California’s Fight Against The Illegal Cannabis Market

New law allows licensed cannabis businesses to pursue legal action against unlicensed cannabis operators in state superior court if they can prove damages resulting from the operation.

Legal California cannabis businesses have been complaining about taxes, which in parts of the state are among the highest in the nation. Many believe that these taxes on compliant cannabis operators while still mandating compliance with State and local regulations will widen the price disparity gap between cannabis products sold in the black market vs. cannabis products sold in the legal market.

In an effort to bolster the legal cannabis market and further dissuade illegal cannabis activity, Governor Newsom signed in law AB 1171 which authorizes a California cannabis licensee to bring an action in superior court against a person engaging in commercial cannabis activity without a license, and authorizes the court to enjoin the activity and award a prevailing licensee actual damages caused by the unlicensed commercial cannabis activity or statutory damages not to exceed $75,000, as well as reasonable attorney’s fees and costs.

This new tool of deterrence adds to the State’s existing laws to go after unlicensed cannabis activity.

Penalties For Selling Cannabis Without A License.

All commercial cannabis activity in California must be conducted on a premises with a valid license issued by the appropriate state cannabis licensing authority. Manufacturing, distributing or selling cannabis goods without a state license or at a location that is not licensed is a violation of state law.

For most defendants, unlicensed sale or transport for sale of cannabis is a misdemeanor punishable by up to six months in county jail and/or a fine of up to $1,000. For defendants under 18, it is an infraction.

Also, giving away or transporting for sale up to 28.5 grams of cannabis without a license is an infraction.

But the sale/transport for sale of cannabis without a license to do so is a felony for the following defendants:

  1. Defendants who have a prior conviction for one of a list of particularly serious violent felonies, including murder, sexually violent offenses, sex crimes against a child under 14, or gross vehicular manslaughter while intoxicated, or a sex crime that requires them to register as a sex offender;
  2. Defendants who have two or more prior convictions for H&S Code §11360 sale/transportation of cannabis;
  3. Defendants who knowingly sold, attempted to sell, or offered to sell or furnish cannabis to someone under 18; or
  4. Defendants who imported or attempted or offered to import into California, or transported or attempted/offered to transport out of California for sale, more than 28.5 grams of cannabis or more than four grams of concentrated cannabis.

In any of these scenarios, black market sale or transportation for sale of cannabis under H&S Code §11360 is punishable anywhere from two to four years in jail.

Transporting cannabis without intent to sell it, or giving cannabis away, is not a crime in California so long as BOTH of the following are true:

  1. You transport or give away not more than 28.5 grams of cannabis or eight grams of concentrated cannabis, and
  2. Any people you give cannabis to are 21 years of age or older.

How This Impacts The Black Market

The CDTFA Investigations Bureau administers the tax enforcement and criminal investigations program. The Bureau plans, organizes, directs, and controls all criminal investigative activities for the various tax programs administered by the CDTFA. Its goals are to deter tax evasion, identify new tax fraud schemes, and actively investigate and assist in the prosecution of crimes committed by individuals violating the laws administered by the CDTFA.

Any person who willfully evades or attempts to evade the reporting, assessment or payment of the cultivation tax (if applicable), the cannabis excise tax, or the sales tax that would otherwise be due is guilty of cannabis and sales tax evasion and violators are subject to fines and/or jail time.

CDTFA Director Nick Maduro states that “The CDTFA’s collaboration with the CHP is an important deterrent to tax evasion”.  He further states that “Tax evasion unfairly shifts the burden onto all other taxpayers and makes it tough for those businesses that are playing by the rules to survive.” It should be clear that with the State taking such enforcement action against illegal cannabis operators, the State is hoping to eradicate non-compliant operators.

What Should You Do?

If you have a licensed cannabis business and impacted by black market activity, consider taking action against those unlicensed operators.  And if you are an unlicensed operator, you should seek licensure for your operations immediately, if you have not already done so. Protect yourself and your investment by engaging a cannabis tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Los Angeles Metro Area and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.