- An underground economy is cutting into the profits of the legal cannabis businesses.
- Authorities shut down an illegal weed dispensary and grow house in Los Angeles as part of a crackdown on the marijuana black market.
- Police say more than an estimated 250 illegal dispensaries are operating in the area, which has 187 licensed stores.
Authorities shut down an illegal weed dispensary and grow house in Los Angeles as part of a crackdown on the marijuana black market.
The raid on Tuesday afternoon by Los Angeles police, fire, building and safety and water and sewer departments, resulted in the arrests of three employees at The 15 Spot in Van Nuys, a neighborhood in Los Angeles. Armed with a search warrant, police had to break down the door leading into the area in the dispensary where weed was being sold illegally, investigators said. Several customers were escorted out of the store by police.
The operation is part of a law enforcement battle against the black market, particularly in the Los Angeles area. A CNBC investigation last month found that nationwide, the estimated $70 million illegal weed market is seven times bigger than the legal market, according to New Frontier Data. Police say more than an estimated 250 illegal dispensaries are operating in the Los Angeles area, which has 187 licensed stores.
At The 15 Spot, police found a generator hooked up to run power. City officials previously had turned off the electricity. No one from management or the owner was at the business during the raid.
"It's fairly typical as far as the way it's being operated as a nonpermitted illegal cannabis clinic," Los Angeles Police Detective Ben Herskowitz said. "You could tell just by the way the cannabis product is packaged. They're not allowed to be in mason jars. Legal ones are packaged, they're sealed."
Customers don't know what unapproved weed contains, he said, warning they are at risk of consuming unknown pesticides.
In addition, Herskowitz said the owners of illegal dispensaries "tend to be in the shadows. The employees don't know who hired them. There are no employment records. Employees won't even call themselves employees. They call themselves volunteers. They don't know what they're getting paid. Some get paid by the hour, some by tips."
Police also discovered an illegal large grow house behind The 15 Spot dispensary that was being watched by an armed guard.
The CNBC investigation found legal operators in Los Angeles were being undercut by the illegal stores, which don't pay taxes and sell weed at deep discounts. A team of CNBC producers with hidden cameras visited 10 illegal dispensaries throughout Los Angeles, finding a variety of illegal activity from customers openly smoking pot to free weed in exchange for a positive review on an online site that lists dispensaries around the country.
"We're facing, especially in California and in LA specifically, an illicit market that is extremely strong," said Cameron Wald, executive vice president of the Project Cannabis dispensary. "We're outnumbered 3 to 1, illicit operator to legal operator. So, you know, we have outrageous price compression that we have to see at our stories in order to compete with people that are not paying their taxes."
Police acknowledge it's an uphill battle to shut down all the illegal dispensaries since many frequently reopen.
"In several different locations, we've been back two or three times, same location they just opened up again," Herskowitz said. "And we get them again. It's frustrating."