More than four months after Long Beach opened its doors to legal recreational marijuana, many local pot shops say they’re struggling as customers seek to avoid hefty taxes by flocking to a booming illegal market.
Adam Hijazi, a member of the Long Beach Collective Association and co-owner of three dispensaries in Long Beach, said the collectives were prepared for an uphill battle, but still, sales have been lower than expected.
“Most of the dispensaries are working hard to just break even and cover their expenses,” he said. “They’re trying to keep their heads above water.”
It’s a problem throughout California as the state’s shaky legal pot market is hampered with growing pains and lackluster sales.
The governor’s proposed spending plan, released last week, projects the state will bank $355 million in marijuana excise taxes by the end of June. That’s roughly half of what was once expected after broad legal sales kicked off last year.
Industry experts say the diminished tax income reflects a somber reality: Most consumers are continuing to purchase pot in the illegal marketplace, where they avoid taxes that can reach near 50 percent in some communities.
By some estimates, up to 80 percent of sales in the state remain under the table, snatching profits from legal storefronts.
In Long Beach, the overall tax on recreational pot is 33.25 percent. That includes the 15 percent state cannabis excise tax, plus the city’s 8 percent excise tax and a 10.25 percent sales tax.
While Long Beach’s local tax is higher than many communities, some cities, like San Diego, have rates as high as 15 percent.
Hijazi, 34, who co-owns the Green Room on Seventh Street, The Station on Pacific Avenue and The Lift on Fourth Street, said customers were hit with sticker shock when taxes kicked in last year, and the sales have reflected it.
“I don’t want to be doom and gloom but it’s definitely not easy right now,” he said. “It feels like we’re in a boxing ring with our hands tied.”
The city last year even cited lagging marijuana sales tax revenue as a reason for a projected $9 million budget shortfall.
To date, 15 dispensaries are open, with 32 allowed under a citizen initiative passed in 2016.
Hijazi estimates that more than 80 illicit pot delivery services are operating in the city with little enforcement. The services can make anywhere from 50 deliveries to 500 deliveries a day, he said.
Shaunna Dandoy, a spokesperson for the Long Beach Police Department, said officers will respond to reports of any criminal activity related to marijuana, but so far, the department has “not seen an increase in illegal cannabis activity.”
As for struggling sales, it’s the mom and pop shops that are hit the hardest while larger companies are weathering the transition, Hijazi said. But it’s not just retailers who are hurting.
Dispensaries are seeing less variety on the shelves as manufacturers and testing facilities are held up in regulations and taxes.
Jeremy Abrams, whose family runs One Love Beach Club in Belmont Heights, said there’s definitely a shortage of available products.
“It’s a huge bottleneck right now,” he said. “Everyone is overwhelmed.”
Overall, Abrams said his business is busier than others likely because of its visible storefront at Broadway and Temple Avenue and dedicated customers who have been frequenting the dispensary since it first opened in 2009.
Though prices are higher, many customers prefer to buy legally because they know they’re getting quality products that are regulated, said Abrams, 32.
“You never know what you’re getting on the illegal market,” he said.
But business could be better if the city cracked down on illegal deliveries, he said, noting that some brazen delivery services have even tried to pass out fliers in his shop.
As the market stabilizes, tax collections are expected to gradually increase over time, but predicting what that amount will be remains something of a guess.
Gov. Gavin Newsom, an advocate for legalized marijuana, said it has long been expected the new market would take five to seven years to settle in, with twists and turns along the way.
The issues he intends to look at include the distribution pipeline and claims that local governments are gouging the industry.
For now, Hijazi, a father of one, said he’s working “six days a week from morning to night” to keep his businesses running. But he’s optimistic that legal market will grow.
“The only thing that’s kind of saving the situation is that we do have a large part of the population that’s using cannabis and they’re buying regularly,” he said. “There’s a huge demand.”
The Associated Press contributed to this report.