Marijuana legalization
Photo by Sam Rosenthal / VICE News

How Legal Weed Sparked a Boom for Outlaw Growers in California

Five years after recreational legalization, the state's regulated market is beset by steep taxes, red tape, and criminal activity.
January 13, 2022, 12:03pm

SOUTHERN CALIFORNIA — At first glance, it looks like an ordinary ranch in the desert east of Los Angeles. There are horses, a pigpen, and a pack of dogs barking to signal the arrival of outsiders. The family here once farmed tomatillos, but tucked away in a corner of the property they’ve recently added three greenhouses with a more lucrative crop: illegal cannabis.

It’s harvest day and a half dozen workers cycle in and out, puffing joints and listening to music as they chop down the plants and hang the bud-laden branches out to dry. The proprietors say most of the product is headed out of state, where street wholesale prices are higher, but there’s still enough local demand that the top-quality stuff will stay in-state, undercutting a fledgling legal market beset by criminal activity. 

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California voters approved recreational marijuana five years ago, joining a club that has now grown to 18 states and Washington, D.C. The hope was legalization would eventually put illicit operations out of business. But instead, the opposite is happening: The underground market is booming, causing some to warn the regulated system is teetering toward collapse. There are many reasons why, but it mostly boils down to money—the new state-regulated system is expensive for everyone involved. Business owners face steep taxes and costly red tape, and consumers are finding better deals outside of licensed stores.

“We’ve been screaming from the rooftops that the system is broken and destined to implode, and here it is imploding,” said Jackie McGowan, founder of the cannabis lobbying firm Green Street Consulting. “We thought we could pop up a bunch of legal stores and charge twice as much as we did prior to legalization and think consumers were always going to fall in line. Well, they're not anymore.”

National support for marijuana legalization remains at an all-time high, with over two-thirds of U.S. voters in favor of rolling back policies that for decades have disproportionately criminalized communities of color and fueled mass incarceration. It’s a rare bipartisan issue in Congress, with both Democrats and Republicans sponsoring legislation that could change federal law in 2022. 

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California is a cautionary tale about ignoring market realities and excluding the outlaw growers and dealers who helped build—and still largely supply—America’s weed economy.

Opening the floodgates

California’s illicit marijuana market is worth an estimated $8 billion, roughly double the total sales recorded in the state-regulated system. Besides dodging taxes, unlicensed growers are wreaking havoc on the environment and dividing communities that face water shortages during a historic drought. Authorities say Mexican cartels and other organized crime groups are behind some of the largest operations, but there are also mom-and-pop shops and small-scale farmers just trying to stay afloat in a hypercompetitive market.

The repurposed tomatillo farm is bankrolled by a stocky Midwesterner who introduced himself as Dank, declining to give his real name. The plants, he boasts, are identical to strains sold in California dispensaries, with names like ​​Ice Cream Cake and Sharklato, and the greenhouse uses a geothermal heating and cooling system to reduce the environmental footprint.

A farm in Southern California that used to grow tomatillos is now home to several greenhouses full of illegal marijuana plants. Photo by Keegan Hamilton / VICE News.

A farm in Southern California that used to grow tomatillos is now home to several greenhouses full of illegal marijuana plants. Photo by Keegan Hamilton / VICE News.

“It's a really sticky, high-resin production,” he says. “This is the good stuff right here.”

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Dank is new to California, but the family that owns the property has been here for generations. They want to join the legal market, but right now it’s impossible—their county has banned both commercial cultivation and retail sales. It’s still legal for adults to possess and use marijuana, but local authorities are allowed to set their own rules on growing and selling, and more than two-thirds of cities and counties have reverted to de facto prohibition with bans on both stores and farms. According to the state’s Department of Cannabis Control, around one of every three Californians (about 14.3 million people) live in a place where they can’t legally purchase weed.

Across California, 305 cities and 33 counties still prohibit retail marijuana. In some cases, a city may allow commercial activity even if the county prohibits it. Graphic by VICE News.

