Prior to legalization, the cost of an ounce of cannabis was often subject to negotiation. Back then, requests for homie discounts and bartering offers were both common. With no measure of law to turn to for protection, these were deals guided by risk, means, and opportunity.
In many ways, that’s been the signature tradeoff of California’s debut on the legal adult-use market two years ago. Government-mandated quality controls ensure that consumers are more confident in the safety and potency of the product they are buying, and merchants no longer have to deal with telling customers that they really aren’t interested in a lightly used PS4.
However, the upshot is that it’s more expensive to go legit — both for buyers and sellers. The compounding costs of taxes and regulatory expenses in today’s legal industry have resulted in the perpetuation of under the table deals. According to BDS Analytics and Arcview Market Research figures, “black market” cannabis sales amounted to $8.7 billion in 2019. By contrast, legal sales of cannabis in California for the same year amounted to only $3.1 billion.
In many ways, this disparity is a unifying factor that links growers in the Emerald Triangle with tech-fueled cannabis companies in Silicon Valley and retail customers in San Francisco. All three facets of the industry suffer from a continued failure to eradicate unlicensed operators.
Additionally, many households are now dealing with reduced incomes owing to the coronavirus pandemic. As a result, they have less to spend on cannabis. Jesse Henry, Executive Director and co-founder of Barbary Coast, says sales trends for his two San Francisco dispensaries speak to individuals both looking to save as well as limit their exposure behind the home.
“Since COVID started,” Heny said, “in addition to buying the lower-priced products we offer, we are also seeing more value purchases in bulk, as people stock up and perhaps try to limit the number of times they go out. It’s not dissimilar to someone who stocks up on groceries at Costco for the month, versus Safeway for the week.”
But, for the duration of September, Union Electric is offering a promotion that straddles the best of both the pre- and post-legalization world — giving customers all the assurances that come with a legal purchase for what is undoubtedly a homie hookup. From now until the end of the month, customers in San Francisco (and throughout the majority of the state) can buy a full ounce of “California greenhouse-grown cannabis” for just $50. Launched on Sept. 1 to coincide with Labor Day weekend, the deal marks a substantial reduction in price from Union Electric’s normal of $150 to $200 per ounce.
Even that itself is a notable discount from what many local dispensaries charge for flower of the same weight, which typically falls in the $250 to $300 range. With the promise of next-day delivery built into the deal courtesy of Union Electric’s partnership with The Flower Co., the promotion has been a hit with both customers and participating farmers.
“Our In Labor We Trust promotion has been a massive success,” Max Goldstein, founder and CEO of Union Electric, said in a statement given to SF Weekly. “We’re on our way to selling through ahead of schedule. Customer feedback has been extremely positive and a great validation of our efforts. It’s been a lot of fun working with our farmers to make this happen.”
Indeed, another major goal of Union Electric’s $50 ounce offer is to introduce consumers to the farmers growing their medicine. In this case, all the cannabis available in the promotion (eight options in total, though some have already sold-out) was grown by two farms located in Salinas.
One of the growers, POSIBL Project, emphasized their pride in their staff in a company statement to SF Weekly: “Our workforce and customers are the foundation of the achievements and goals we put forth.” The other, Wave Rider Nursery, noted their “multi-generational team has always felt a deep sense of duty to provide great cannabis and we’re working harder than ever to answer the call.”
In contextualizing the importance of ensuring everyone has access to safe and affordable cannabis, Brownie Mary Democratic Club President David Goldman contrasted the path California has chosen with that of its neighbor to the north.
“In San Francisco,” he told SF Weekly by email, “when someone purchases cannabis flower from a licensed retailer, they pay the following taxes: [an] 8.5 percent sales tax, 15 percent state excise tax, approximately 10 percent cultivation tax, and [an] approximately 25 percent testing fee. Note that the latter two are paid earlier in the pipeline. On a retail purchase, the customer only sees the sales tax and excise tax on their receipt.”
That’s a total of 59 percent added onto the bill — more than half of the product’s original cost.
As Goldman explained, the success of Proposition D (passed in 2018) means that as of Jan. 1, 2021, that tax total is actually set to increase yet again. At present, Sup. Mandelman has introduced legislation to delay implementation of Prop D until 2022, but it’s yet to be seen if his efforts will succeed.
“If Proposition D does go into effect,” Goldman said, “the accountants at [San Francisco dispensary] The Green Cross estimate a 7-11 percent additional tax increase on both medical and adult personal use cannabis flower purchases.”
Goldman concedes “it comes as no surprise” that the Bay Area’s illicit cannabis market has continued to thrive despite the legalization of adult-use sales. His preference would be for California to take a page from Oregon’s book.
“Oregon has done it right in my opinion. Medical cannabis patients pay zero taxes, while adult personal consumers pay between 17 percent and 20 percent, depending on the county. When the state of Oregon lowered their cannabis taxes to these two tiers, the demand for licensed cannabis from the licit market rose by 1,500 percent. If the state of California and the city of San Francisco want more revenue from cannabis businesses, I suggest they follow the Oregon model.”
With a long and storied tradition of cannabis culture, and a unique location — between the Emerald Triangle and Silicon Valley — San Francisco is at the center of the most powerful cannabis Venn diagram in the world. Zack Ruskin’s column, The Emerald City, seeks to illuminate the nexus between California’s long-established cannabis industry, the emerging business of recreational adult use, and the technology that connects it all.