Legal California has a booming black market: Here's how tech can lure consumers to the regulated market

California may have been the first in the country to pioneer cannabis law reform, but the Golden State is still struggling to eliminate the black market and sell affordable, legal pot, writes Erin Hiatt

In 1996, California voters passed Prop 215 to legalize medical marijuana. In the years immediately following its passage, medical cannabis was a small and largely unregulated affair. With the passage of SB 420, the state allowed for collectives and cooperatives to handle cannabis sales "not for profit," although California soon became known as the "wild west of weed" and an easy place to score a medical marijuana card. The state's cannabis industry became riddled with legal grey area, where cannabis companies on the scale from illicit to semi-legal essentially coexisted. 

With the passage of Prop 64 to legalize marijuana, California launched two parallel, legal markets: adult use and medical. But even so, the black market has not gone away, as proponents of the new law had hoped. Many argue that the industry is overregulated to the point of exclusionary, making if difficult for many players to either enter the industry, or to compete in it. The new program's pricey licensing fees, rigorous testing standards, hefty taxes, zoning restrictions, and altogether costly burden of getting involved have laid fertile ground for the illicit market to grow.

California is expected to ring in $3.1 billion in legal cannabis sales by the end of 2019. That's up from $2.5 billion last year. Any industry would be thrilled with an annual growth rate of 23 percent, but that $3.1 billion pales in comparison to California’s black market sales, expected to haul in more than $8 billion.  

Among other expenses like attorneys and licensing fees, legally compliant businesses often pay taxes exceeding 30 percent, and are unable to deduct employee payroll or other business deductions on their tax returns due to federal regulations — that extra business expense then falls on consumers. Black market operations simply don’t face the same expenses and can keep their prices lower. 

You can’t really blame California cannabis consumers if they are unknowingly, or even knowingly, buying from the black market. Even though there are 583 licensed pot retailers and 263 home-delivery outfits throughout the state, Weedmaps, the ubiquitous online tech company that connects users to local dispensaries, has been listing thousands of dispensaries and delivery services on is platform, making it difficult for regulated businesses to compete against the black market. 

So while cannabis regulators continue their work on sorting out cannabis tax structures and quashing illegal businesses, some cannabis companies are taking it upon themselves to step in and connect consumers with legal, affordable weed. 

Alice Moon is the director of communications at Splitbud, an online ordering platform that offers daily deals on cannabis products for consumers in the Los Angeles area — a.k.a. the world capital of cannabis. Moon thinks that the firm, which soft-launched in June and officially launched in August , could fill an affordability gap for consumers. “The price of cannabis went up in general, but especially the cost of legalization for retailers, brands and cultivators,” Moon told Civilized. “Their costs went up, so they’re passing that cost onto consumers. And we [Splitbud] really want to bring those illicit consumers into the [legal] market.”

Splitbud is a family-owned business whose name was inspired by the days when “you and your buddies would all pitch in and grab together. Everyone paid less and got more.” They offer some deep discounts — up to 65 percent — making some of the prices closer to the cost of weed in Colorado than in California. The company secures these deals by negotiating bulk pricing with cultivators and distributors. Some buds sell for $50 a quarter ounce, and they also sell edibles, prerolls, vaporizers, and concentrates. 

Moon explains that the site is easy to use, and it’s not necessary to be a Los Angeles resident to utilize the service. Simply go to the website, create a user profile, and submit your ID to certify that you are of legal age to purchase. The verification process takes anywhere from one to 24 hours, but once that’s completed, people can order for delivery or pick-up. 

Moon says that even though Splitbud is Los Angeles-centric, their delivery service covers a lot of ground, going as far east as Pasadena. “Right now, we’re working with two [dispensaries],” Moon said. “Marina caregivers, and Koreatown Collective. Consumers can either choose to pick up from those dispensaries same or next day. There is a $10 delivery fee, but with the discount and the daily deals, it makes up the difference.”

Splitbud is hoping they can make a long term impact, not only by connecting consumers with more affordable weed, but by helping them understand the benefits of buying cannabis from compliant businesses. “A lot of people lack awareness, and consumers don’t know if they’re buying from a legal business or not,” Moon said.

So far, their impact plans include street teams, utilizing social media influencers, posting content on the WeedTube (YouTube for weed), and an educational blog to connect consumers with information. Splitbud is also working on a social responsibility with an eye toward having more local engagement and impact. 

In the meanwhile, California lawmakers are still grappling with useful responses to improve the legal cannabis market while reducing illegal sales. Some ideas under consideration are fines for websites that advertise unlicensed pot shops, the creation of a state-sanctioned bank for compliant businesses, and a push to get more local governments to include legal businesses within their borders (76 percent of cities and 69 of California counties have banned cannabis stores). 

The importance of consumers having access to and buying from legal canna-businesses is coming more into focus, as the industry hit its first major crisis with the proliferation of counterfeit, illicit market vape carts that are suspected of sickening more than 1,080 people and claiming the lives of at least 23. 

Since Splitbud’s June soft launch, more than 3,000 people have signed up on the site, proving that consumers are eager to purchase tested, licensed, and safe products, especially when they are affordable. 

