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California Leading The Way On Regulating Marijuana Market

Both the successes and failures in the Golden State are guiding other states' efforts for regulation.

Opinions expressed by Entrepreneur contributors are their own.

California has the largest legal marijuana market in the world, with licensed cannabis sales in the state expected to reach $3.1 billion in 2019, which is up from the $2.5 billion sold in 2018.

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Keep in mind that 2018 was the first year of legal sales, so the legal marijuana market in California is still in its infancy. By 2024, it is expected to surpass $7 billion

As the California regulated marijuana market grows, other states and countries around the world will watch how the state attempts to regulate cannabis because of the sheer size of the market. Given the magnitude of this, below are the two interrelated issues that the state is grappling with, and some new regulations involving marijuana recently signed into law in California.

RELATED: New California Laws Allow Some Marijuana Firms To Deduct Expenses On State Returns

Marijuana Taxes Are High In California

Making a 24 percent gain in a market in just one year would be considered a huge win for any other industry in any other place. But, for marijuana in California, even a $3.1 billion market seems too small. 

Some blame high taxes for this. Motley Fool called the California taxes “ridiculous," and reported that some state lawmakers were arguing for a reduction of taxes. The state charges a 15 percent excise tax that is on top of any city and county tax. There’s also a cultivation tax on growers, according to the Tax Foundation, which amounts to $9.25 per ounce of cannabis flower, or $2.75 per ounce of cannabis leaves. In some places, taxes can reach as high as an astronomical 45 percent. 

The Black Market May Benefit From High Haxes And Marijuana Bans In Some Locations

Multiple sources have reported that the black market in California remains strong. Tom Adams of BDS Analytics told the Los Angeles Times that high taxes are part of the problem. He said they make legal cannabis as much as 77 percent higher in some places than black market weed.

Another factor is that many local jurisdictions have banned the cultivation and sale of cannabis, creating so-called “Pot Deserts,” leaving black market pot as the only option available to consumers. The state’s decision to allow delivery of marijuana in every part of the state could help alleviate this issue.

RELATED: Chelsea Handler Gets Into The Cannabis Business

New Regulations Recently Signed By Gov. Newsom 

In addition to the above issues, California has also been active in passing new regulations involving marijuana-related issues. A host of new measures were recently signed into law by Gov. Gavin Newsom. They include the following. 

Charity. Low-income California residents can have difficulty getting medical marijuana prescriptions filled. A new measure allows cannabis companies to donate cannabis to medical marijuana users.

Re-Testing. Cannabis companies will be permitted to re-test cannabis that does not initially pass testing, allowing them to correct for minor errors. Prior to this approval, all samples that failed a test would be destroyed.

Licensing Equity. The bill mandates that licensing authorities must develop a need-based fee deferral or waiver program for marijuana license applicants by 2021. 

Research. The new law allows the Center for Medicinal Cannabis Research at UC San Diego to cultivate cannabis for scientific study. Since federal restrictions continue to hamper access to weed of the quality needed for proper studies, this is a big deal.

Labor unions. A new law will mandate that employers with 20 or more workers sign an agreement that allows employees to form a labor union.

Will any of these new regulations catch on in other states and countries? It remains to be seen. But California has already positioned itself as a worldwide leader in cannabis regulation -- and also the worldwide leader in dealing with the challenges the new industry presents.

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