Election 2016

The election wrecked America's underground weed economy

The election wrecked America’s underground weed economy

When Trip was growing up on the East Coast, the only stores where people could legally buy marijuana were in the Netherlands, which might as well have been Mars to a teenage stoner who also dabbled in dealing. The most common product on the market was “brick weed,” the dirt-cheap stuff from fields in Mexico or Jamaica that gets vacuum-sealed into bales for ease of smuggling. He remembers it being a stale and sad shade of brown.

“When we could make enough money from that to buy green weed, we’d buy Canadian,” he recalls. “Cali bud was almost unheard-of. I don’t think there was enough of it to leave Cali.”

Two decades later, the 39-year-old Trip — a nickname he offered up to identity himself — oversees a handful of grow operations in the Sierra Nevada foothills that produce several hundred pounds of green California grass per year. He’s living his dream, but that dream took a surreal turn on Tuesday when California voters approved Proposition 64, a ballot initiative that will legalize marijuana sales to adults over 21 by 2018.

Passage of California’s measure creates a market estimated to be worth $4.3 billion by 2018. Nevada, Massachusetts, and Maine also fully legalized weed, following the path blazed since 2012 by Colorado, Washington, Oregon, Alaska, and Washington, D.C. Four more states also legalized or expanded access to medical marijuana.

Across the country, traditional supply networks fueled by underground growers in Northern California are about to be disrupted by competition from state-sanctioned businesses. For consumers, that means weed will eventually get cheaper, but small-time growers like Trip are worried they won’t be able to survive in the new era.

Stamping out illegal grows, including environmentally damaging ones linked to organized crime, has long been a promise of pro-legalization campaigns, including the successful one in California. But it could have unintended economic consequences. The California Growers Association estimates there are at least 40,000 “independent” marijuana grows in the state that provide about 250,000 jobs, and Trip says money from guys like him has boosted the housing market and helped keep afloat everything from auto dealerships to the construction industry.

“Local businesses haven’t just survived, they’ve thrived off growers like me,” he said. “If we go away, the trickle-down effect will be enormous. People are going to go back to making meth instead of growing weed.”

Already upended by declining wholesale prices caused by the crumbling of prohibition, the black market will soon be in free fall. Cannabis Benchmarks, a group that tracks the wholesale price of marijuana, said in its midyear report for 2016 that a “supply glut” has driven the average cost per pound down to about $1,600, compared to more than $2,000 at the start of the year. Those prices are expected to drop even further — as low as $800 per pound — after the fall harvest by California’s outdoor farmers.

“I don’t think wholesale prices can get much lower,” said Hezekiah Allen, executive director of the California Growers Association.For a lot of people, they’re already [selling] at cost of production.”

In the short term, those savings won’t necessarily be passed on to the consumer. While the price for a quality “eighth” — the 3.5-gram industry standard for a single-serve baggie — is as low as $30 in legal weed states like Colorado and Washington, it remains around $50 or $60 in states with strict drug laws. But with East Coast states set to establish legal marketplaces and indoor grow-ops proliferating, good pot is going to get cheaper eventually.

Prohibition effectively created price supports for California farmers. Eight years ago, Trip says, a pound of weed that sold for $2,200 in California would fetch $4,400 on the East Coast. Even with smuggling costs, he was nearly doubling his investment. But with the arrival of legal state marketplaces and spread of illicit indoor grow operations, supply is rapidly catching up with demand. Today, Trip says he’d be lucky to net $200 in profit per pound on a shipment back east.

“The East Coast market is approaching parity with the West Coast,” he says. “It’s kind of not worth it to bring it there anymore.”

He’s not the only one complaining. VICE News spoke with several people involved in the marijuana black market, and all of them have seen margins slim since legalization took effect in Washington and Colorado in 2014. They reported high prices — as much as $4,000 a pound in some Midwestern states — but the post-election consensus is that’s not going to last.  

Nationwide, marijuana sales are valued at anywhere from $20.6 billion to $40 billion per year. Those are just educated guesses by cannabis industry analysts and think tank experts, but there’s no doubt a massive underground market exists for marijuana — and not the brown schwag Trip was stuck with back in the day.

Today’s consumers prefer the THC-rich, medical-grade pot grown indoors under expensive lights, in warehouses that rack up huge electricity bills. This supply hasn’t grown to meet the national demand, however, and Trip’s farm-grown product is nearly as good for a fraction of the production cost. All he needs is a few greenhouses, a steady water supply, and plenty of California sunshine. Growers like him provide as much as 70 percent of the weed smoked across the country, according to one state law enforcement estimate.

Trip currently sells to California medical dispensaries through a wholesale “broker,” who pays up to $1,800 per pound, depending on the quality. With each of his gardens projected to produce harvests of 500-plus pounds, even after factoring in labor and supply costs he’s banking more than most Silicon Valley programmers — and paying a fraction of the taxes.

