Will the Black Market Still Thrive Under the New Regulations

 

California can still screw up legalization so that the black market still survives, so criminals  will continue to get the money to buy weapons and wage war over market share.  The firs way California can screw this up is through taxation.

No one likes the high taxes on Tobacco cigarettes more than I do.  These high taxes mean taxes can be decreased in other areas (income tax, sales tax etc.), or we can pay more for needed government institutions like education and health care.  High cigarette taxes are a great way for the government to obtain income without reducing a worker’s paycheck, or taxing needed products like nutritious food.

But tax policy is another opportunity where the government can screw up a great source of income.  If the taxes are too high, like it is on cigarettes you create a black market for untaxed cigarettes.  The taxes on cigarettes are so onerous that when organized crime buys them whole sale and sells them on the black market and (thereby avoiding excise as sales taxes), they can sell them for a 100% markup.  They can do that because even when they sell them at a 100% markup the cigarettes are still significantly cheaper that cigarettes are sold including all the taxes.  So the various government institutions in this country taxes are so high, they leave an opening for organized crime to make money.  And when organized crime gets a solid and high cash flow the result is the corruption of government officials and violent fights over market share where innocent civilians eventually get caught in the cross fire.

The other way the government can screw up legalization is by limiting supply.  If the legal supply of a product is restricted, the price of that product will increase and thereby creating an opening for organized crime.  This has happened with marijuana in Colorado.  Because of the national laws outlawing the sale of Cannabis, no one wants to transport marijuana over state lines.   Thereby limiting the supply of cannabis in Colorado, driving up the prices of legalized marijuana that organized crime can grow illegal cannabis and sell in at a cheaper price.

The State of California’s regulations on the amount of Marijuana one can grow will create the same sort of problem.  These one acre farmers will simply not be able to provide enough weed to satisfy the demand for recreational marijuana in California.  And the obvious result will be illegal grows and sales by organized criminal organizations.  And, as stated once organized crime coffers are filled the inevitable result is violence and the corruption of governmental officials.

I appreciate the State of California’s attempt to create a market place where small family farms can thrive.  But this noble intention is going limit the supply of legal Marijuana, which will increase the price of legal Marijuana to a point where a black market ensue putting a large swath of cash into the hand of criminals; which will lead to the obvious violence.

The Legalization of recreational marijuana on June 1, 2018 will put a huge dent into the income of marijuana cartels.  But this dent will be reduced if the government restricts the supply or taxes the product too much.  The ironic thing is that the more the supply, the cheaper the product and therefore the higher you can raise the taxes without creating a black market.  So the government in California should do everything in its power to increase the supply, because increase in supply will allow higher taxes and make a black market untenable.  Therefore, the restrictions on the size of marijuana growth will only facilitate the growth of a black market, with the ensuing corruption and violence, and reduce the amount of taxes that can be charged so one can avoid creating a black market because the taxed legalized product is too expensive.

One of the main reasons for legalizing marijuana, was so that the income earned from marijuana would stop flowing into criminal hands, and flow into the hands of honest hardworking entrepreneurs.   The restrictions on growth are well intentioned but in the end such laws will only help to make this state more corrupt and more violent.  If you ignore the basic economic laws of supply and demand, the result is almost always disastrous.

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