On an isolated farm, the greenhouses stand in order, sheltered by a fringe of trees. There are hundreds of head-high cannabis plants in precise rows inside, each rising from a pot nourished by irrigation tubing. Powerful lights can turn night into day.
In the five years since California voters approved a broad legal marketplace for marijuana, thousands of greenhouses have sprouted across the state. Under their plastic canopies, there is a secret.
The business that operates the grow north of Sacramento holds a coveted state license that allows it to produce and sell its plants. It has been difficult for growers to turn a profit in a legal industry where wholesale prices for cannabis buds have plummeted as much as 70% from a year ago, taxes are high in some areas and customers find better deals in the underground marketplace.
The company has two different identities.
The black market is subsidized by the white market, according to a man who agreed to speak with The Associated Press.
The practice of working in both the legal and illegal markets is commonplace, and it's a financial reality brought on by the difficulties and costs of doing business with a product they call the most heavily regulated in America.
For the California grower, the illegal sales happen informally, often with a friend within the cannabis community calling to make a buy. The state requires legal businesses to report what they grow and ship, and it's entered into a vast computerized tracking system known as "seed to sale" monitoring.
The grower said it was not hard to operate outside the tracking system's guardrails. There is little in the way of on-site inspections to verify record-keeping as plants can vary widely in what they produce. The system is so loose that some legal farms move as much as 90 percent of their product into the illegal market.
The push to tax and legitimize California's marijuana industry was seen as a result of the passage of Prop 64. California became the world's largest legal marketplace when retail outlets could open in the summer of 2018, another step in what advocates hoped would be a path to federal legalization.
Most Americans live in states with access to legal marijuana, similar to alcohol laws, while more than two-thirds of states provide access through medical marijuana programs.
The co- founder of KIVA Confections lamented that the illegal market was damaging the effort to establish a stable, consumer-friendly marketplace.
She said that having people go back into the old-school way of doing things doesn't help us get to our goal of professionalizing cannabis and normalizing cannabis.
Even though the 2016 law stated that it would "incapacitate the black market," the illegal marketplace continues to dwarf the legal one. At the time the law was approved, Democratic Gov.Gavin Newsom was lieutenant governor.
California's legalization push faced challenges from the beginning. The state had an illegal market in the northern part of the state. Since the end of prohibition in 1933, no attempt has been made to change the illegal economy into a legal one.
In October, California law enforcement officials announced the destruction of over 1 million illegal plants statewide, but said they were finding larger growing operations. Many illegal growers are moving indoors to avoid detection. With so many underground grows, investigators may never eliminate the illegal cultivation, according to the sheriff.
The illegal market in California is estimated to be $8 billion, according to Tom Adams, chief executive officer of Global Go Analytics. Some estimates are even larger, but that's roughly double the amount of legal sales.
In September, a cannabis company sued government regulators in state court in Orange County, accusing them of using shadowy "front men" to get licenses to buy and sell cannabis in the illegal market.
No state has eliminated illegal operators. The Congressional Cannabis Caucus is chaired by an Oregon Democrat who said he didn't see a chance for undercutting illegal markets without federal legalization.
He said that the illegal markets in California, Oregon and elsewhere are a result of the lack of a national market that is regulated.
Many businesses do some transactions in the illegal market to make ends meet, but others never bother to enter the legal economy, like the California cultivator.
While California's legal market tightly controls how and where pot is sold, the illegal industry is easy to access and offers a doorway into a vast and profitable national market.
Good players are licensed players. It doesn't feel like we're on the right side of history.
California's effort to establish itself as the leader in the legal cannabis economy has never felt more jeopardized, and talk is spreading of a Boston Tea Party-like rebellion against state policies. The industry executives wrote a letter in December saying the state was hurting the marijuana economy.
The business leaders wrote that the California cannabis system is a public policy lesson in what not to do. He's open to change.
The grower said that the burden of competing in the regulated economy doesn't make sense to many operators who have been in the business for a long time. When the illegal economy is booming and there is little law enforcement to fear, there is a widespread mindset of "Why bother?"
If you can't get a license at all, opening a retail operation in Los Angeles can cost $1 million or more. The social equity programs that were supposed to assist businesses run by people of color who were targeted during the war on drugs have gotten off to a slow start.
The cannabis analyst said that it was a challenge for the legal market to have quality, price and convenience. The market has all three of them.
Wholesale prices have plummeted, shaking the supply chain in the legal market. A year ago, a person could get a lot of money. With the market saturated, that has dropped as low as $300.
If you put $150 in taxes on a $300 pound, it will be 50%.
Many cities in California do not allow legal sales or grow, and many have banned it or failed to set up rules, which is a problem for the industry. In a state with over 40 million people, cities have been slow to allow storefronts to sell legal products.
Wholesale buds in the underground are more expensive. The legal market is flooded with pot from corporate growers.
Jerred Kiloh is the owner of a dispensary and the head of the United Cannabis Business Association.
He said no one is making money in the legal supply chain. There are few bright spots in the law that established California's legal market, beyond a testing program that safeguards quality and programs to expunge old criminal records for marijuana.
He said that they did it all wrong.
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