He claims his gardens are technically sanctioned under California’s permissive medical marijuana law, but the local sheriff raided one plantation this year, and he’s still liable to get busted by the feds, hence his request for a pseudonym. He wears a green bandana and an Indiana Jones-style hat, which makes him look like an old frontier outlaw, the kind that prowled the Sierra during the gold rush more than a century ago. He clearly enjoys carrying the mantle.

“I’ve moved a lot of herb for a lot of years,” he says, flashing a proud grin. “I could be described as a career criminal.”

He’s also a small business owner — employing at least a dozen people — and he’s trying to grow organically with minimal damage to the environment. He draws water from a natural spring on his property, and he’s taken steps to prevent erosion that can damage streams. With his partner expecting a baby soon, he’s worried the new green rush will put him out of business, a fear that is not entirely unfounded.

Declining prices and changes to California’s medical marijuana law, which will be further affected by the passage of Prop 64, have forced 30 to 40 percent of small-time growers to quit the game, according to one industry insider’s estimate. Major players in California’s marijuana industry have already started building massive, industrial-scale grow operations that will boost production and drive the wholesale price of pot down even further, making it harder for mom-and-pop operations to compete.

The California Growers Association refused to endorse or oppose Prop 64 based on split opinion among its members. Allen warns that the remaining small-scale farms are in jeopardy unless the state creates regulations that allow for both big and small operations to thrive.

“We’ve got 50,000 economically viable family farms in California right now,” Allen said. “That’s unheard-of in America today. Why would we let that go?”

Allen says he’s all for cracking down on “criminals” — the bad actors who pollute the land, fuel violent crime, and specialize in shipping to states where weed remains illegal — but he warns that many responsible growers who currently supply California medical dispensaries will be pushed into the black market without regulatory accommodations. Many of these growers offer prized niche strains, which critics say huge commercial grow-ops won’t be able to replicate. If it’s not available legally, Allen says, the black market will still crave top-notch California pot.

“These growers aren’t going to disappear,” he said. “Small growers aren’t going to stop feeding their families, especially when there’s a demand in the national marketplace.”

Persistent street-level dealing has been a problem in Seattle, but Washington addressed the issue by bringing down taxes to make the state’s recreational market more competitive. California’s new system imposes a 15 percent tax on retail marijuana sales and additional taxes on cultivators, which could leave room for untaxed grows to sell for less than the dispensary and still turn a profit. And while prices on the East Coast have fallen, continued prohibition in the 22 states without medical or recreational weed will keep prices just high enough to allow the export market to remain viable.

“The feeling is that unless we see national change,” said Lauren Michaels, legislative affairs manager for the California Police Chiefs Association, “we’ll see a strong and robust black market in any state that allows for legal marijuana.”

Despite the DOJ’s warning that legal weed spilling across state lines would not be tolerated, the feds have mostly stayed away from meddling in Colorado, Washington, and Oregon. But in California, there’s concern among major cannabis entrepreneurs that failure to rein in black market growers could ruin the new system by attracting the attention of the DEA and other federal law enforcement agencies, since weed remains illegal federally.

“It will bring the federal government back into California,” said Steve DeAngelo, CEO of Oakland’s Harborside Health Center, the state’s largest medical dispensary. “We have fought long and hard to get the feds out of cannabis in California, and as long as we have large organized grows — cartels growing illicitly and illegally diverting out of state — then the feds are going to be coming in.”

California’s law will wipe away previous convictions for marijuana-related offenses, but people like Trip, who has a felony drug conviction in another state, could be barred from getting a license to legally grow. And overall, only a fraction of the state’s growers — DeAngelo estimates as low as 10 percent — will be integrated into the legal regime.

“There’s really only one solution and that’s to end the illegal market,” DeAngelo said. “We know that no matter what the federal government throws at it, they’re not going to be able to stop cannabis being produced in the Emerald Triangle [in Northern California]. They’ve been trying to do that for decades. They haven’t succeeded and they’re not going to succeed.”

The bottom line is that growers like Trip will have to adapt or go extinct. California’s new law calls for the state to recognize “regional appellations of origin” for marijuana, similar to the designation you might find on a fancy European wine or cheese. Growers in the Emerald Triangle and elsewhere in California to hope create the Napa Valley of weed, a place where connoisseurs will come to sample boutique strains, tour organic gardens, and enjoy the stunning scenery.

Standing with Trip on his secluded farm in the foothills of the Sierra Nevada, it’s easy to see how a “canna tourism” industry could catch on here. But he’s not counting on it. He’s already asking himself, “What if this whole thing comes to an end? What’s my exit strategy?” In the long term, he’d like to go legit and work in real estate or construction, but he notes that California’s new system won’t be up and running until 2018. And in the meantime, he smells opportunity in what’s left of the underground market.

“What are people like me going to do?” he asks rhetorically. “Probably keep growing marijuana.”

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