Marijuana black markets are coexisting with (poorly designed, over-regulated, highly taxed) legal markets in California

 The Guardian has the story:

California legalized weed five years ago. Why is the illicit market still thriving? by Amanda Chicago Lewis

"Voters passed a law in November 2016 making recreational marijuana legal. But today, the vast majority of the market remains underground – about 80-90% of it, according to experts.

"Because that 2016 law, known as Proposition 64, gave municipalities the power to ban weed as they see fit, the majority of cities and counties still don’t allow the sale of cannabis, inhibiting the growth of the legal market.

"In the places that do allow pot shops and grows, business owners say high taxes, the limited availability of licenses, and expensive regulatory costs have put the legal market out of reach. 

...

"The story of California’s legal weed chaos dates back to 1996, when voters passed a law allowing medical marijuana. At the time, Bay Area Aids activists saw the way pot relieved pain and stimulated hunger among their emaciated and desperately ill friends. That led to a grassroots campaign to get Proposition 215, a measure legalizing the medical use of cannabis, on the California ballot.

"However, Prop 215 only allowed doctors to recommend that patients and their caregivers grow their own weed. Essentially, it legalized a commodity without legalizing the business side of it.

"For the next 20 years, a laissez-faire, gray market for medical marijuana flourished and became entrenched. With doctors’ recommendations for medical marijuana easy and cheap to come by, cannabis entrepreneurs practiced a lucrative form of civil disobedience, opening dispensaries, manufacturing edibles and growing acres of plants that brought in enough money to offset intermittent law enforcement crackdowns. The industry developed protocols to get a business back up and running right after a raid, such as keeping cash offsite and obscuring ownership through a series of management companies.

"If you could withstand the legal uncertainty, it was a good time to make money in marijuana. By 2010, the city of Los Angeles had about 2,000 pot shops illegally selling cannabis. Statewide, the total illicit market surged, causing Mexican cartels to either stop growing weed or to relocate their grows to California.

...

"For a marijuana enterprise today, becoming legal has often meant sacrificing a good deal of profit. Businesses frequently pay an effective tax rate of 70%, in part because they are breaking federal law and therefore aren’t able to take tax deductions, but also because politicians see the industry as a source of tax revenue and set higher rates.

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"But the longer we allow cannabis to remain state-legal and federally illegal, the harder it will be to fix. Though botching weed legalization sounds like a trivial issue, it intersects with many of the issues that are fundamental to our lives, from criminal justice to public health, gang violence to economic inequality, the opioid crisis to the wellness craze. Cannabis is the second-most-valuable crop in the country, after corn and ahead of soybeans. It’s the most common reason for arrest in America. And despite marijuana’s dubious reputation, research has shown the plant “may have therapeutic potential in almost all diseases affecting humans”.