Sweet Opportunity: Candies made of marijuana. Big and small investors are looking at ways to capitalize on recreational pot.

Sweet Opportunity: Candies made of marijuana. Big and small investors are looking at ways to capitalize on recreational pot. Photo by David McNew/Getty Images

Taxing affair

Carson isn’t the only municipality raising eyebrows in the industry. While the city of Los Angeles has yet to implement its local regulatory scheme, a March ballot measure sponsored by the City Council would add 10 percent to recreational weed sales. Long Beach, Los Angeles County’s second largest city, just passed a measure that brings retail taxes on pot up to 12 percent.

Additional costs to cannabis business owners include licensing fees and other taxes tied to every segment of the industry supply chain, from cultivators to product testers, manufacturers, and distributors.

“At every single level, we see governments exploiting opportunities to raise revenue from cannabis businesses,” said Aaron Herzberg, a principal at Santa Ana real estate investment trust CalCann Holdings, which owns marijuana properties and dispensaries in Los Angeles and Orange counties.

Another issue confronting the cannabis business community is how many licenses will be made available and where. Provisions in both Proposition 64 and last year’s Medical Marijuana Regulation and Safety Act make local licenses a requirement for businesses to obtain a state cannabis permit. If municipalities don’t approve a recreational or medical marijuana ordinance by 2018, existing businesses would become de facto illegal in that jurisdiction.

Herzberg said this could drive more of the market underground.

“The lack of dispensaries licenses is definitely another pressure point,” he said. “If there’s not an appropriate number of cities that allow licensed businesses to operate, the unlicensed market will continue to thrive.”

In the city of Los Angeles, the licensing issue is particularly acute. While the city’s March ballot measure would enact a licensing process, it does not include any language related to the number of licenses that would be granted.

“If they don’t do something about the licenses, it could jeopardize the entire system,” Herzberg said.

Meanwhile, the proposition would implement a $20,000 a day fine on any cannabis business operating without a license. That’s a price point that even the most lucrative illicit shops would have trouble stomaching, according to Grant of the Southern California Alliance.

“A thousand dollars, most guys can pay that any day,” he said. “Twenty thousand? Not many can afford that. One thing we know is that if you hit someone’s pocket, they’ll pay attention.”

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