In-depth: Budding pot industry still struggling with growing pains, part 2

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When California voters passed the law that made weed legal for adults, they had high hopes that the Golden State would reap financial benefits from the formerly illicit industry.

It had been predicted that the state might eventually collect $1 billion a year in taxes.

But so far, that appears to be a pipe dream.

On Wednesday night, KRON4 goes in-depth and takes a look at why we have fallen far short of what was projected.

Back in 2014, rapper Michael Quintanilla, also known as Mic Quin, became a marijuana mogul when he says he and his crew developed a new kind of pot product, combining a nugget of weed, with cannabis oil, and glazed with finely grated pot particles called kief in order to produce a supercharged dose of THC.

“That’s what we were shooting for–let’s make this hybrid nug with all of these stuff in it, and hey, what do we call it? And let’s call it Moon Rock,” Quintanilla said.

He and his team used their rap video to promote Moon Rock, and it took off.

For a time, it was selling in 500 dispensaries, retailing for $30 a gram.

“It just took off faster than we can anticipate,” Quintanilla said. “I just wanted to get a name in the music industry. It skyrocketed into a big name in a cannabis industry.”

But he had to stop selling his product because he lacks the proper permits required now under the new law. He’s trying to get permits to open a cannabis cultivation, manufacturing, and distribution center in Modesto.

It’s a process that can take anywhere from nine to 18 months.

“I could paint a pretty picture and make it sound great, but I call it a roller coaster ride,” Quintanilla said. “You have your ups and downs.”

Legalization advocates have long said that marijuana is California’s real cash crop, leading up to the vote that makes adult recreational use legal. Voters were told to expect that the next gold rush would be green.

But while there are plenty of pot sales inside dispensaries, so far, the tax dollars that were expected to be generated aren’t nearly as high as expected.

When the state budget was drawn up, it was predicted that the excise and cultivation taxes in the first six months of this year would total $175 million.

That figure may have been a pipe dream.

The state office of tax and fee administration reports they’ve taken in close to $85 million from pot businesses in that time frame, which is less than half of what was hoped for. 

The sales tax totals during that same time were $53 million, which puts the total tax levied on weed at nearly $138 million.

And some say the state and local governments’ overly burdensome regulations are to blame for the shortfall.

“The passage of Prop 64, it’s actually caused the market to constrict because it’s created higher barriers to entry,” Cannabis Business Attorney Natalia Thurston said.

Thurston helps clients navigate the many hurdles being put up by the state and local municipalities.

“Because the city and counties are taking a long time to process permits that people have applied to on a local level or even consider permitting, it’s creating a bottleneck in the industry because nobody can get up and running and operational unless they have a temporary permit which very few people are able to obtain right now,” Thurston said.

One of her clients used to run a non-profit medical marijuana delivery service that processed an average of $1500 a day in orders. But she decided to close up shop and become a cannabis consultant because she says once Prop 64 became law, it was too expensive to stay in business.

“I see that it’s very difficult for small businesses to continue or get into the business,” Thurston said. “It’s unfortunate that I’ve had to tell a lot of my clients who come in wanting to open a dispensary that if they don’t have a million-and-a-half dollars, it’s probably not going to happen.”

And with United States banks unwilling to loan money to businesses operating in a market the federal government still considers illegal, smaller mom-and-pop entrepreneurs are being forced to fold or stay underground.

And while some like rapper Mic Quin are able to bid their time while waiting for the red tape to loosen up, it’s believed that a lot of pot products are being kept off dispensary store shelves, which translates to fewer tax dollars going into the state coffers.

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