"I gotta say the state is kind of slaying it right now," he says. "They’re doing an amazing job."
Downs says the state wasn’t obligated to begin issuing licenses until January.
“The Bureau of Cannabis Control started issuing those licenses mid-December," he says. "And that kind of took everybody by surprise."
Where you live in California will determine how big a change you'll see come New Year’s Day. That’s because the law allows individual municipalities to either license or ban cannabis businesses, and a number of California cities are taking a wait-and-see approach.
Tim Cromartie is with the League of California Cities. He says communities are all over the map. Some allow cultivation, but not retail. Others will allow cannabis delivery operations, but not storefronts.
“Generally I think it’s true that the coastal cities are more inclined to allow some form of at least one or two of the licensed activities," he says. "And as you get further inland, folks are more likely to embrace bans.”
Some of those bans might disappear if tax revenue starts coming in as projected. The industry is expected to bring in billions in tax dollars every year.
The profit potential is drawing a lot of new entrepreneurs as well. Chris Russell is with a financial management firm that caters specifically to pot businesses. It’s called California Cannabis CPA. He says that since marijuana is still against federal law, most banks won’t work with businesses. That means the industry largely runs on cash.
“If you understand as an operator that you brought in $10,000 in sales on a given day, and you’re only showing $9,000 of it cash, well, you better figure out where that is and who’s got their hands on it,” Russell says.
Under the Obama administration, the U.S. Department of Justice generally took a hands-off approach to states legalizing marijuana. It’s not yet clear whether President Trump’s DOJ will step up enforcement. Still, Russell says rather than being worried about federal pot shop raids, business owners should be more concerned about the IRS.
“Staying current on tax compliance and tax law is going to be very important for our operators," Russell says. "Since we’re already in a gray area, if you will, with the federal government, the last thing you want to do is run afoul of some tax law.”
And there will be a lot of taxes to consider. There’s a state excise tax, a cultivation tax, sales and business taxes. That could add up to 45 percent in some parts of the state. The tax rates are so high there’s some concern customers will just stick with the black market. Hezekiah Allen of the California Growers Association says that means the vitality of legal recreational pot isn’t guaranteed.
“There’s tens of thousands of businesses currently operating," Allen says. "And the success of the program is really going to depend on how well the state can either attract those businesses to participate and comply with the regulations or enforce and get rid of the folks who aren’t complying.”
State officials don’t expect illegal pot sales to go away overnight, but say that eventually the regulated market will become the norm.