Across California, at least 305 cities and over half the state's counties still prohibit retail marijuana. In some cases, a city may allow commercial activity even if the surrounding county prohibits it. Graphic by VICE News.

With no way to go legit, the people who run this farm went into business with Dank instead. What they are doing is against the law, albeit with good intentions.

“There’s a preconceived notion of growers stealing water, trashing the land, and polluting, but this is a nice family farm,” Dank said. “This family just wanted a chance to earn more money. They basically came to me and said, ‘We’ll provide land and labor if you provide the experience and know-how on getting started.’”

California’s illicit marijuana market is worth an estimated $8 billion, roughly double the total sales recorded in the state-regulated system. Photo by VICE News.

California’s illicit marijuana market is worth an estimated $8 billion, roughly double the total sales recorded in the state-regulated system. Photo by VICE News.

Dank said he’s involved with unlicensed grows elsewhere in the state, along with state-sanctioned medical operations in other parts of the country. In his eyes, legalization has only enabled the illicit market in California. The punishment for getting caught tending an unlicensed grow—even one with thousands of plants—can be just a $500 fine and a misdemeanor charge. The way Dank sees it, that slap on the wrist combined with no pathway into the legal market has created a low-risk, high-reward business opportunity.

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“It really opened up the floodgates,” Dank said. “There's still a high barrier to entry in the recreational market here in California that prohibits a lot of people from doing it legally. It's the compliance, the testing, the taxing, and things like that. In California, it's outrageous.”

Operation Hammer Strike

One of the hubs for outlaw marijuana farming is San Bernardino County, which sprawls for more than 20,000 square miles from the Inland Empire east of LA to the state lines with Nevada and Arizona. It’s among the counties that bans commercial growing, but that hasn’t stopped huge greenhouse operations from springing up across the rugged landscape. 

Water here is scarce, and the grows are further straining resources and leaving local law enforcement playing whack-a-mole. San Bernardino is the largest county in the continental U.S.—bigger than nine states—and growers have flocked to the wide-open spaces in the desert where year-round sunshine can maximize harvest cycles.

An aerial view of an illicit grow operation in San Bernardino County with more than 100 greenhouses full of marijuana plants. Photo by VICE News.

An aerial view of an illicit grow operation in San Bernardino County with more than 100 greenhouses full of marijuana plants. Photo by VICE News.

Lt. Marc Bracco of the county sheriff’s department says his unit’s deputies raid more unlicensed grows today than they did back when weed was still illegal. There are now multiple teams dedicated to the job, and an enforcement campaign last year dubbed “Operation Hammer Strike” netted a whopping 854,049 plants, roughly 10 times the total they seized five years ago.

Bracco said the raids are typically triggered by neighbors who complain about water being illegally diverted or trash piling up. At one such property on a warm winter afternoon, deputies arrived with their guns drawn and arrested several growers, giving no chase as others ran off into the brush. All of the men who were detained spoke Chinese, and one asked Bracco for a sip of water while he sat handcuffed in the sun. He would be processed and released.

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Deputies from the San Bernardino County Sheriff's Department walk the perimeter of an unlicensed grow site. Photo by VICE News.

Deputies from the San Bernardino County Sheriff's Department walk the perimeter of an unlicensed grow site. Photo by VICE News.

“We're not naive,” Bracco said. “We don't think the fix is arresting everyone. There has to be a unified effort from the state level to our legislators, judicial system, and law enforcement all working together. The fines need to impact the landowners who allow this. You don't need to go to jail, but your crops are worth a million dollars, you owe us half a million dollars to the state.”

The site was vast, with 150 greenhouses in neat rows, a guardhouse at the entrance, and RV campers for workers’ housing along the perimeter. It was strewn with litter, including many discarded cans of bug spray used on the plants. Unlike products bound for licensed dispensaries, this site’s weed would not be tested for harmful compounds before hitting someone’s lungs.

