabis industry. For now, there are only 16 dispensary licenses in Oakland, and the number of other types of permits, to grow, manufacture, and deliver cannabis, are constrained by the one-to-one matching requirements of the equity program.

Taxes are perhaps the only area where there might provide some relief. Next month, the Oakland City Council will consider measures to reduce cannabis taxes across the board.

But for small businesses like Oakland's HigherVeda, the city's regulatory scheme has already done damage. "I'm at a place where I'm willing to move anywhere in California," said HigherVeda's owner Edwards, "just to get my operation back up and running."


This is the second of a two-part series on the many challenges facing small- and medium-size cannabis businesses in California's new highly regulated market.

Correction: We erroneously stated that Alex Zavall is a co-founder of Supernova Women. Zavall was actually an attorney who helped draft a letter from Supernova Women regarding Oakland’s cannabis equity program. This version has been corrected.

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