California weighs steep new fines to combat illegal cannabis sellers

Alarmed that unlicensed cannabis sellers continue to dominate California’s pot market, state lawmakers are moving toward imposing steep new fines on businesses that provide building space, advertising platforms and other aid to illicit operations.

Those who provide assistance to illegal pot sellers would face civil fines of up to $30,000 per day under legislation approved unanimously by the state Assembly that is now pending in the Senate. A final vote on the proposal is expected sometime after lawmakers return to Sacramento this month.

Assemblywoman Blanca Rubio (D-Baldwin Park) said she introduced the bill out of concern that as much as 80% of the cannabis sold in California comes from the illicit market, despite voters approving legal and licensed sales that began in 2018.

“Despite some success during the first two years of legalized cannabis sales, the illicit market has flourished,” Rubio said. “In addition to dwindling tax revenues, the underground market presents public safety and health threats to California.”

But the proposal has divided advocates for legal marijuana. The United Cannabis Business Assn., which represents licensed firms, asked Rubio to introduce Assembly Bill 2122, saying it “brings much-needed support in enforcement.”

Licensed retailers have struggled as many Californians continue to buy from the illicit market sellers, who charge lower prices because they do not pay state taxes or abide by costly state regulations, including testing and security requirements.

“The illicit cannabis market must be shut down to ensure that legal operators can see an increase of patients and consumers which creates union jobs while we contribute to local and the State of California’s tax revenues,” the UCBA said in a letter to legislators.

However, the measure is opposed by the California chapter of the National Organization for the Reform of Marijuana Laws, also known as NORML, which argues the bill is overbroad and heavy-handed.

“In general we would rather see ‘carrots’ to assist people in securing commercial licenses by lowering the barriers to entry, rather than ‘sticks,’ be they criminal or civil,” said Ellen Komp, deputy director of California NORML.

The group supports an existing law requiring advertising for cannabis businesses to include a state license number. NORML officials said many illicit operators display fake licenses to fool those they do business with, so it is not always easy to ascertain whether a cannabis business has a license.

Komp suggested the state can help licensed businesses by addressing the fact that two-thirds of the cities in California do not allow licensing of cannabis businesses.

Gov. Gavin Newsom, the leading supporter of the legalization initiative Proposition 64 in 2016, has said enforcement is an important part of building a legal industry.

But the state Bureau of Cannabis Control has previously run into roadblocks in attempting to enforce laws requiring cannabis businesses to be licensed.

In 2018, the bureau sent a letter to Weedmaps, the internet site that provides consumers with information on cannabis firms, directing it to cease and desist from displaying listings of unlicensed sellers.

Weedmaps said it was protected from such an order by the 1996 Communications Decency Act, which gave platforms such as Facebook and YouTube safe harbor from being held liable for the content of their users’ posts.

However, last August, the firm announced it would end the practice of listing unlicensed cannabis businesses on its Yelp-like platform.

Still, state officials say ads for illegal operators can be found elsewhere on the internet and said sharper teeth are needed in state law to give enforcement real bite.

A Weedmaps spokesman said the firm is neutral on the Rubio bill, but the company warned lawmakers that the measure “has the potential to capture non-nefarious actors across multiple media platforms who are not intentionally supporting the illicit cannabis market.”

To address concerns from the newspaper industry, Rubio’s bill provides fines for “aiding and abetting,” which require knowledge that a cannabis business is illegal and intent to help it.

A publisher would not likely be fined if it put up an ad of a licensed business that later had its license expire or taken away, according to Taylor Woolfork, a spokesman for Rubio.

But there have been allegations by state officials that some websites have used false license numbers on ads. That could be taken as evidence that the advertiser knew the ads were for unlicensed firms, and therefore was aiding and abetting, Woolfork said.

“We are not looking to fine folks who make honest mistakes,” he said.

The measure would also give the bureau more enforcement power when building owners are found to have knowingly leased storefronts to unlicensed marijuana retailers.

Cannabis sold in those stores “does not meet established standards, evades state testing and puts people at risk,” Rubio said.

In December, state regulators served search warrants at 24 unlicensed shops in Los Angeles, seizing $8.8 million in cannabis products, and confiscated nearly 10,000 illegal vape pens and $129,000 in cash.

Rubio’s bill would also allow fines against landlords who rent space to shops they know are unlicensed.

The legislation is one of the few cannabis-related bills left to be considered this year as the COVID-19 pandemic has forced legislators meeting in a truncated session to pare back the number of measures not related to the health crisis.

The industry had also hoped this year might see success for a measure by Assemblyman Rob Bonta (D-Alameda) that would have cut the state excise tax on marijuana sales from 15% to 11% for three years while eliminating a cultivation tax for that period.

Bonta said that while the tax cut bill “will not be moving forward this year, I remain committed to supporting our legal operators, ending the illicit market, and fulfilling California’s promise to the voters under Prop. 215 and Prop. 64 to provide legal, safe, and regulated adult-use and medical cannabis.”