A sheriff's deputy cuts open a bag of marijuana at an illegal grow site in San Bernardino County. Photo by Sam Rosenthal / VICE News.

A sheriff's deputy cuts open a bag of marijuana at an illegal grow site in San Bernardino County. Photo by Sam Rosenthal / VICE News.

The deputies quickly worked up a sweat chopping down plants inside the sweltering greenhouses. They also piled up several hundred pounds worth of processed bud, which was hauled off to be destroyed. It was the department’s biggest bust of 2021, but the impact was negligible. Several other unlicensed operations were visible just down the road. Bracco figured the growers they’d just arrested could be back up and running in a matter of  months.

“It's just very time-consuming,” Bracco said. “The repercussions aren't there, so they just go back into business.”

Burn it down

Everyone seems to agree California’s system is a mess, but who deserves blame and how exactly it should be cleaned up depends on who you ask. Near the top of most lists is Gov. Gavin Newsom and the state’s Department of Cannabis Control, or DCC, created last July by merging three state agencies in hopes of slimming the bureaucracy and creating more consistent oversight and regulation. So far, it doesn’t appear to be working.

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A group of 20 cannabis industry leaders sent an open letter to Newsom last month, raising the alarm that the state has become “a public policy lesson in what not to do.” The letter called for lowering taxes, allowing more dispensaries to open, and revamping programs intended to help people from communities of color receive licenses and open businesses. 

“We have collectively reached a point of intolerable tension,” the authors said, “and we will no longer support a system that perpetuates a failed and regressive War on Drugs.” 

California regulators seized nearly 400,000 pounds of illicit weed and eradicated more than 1.2 million plants in 2021. Photo by Keegan Hamilton / VICE News.

California regulators seized nearly 400,000 pounds of illicit weed and eradicated more than 1.2 million plants in 2021. Photo by Keegan Hamilton / VICE News.

In a statement to VICE News, a spokesperson for Newsom said he “has been at the forefront of the state’s cannabis legalization movement, and has also acknowledged it is not perfect. It’s clear the cannabis tax structure is presenting unintended but real challenges for components of our legal market, and that is why he is in favor of the state tackling cannabis tax reform.”

The governor pledged “significant resources” on lowering barriers to enter the legal market, and to “enforcing against the illegal cannabis activities that devastate our environment, threaten our waterways, and present serious public safety threats to our people and communities." 

“Their program is an abject failure. They know it's an abject failure and they want to put their head in the sand and not admit it.”

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The DCC’s enforcement wing seized nearly 400,000 pounds of illicit weed and eradicated more than 1.2 million plants last year, but spokesperson Christina Dempsey noted that “history has shown that enforcement alone will never completely end the illegal cannabis market.”

There’s only so much Newsom and the DCC can do without action by the state Legislature. Lowering taxes requires a two-thirds majority vote. At least for now, California is probably stuck with the system it has, especially if federal law remains unchanged. President Joe Biden has said he supports marijuana decriminalization, but he’s still not in favor of all-out legalization.

Annual seizures of illicit marijuana plants are now roughly 10 times what they were five years ago, prior to recreational legalization in California. Photo by Keegan Hamilton / VICE News.

Annual seizures of illicit marijuana plants are now roughly 10 times what they were five years ago, prior to recreational legalization in California. Photo by Keegan Hamilton / VICE News.

As it stands, many licensed operators are said to be diverting marijuana to the illicit market in order to turn a profit. One scheme known as the “burner distro” takes advantage of lax oversight in the track-and-trace system, treating a distribution license as disposable (like a “burner” cellphone) and using it to source marijuana from licensed growers for sale out of state. 

Elliot Lewis, CEO of Catalyst Cannabis Co., a chain of Southern California dispensaries, sued the state last September for failing to crack down on burner distros, which he claims in the lawsuit are “selling untold millions of pounds of untaxed and largely unregulated state-grown cannabis” to illicit dealers. (Attorneys for the state called the lawsuit “uncertain, ambiguous, and unintelligible.” The case remains pending in Orange County Superior Court.)

