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Black market cannabis shops thrive in L.A. even as city cracks down

L.A. Times Today airs Monday through Friday at 7 p.m. and 10 p.m. on Spectrum News 1.

From the street, it looked like an old-school drug raid.

A half-dozen police and city vehicles sat near the entrance of the White Castle cannabis dispensary near the Los Angeles Harbor, where a sign bearing a giant green cross faced Pacific Coast Highway.

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But the cops didn’t seize any marijuana from the illegal shop. No one was arrested, just detained briefly while utility workers moved to shut off power. The officers had been there before and would likely be back. One detective guessed the business would be up and running again in a week.

Amid growing complaints from lawmakers and cannabis lobbyists about the city’s teeming marketplace for unregulated weed, Los Angeles in recent months has ramped up enforcement against illegal pot dispensaries. But with so much money on the line, many violators are choosing to stay open even after the city has cut off their power or threatened them with arrests or fines.

The state’s marijuana market got off to a sluggish start in 2018, with revenue from the first year of legal sales falling $160 million short of what was projected in former Gov. Jerry Brown’s final budget. High taxes and the refusal of many cities to allow legal cannabis sales have been blamed, while those restrictions have allowed a resilient black market to thrive.

Nowhere is that problem more glaring than in Los Angeles, where the number of illegal storefronts rivals legal dispensaries. In what should be the state’s most lucrative pot market, many legitimate business operators say they can’t compete with the hundreds of stores that are able to sell at a lower price by skirting taxes.

More than 200 illegal marijuana dispensaries operate in L.A., according to police estimates and a Times review of city records and listings on Weedmaps, a popular online directory for marijuana businesses.

To identify potential scofflaws, The Times compared all storefronts on Weedmaps with a list of businesses granted temporary approval to operate by Los Angeles’ Department of Cannabis Regulation. Only 182 marijuana dispensaries have permission to sell weed in the city, records show.

The review, conducted earlier this month, found 365 dispensaries advertised on Weedmaps inside city limits. Of those, more than 220 — 60% of the total — were operating at addresses not on the city’s list of legal retailers.

The numbers provide only an estimate of the problem.

Listings on Weedmaps change frequently. Some shops targeted by city enforcement efforts may have shut down since The Times last reviewed the website’s listings. But shops that are closed often open under new names, and not every illegal dispensary in the city advertises on the website.

Unregistered dispensaries were running in nearly every corner of Los Angeles, with the highest concentrations downtown and south of the 10 Freeway, The Times analysis found. Twelve can be found on a stretch of Florence Avenue between Crenshaw and Avalon boulevards.

Pot dispensaries in Los Angeles
Pot dispensaries in Los Angeles (Ben Welsh and Jon Schleuss / Los Angeles Times)

By mapping the legal and illegal storefronts in the city, The Times found large swaths of downtown and South L.A. are dominated by unlisted dispensaries. Legitimate shops, which can only sell cannabis at locations that meet specific requirements, such as being a certain distance away from a school, are more prevalent in the San Fernando Valley.

Exact statistics on the issue are difficult to find. A representative for the state Bureau of Cannabis Control said the agency did not have readily available data about illegal operators in California, and Los Angeles officials have never made public an exact number of illegal storefronts. The L.A. Police Department, however, has estimated the number of unregistered shops to be “less than 300.”

Marijuana advocates say Los Angeles’ struggle to curtail illegal activity is more severe than other cities in California, a result of years of allowing marijuana businesses to operate in a quasi-legal status in which they received limited immunity from prosecution.

“This is really a Los Angeles phenomenon … I can’t tell you where there would be an unlicensed dispensary operating in Oakland or San Francisco,” said Dale Gieringer, director of California’s branch of the National Organization for the Reform of Marijuana Laws.

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Indeed, authorities tasked with overseeing the marijuana industry in San Francisco and Long Beach, said the number of unregulated dispensaries in those cities does not exceed the number of licensed operators.

Owners of legal stores in Los Angeles say illegal shops have a massive competitive advantage, as they offer lower prices by skirting the state’s 15% cannabis sales tax as well as the city’s 10% rate.

“The frustration for us is twofold,” said Carlos de la Torre, who founded the Cornerstone Research Collective in Eagle Rock. “Our businesses are suffering tremendously now because we’re having to compete in an unfair playing field, and we’ve spent all this time and energy and resources crafting something that should be really cut and dry, and it feels like [the city is] not really holding their end of the bargain up.”

The proliferation of illegal stores affects marijuana customers, legal owners and government coffers. Aside from undercutting legal operators and curbing tax revenues, city officials are concerned about the health risks posed by stores whose wares are not tested by state regulators.

Some owners contend that many customers don’t know the difference between legal and illegal marijuana businesses, and fear they are losing out by complying with state and city tax codes.

“The only bad reviews I get are ‘Oh, you’re trying to rip us off, these prices are too expensive,’” said Jerrod Kiloh, owner of the Higher Path dispensary in Sherman Oaks and president of the United Cannabis Business Assn. “I think a lot of them don’t understand that the cost of doing business has gone up quite a bit.”