Other companies are trying different approaches to bringing consumers more affordable weed. There’s the discount weed brand Dime Bag from Loudpack Farms, who lower their price by cutting out the middleman and growing and processing their its own weed, and utilizing their own distribution networks. There’s also, a membership-based cannabis wholesaler (anyone can purchase, but the best deals come through purchasing a membership), who sell in quarter ounces or more by delivery only. 

Moon says she would like to see stronger action from lawmakers to bring down the cost of legal weed. “It’s been a challenge for a lot of companies to operate because of the licensing [requirements,” she said. She would also like to see the legal industry regulated in a way that allows more companies to get involved and that protects those that are compliant. “I think illegal dispensaries need to be shut down," she said, "and the city needs to be more flexible with the licensing process." 

Marijuana stocks are starting to make moves in the market

Those who keep a close eye on the marijuana stock market have seen there be better days in the past few months. This, however, is shadowed by the multi-billions worth of growth that is supposed to occur in the near future. With projections showing the market reaching triple-digit billions within the next ten years, it seems as though short term downtrends may just be that. Of course, we have to consider that pot stocks are notoriously volatile. This stems from the fact that the market is still very much in its infancy.

With such an infant market, it can at times be difficult to deduce where the value is hiding. This however, is made much easier by the amount of research that one is willing to do for a given company. With the utmost information at hand, one can have a much easier time deducing which companies have the most value moving forward. Research is also an investors best tool, and the easiest way to ensure that there are no surprises when it comes to price action of a given company. All in all, pot stocks are continuing to look up for the not too distant future.

A Global Investment Pot Stock

SOL Global Investments Corp. (SOL Stock Report) (SOLCF Stock Report) is one of the leading international investment companies currently working in the cannabis market. The company states that they have a heavy focus on both the U.S. and European hemp and cannabis markets. SOL Global Investments has made quite a name for themselves by investing in partnerships throughout cultivation, distribution, and retail components of the cannabis market. With their prestigious ties to the University of Miami for a new research and development program, the company is positioned to have a unique advantage for the future of the market.

Recently they announced that their wholly-owned subsidiary, Scythian Biosciences, will be spun off into its own entity. Those who hold shares in the parent company will receive shares of the new one as well. The new company will be known as Impact Biosciences Corp. and will work further on developing drugs utilizing cannabis within the U.S. With so much research going on, this looks like just another way that they have maximized their exposure to the pot stock market. The company remains a key marijuana stock to watch for this reason.

A Newly Listed Pot Stock

Sundial Growers (SNDL Stock Report) is an Alberta based pot stock that was only recently listed on the prestigious NASDAQ exchange. The company works on growing the raw cannabis substance and has stated that they have the potential to put out around 75,000 kilograms of cannabis when operating at full capacity.

Additionally, they have an almost 3.6 million square foot farm located in the U.K. which should give them a greater amount of access to that side of the market. As they continue to grow hemp and cannabis, they remain one of the key pot stocks to watch as we move forward for the future of the industry.

Top pot stocks to watch this week

The marijuana stock market is reportedly worth double-digit billions in the present day around the world. With so much money pouring into an industry that was only just legalized a few years ago, it seems as though we are on the cusp of something large. Many of the most popular pot stocks to watch have seen some big losses recently due to a variety of factors. These factors include everything from the large vaping epidemic to some speculative issues with the market.

All of this, however, is characteristic of pot stocks as the industry is still very much in its infancy. One of the key factors of an infant market is the high volatility that we have seen with certain pot stocks to watch. The good thing about this is that many expect the volatility to slow down in the near future as the market becomes more and more established. For now, it seems to be a waiting game to find out what new laws go into place that could effectively allow the pot stock market to flourish to the greatest extent.

A Canadian Pot Stock Worth Watching

Stillcanna Inc. (STIL Stock Report) (SCNNF Stock Report) is a Canadian early-stage life sciences company that is focused on a very large scale extraction of CBD within Europe. The company has stated that they have intellectual property that effectively allows them to produce CBD at a higher rate and a much lower cost than other competitors working in the same part of the pot stock market.

marijuana stocks to watch StillCanna logo

Recently, they stated that they signed into an initial extraction contract in Europe that would allow them to be the exclusive extractor for Dragonfly Biosciences, a U.K. based CBD supplier. The company has also signed into several other agreements that show that they could continue to be a key pot stock to watch moving forward.

Recently, the company announced that its Polish extraction facility has been able to reach unparalleled purity levels for its CBD distillate product. Currently, there are very few standards that exist in the way of CBD production. The company, however, has aimed on its own accord, to produce some of the highest quality product that is available on the market. This has helped to bring them a large amount of notoriety in the present day. The company continues to show why they are such an important pot stock.

A Popular Pot Stock

OrganiGram Holdings (OGI Stock Report) is one of the most recent pot stocks to uplist on to a large U.S. exchange. The company is considered to be one of the largest growers of marijuana in the whole of the industry. They have stated that they have the potential to grow around 113,000 kilograms of the substance when operating at peak capacity. This means that they should be able to meet the high and growing demand for Canadian cannabis in the present day.

The company has stated that they are also yielding around 230 grams per square foot which they do through a revolutionary three-tiered growing system. Because the company is so committed to reaching the future of the pot stock market, they remain an interesting company to watch moving into the future.