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“The idea of the lawsuit is to embarrass the shit out of them,” Lewis told VICE News. “Their program is an abject failure. They know it's an abject failure and they want to put their head in the sand and not admit it.”

A greenhouse full of unlicensed marijuana plants chopped down by the San Bernardino County Sheriff's Department. Photo by Keegan Hamilton / VICE News.

A greenhouse full of unlicensed marijuana plants chopped down by the San Bernardino County Sheriff's Department. Photo by Keegan Hamilton / VICE News.

Lewis said some of his licensed stores are currently losing money, and that business owners across the supply chain, from farmers to retailers, are struggling. He thinks the answer is to lower taxes and punish people who break the rules, though not with jail time.

“You can hardly blame people for engaging in a little chicanery just to make their payroll or keep their head above water,” Lewis said. “We don't want War on Drugs 2.0. The whole point of legalizing cannabis was to get away from enforcement.”

Bang for your buck

Perhaps the most galling failure of marijuana legalization in California has been the bungled rollout of social equity programs, which are supposed to support minority applicants who were affected by criminalization in years past. Many states and cities have struggled to implement similar initiatives, but Los Angeles is especially egregious.

Out of 205 social equity applicants vetted by the city and deemed qualified to run retail shops, only 38 have actually managed to obtain the temporary licenses to operate. A nebulous application process, prohibitive fees, and high start-up costs, including skyrocketing rates for real estate zoned for marijuana operations, has kept many eligible candidates from getting their businesses off the ground. 

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The fallout is that the very people legalization was supposed to help are being shut out of the marketplace, leaving them no choice but to continue operating illegally, according to Bonita “Bo” Money, founder of the National Diversity and Inclusion Alliance, a group that supports communities of color in the industry. She’s among those who discourage the term “black market” because it carries a negative connotation, preferring “legacy market” instead.  

“This is how folks make a living and have for years,” she said. “They wanted to go legal and had hopes of going legal through a social equity program, just to be let down. Most have gone back to the legacy market because they have to.” 

California is one of 18 states, plus Washington, D.C., that has legalized marijuana for recreational use. Photo by VICE News.

California is one of 18 states, plus Washington, D.C., that has legalized marijuana for recreational use. Photo by VICE News.

One unlicensed grower, who asked to use the pseudonym Doc, hoped to join the legal market but found the social equity application process impossible to navigate. As a Black man previously charged with illegal growing, he fits the criteria, but he’s decided there are fewer headaches and more money to be made by keeping his operation off the books.

“We have a saying here in LA,” Doc said. “If you're a tourist, you're going to go to a dispensary, because you're not knowing there is far better weed in the neighborhood. As a consumer, you're trying to find the best bang for your buck, and the dispensary is not it.” 

“If you're a tourist, you're going to go to a dispensary, because you're not knowing there is far better weed in the neighborhood.”

Doc keeps his grow hidden behind a false wall in the garage of a home in the LA suburbs, used solely for the purpose of illicit farming. He plays jazz for his plants, and says that while his operation is relatively small, he survives by turning out high-potency hydroponic grass that sells for half the price of top-shelf products in licensed stores. 

When we met, Doc was stressing about whether his next harvest would be ready in time for the Super Bowl. He had loyal customers counting on him—and no qualms about undercutting the dispensaries, which he sees as taking advantage of the market he and other outlaw growers and dealers built over the years.

“We created this,” he said. “We created this, and they're coming in on our backs. And as soon as they're able to jump over the fence that we're giving them a piggyback ride to, then they're over the fence and they've decided that they're not going to open the gate for us to come in.”

Follow Keegan Hamilton on Twitter: @keegan_hamilton

Sarah Svoboda, Kassidy Dillon, and Judy Cai contributed reporting