Many legal owners say the problem is exacerbated by Weedmaps, a Yelp-like service for marijuana businesses.

“Without the voice that Weedmaps gives, 80% of them would disappear,” De La Torre said.

Weedmaps did not respond to a request for comment.

Despite business owners’ frustrations, the website is something of a double-edged sword: Officials with both the LAPD and the city attorney’s office have said they use the online platform to identify targets for enforcement.

Still, council members and legal operators have criticized those agencies in recent months, arguing that a lack of stringent enforcement has allowed unlawful shops to flourish.

After recreational sales became legal in January 2018, obtaining funding and resources for enforcement has become a tougher sell within the LAPD, said Det. Lou Turriaga, a director with the Los Angeles Police Protective League. Until recently, Turriaga said, the department’s cannabis support unit was operating on a “bare-bones budget.” Local narcotics investigators are unlikely to prioritize enforcement against illicit dispensaries over other kinds of drug crime or violence in their divisions, he said.

The city has signaled it will take cannabis enforcement more seriously this year. Funding has been earmarked for cannabis regulation and a public awareness campaign to help customers learn to spot illegal sellers. Mayor Eric Garcetti’s 2019 budget pushes $10 million toward the LAPD for cannabis enforcement. And an ordinance introduced by Councilwoman Monica Rodriguez also could result in illegal dispensary owners, and those they rent property from, having to cover the costs of any enforcement efforts enacted at their business.

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Despite the large number of illegal businesses still operating in the city, officials contend they have aggressively pursued the issue. Since early 2018, City Atty. Mike Feuer said, his office has brought charges against more than 850 defendants and shut down 114 storefronts — with “many more on the way.”

Feuer acknowledged the difficulty in permanently shutting down illegal operators. He said many of the stores his office has pursued have returned under different names, sometimes at the same location. Recently, the agency has begun to target property owners and more aggressively impose financial penalties, in the hopes that massive fines will act as deterrents.

Last month Feuer sued a South L.A. dispensary for selling cannabis that had been treated with a fungicide, which could result in millions in damages against the business.

“This is not just a question of supply, it’s also a question of demand,” he said. “I want very much for the message to be clear to potential buyers of recreational marijuana that it’s just not worth the risk to go to an unpermitted location because they don’t test their product and God knows what’s in their product.”

In March, the City Council passed an ordinance allowing the Department of Water & Power to shut off utilities at prohibited dispensaries. Shutoffs have been conducted at approximately 90 storefronts in the last two months, according to Det. Vito Ceccia of the LAPD’s Gang and Narcotics Division. Most of the early efforts were concentrated in the Valley, though recently the department has begun focusing on outlaw operators in South L.A.

Investigators believe the utility shutoffs are more efficient than serving search warrants in pursuit of criminal prosecutions that will probably result only in misdemeanor charges. On a recent afternoon, utility workers and detectives from the LAPD’s Harbor Division cut the power at four illegal shops in less than three hours. Ceccia said they would have been able to execute only one search warrant in the same time frame.

“We see an uptick in these businesses opening up because it's so profitable, especially if they’re not paying the taxes they’re supposed to be paying,” he said. “A majority of them have reopened and that’s why we’re looking at our partners like DWP to find other resources beyond law enforcement and traditional methods in order to shut these places down.”

Police can still seize marijuana and cash from an illegal business if they execute a search warrant in a criminal investigation. But with all criminal penalties for illegal sale or cultivation of marijuana reduced to misdemeanors under Proposition 64, city officials believe civil fines and utility shutdowns are more effective and less labor intensive.

In Los Angeles, Feuer said his office can push for a $2,500-per-day unfair competition penalty against illegal sellers. Under the voter initiative that established Los Angeles’ marijuana market, the city can also seek a $20,000 daily penalty against illegal operators, though Feuer has rarely used this tactic and said it had yet to be “tested in court.”

Many involved in the cannabis industry also have expressed frustration that regulators have been slow to approve dispensary permits — especially those that would fall under a social equity program meant to allow members of communities most affected by criminal marijuana enforcement to get into the legal market.

The city is expected to issue another 250 storefront licenses, which would more than double the number of legal dispensaries in the city, but that process will not begin until September at the earliest, said Sylvia Robledo, public information director for the Department of Cannabis Regulation. The agency expects to be able to issue approximately 400 licenses before it buts up against the city’s restrictions against having too many dispensaries concentrated in any particular neighborhood.

The long-term effect of the city’s enforcement strategies is unclear.

Although the utility shutdowns have disrupted some operations, many businesses have also simply reopened after obtaining an external generator. The detective who guessed the White Castle dispensary near Wilmington would be back in business in a week was almost right.

An employee confirmed the shop was open when a Times reporter called 10 days later.

Times staff writer Emily Alpert Reyes contributed to this report.

The computer code that generated this analysis is available as open-source software.

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