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Marijuana’s black market is undercutting legal businesses



A man smokes marijuana during a hip-hop performance at the 11th annual block party held by the Bushwick Collective in Brooklyn, New York, on June 4, 2022.

Alex Kent | AFP | Getty Images

Thriving, unregulated marijuana businesses across the United States are undercutting legal markets awaiting banking and tax reform.

While it’s an issue in states like Colorado, Michigan and Washington, it’s a much bigger problem in New York. Unlicensed businesses are “taking a pretty hefty percent of the potential market share,” according to Amanda Reiman, a researcher at cannabis intelligence company New Frontier Data. None of the 36 newly licensed dispensaries in New York have even started operating yet.

The licensing program in New York is years behind the state’s sophisticated black market. New York doled out its first set of dispensary licenses last month, but recreational marijuana has been legal in the state for nearly two years.

“These shops are masquerading as safe, legal entities,” said Trivette Knowles, a press officer at the New York State Office of Cannabis Management, “but there are currently no licensed sales happening right now in the state of New York.” 

The problem is particularly cumbersome in New York City, Knowles said. Weed can be bought from brick-and-mortar storefronts, trucks, pop-up shops, bodegas and even courier services that deliver directly to consumers. His office has sent out cease-and-desist letters to some of the unlicensed operators in the state, but some trade groups say there are likely tens of thousands of illegal businesses in the city alone.  

“It’s almost like whack-a-mole,” said Reiman, of New Frontier Data. “If one goes down, another one just pops up.”

Reiman said her firm doesn’t track data on the many illicit businesses that have taken root across the country, but she estimates the national market is worth around $60 billion. The legally regulated industry is just half that, she said.

“When you have dispensaries and distribution systems that pretty much mimic regulated markets, it can be really difficult to get people to move over,” Reiman said.

Unregulated markets, she said, also pose serious health risks for consumers. A November study commissioned by the New York Medical Cannabis Industry Association found that after reviewing cannabis products from 20 illicit stores in New York City, about 40% contained harmful contaminants such as E.coli, lead and salmonella.

Besides cease-and-desist letters, New York City has begun cracking down in other ways, too.

In December, Mayor Eric Adams announced the seizure of more than $4 million worth of products being sold illegally. His office also issued over 500 civil and criminal summonses as part of a two-week pilot program with various law enforcement agencies.

“We will not let the economic opportunities that legal cannabis offers be taken for a ride by unlicensed establishments,” the mayor said at a news conference.

Banking reform on hold

For the third time this year, the Secure and Fair Enforcement Banking Act, also known as SAFE, hit a wall in Congress after lawmakers excluded it from a $1.7 trillion government funding bill. The measure would have fortified the legal cannabis industry by allowing licensed businesses to access traditional banking services.

Under federal law, banks and credit unions face federal prosecution and penalties if they provide services to legal cannabis businesses since it is still a Schedule I substance, along with heroin and LSD. Schedule I substances, according to the federal Drug Enforcement Administration, are defined as drugs with no currently accepted medical use and a high potential for abuse. 

Without access to traditional banks, legal marijuana businesses are forced to operate in a cash-only model, and they can’t access loans, capital or even use basic bank accounts.

“This is, sadly, a win for the illegal market, which pays no taxes and has no regulations or testing safeties in place,” said Boris Jordan, Curaleaf co-founder and executive chairman.

Jordan said the “entire industry will suffer as a result.”

The SAFE Act, which has received some bipartisan support, will have to be reintroduced during next year’s congressional session, when Republicans take control of the House.

Executives such as Brady Cobb, CEO of Sunburn Cannabis, said the path forward is “somewhat murky given the new political composition of the chambers.”

Sticker shock

Consumers often turn to the black market for weed because they get a better deal there, said cannabis tax lawyer Jason Klimek. He has advised various cannabis companies and currently serves as the chair of the Tax Committee of the New York State Bar Association’s Cannabis Law Section.

Klimek authored a study on New York’s cannabis taxes that predicts legal cannabis in the state will likely double prices due to high state and federal taxes.

He said the hefty price tag for legal weed in New York will “cause legal adult use of cannabis to be that much more expensive than the illicit market,” and leave customers with “sticker shock.” He said look no further than California for example, where high taxes and competition from unlicensed businesses are still a problem for its legal industry six years out from its launch.

“California is getting decimated by their illicit market that’s thriving because legal products are more expensive, more regulated, and have more taxes,” he said. “They just couldn’t compete.”

Some relief came in July when Gov. Gavin Newsom cut the state’s cultivation tax, which offered a lifeline to small cultivators. But high taxes still plague adoption of the regulated market. Marijuana sold at California retailers include a 15% excise tax, a state sales tax of 7.25% and local taxes of up to 15%.

Marijuana for sale at the “Freedom Festival” marijuana expo Wednesday, April 20, 2022, in Bensenville, Illinois.

Erin Hooley | Tribune News Service | Getty Images

“While generating taxes from the legal side is a crucial component of the current legal model, we also have to balance that with sensible regulations and realistic tax structures,” said Lindsay Robinson, executive director of the California Cannabis Industry Association.

In 2021, California generated more than $1.2 billion in revenue from marijuana taxes, according to the Motley Fool. Sixty percent of this revenue goes to anti-drug programs targeting kids, 20% to environmental programs and 20% to public safety.

Robinson fears that with California’s current tax structure, legal businesses will be “taxed out of existence.”

In New York, legal marijuana is set to include a retail tax of 13% and a tax based on potency levels of tetrahydrocannabinol, or THC, marijuana’s psychoactive component.  

Klimek said that if New York wants to establish the lucrative, equitable legal market it intended, this tax structure may need reworking so that sticker prices at stores don’t turn away customers.  

He also said the state should take the step of integrating illicit operators into its new legal system, something New York’s Office of Cannabis Management agrees with.

“We recognize that those who have sold in the past more than likely have great entrepreneurial skills that can be utilized in our market,” said Knowles, OCM’s press officer. “We have always advocated that those who had to sell illicitly in the past have an opportunity to do so in the future.”

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Lucid to cut 1,300 workers amid signs of flagging demand for its EVs



Lucid Motors CEO Peter Rawlinson poses at the Nasdaq MarketSite as Lucid Motors (Nasdaq: LCID) begins trading on the Nasdaq stock exchange after completing its business combination with Churchill Capital Corp IV in New York City, New York, July 26, 2021.

Andrew Kelly | Reuters

Struggling EV maker Lucid said in a regulatory filing on Tuesday that it plans to cut about 18% of its workforce, or roughly 1,300 employees, as part of a larger restructuring to reduce costs as it works to ramp up production of its Air luxury sedan.

Lucid said it will incur one-time charges totaling between $24 million and $30 million related to the job cuts, with most of that amount being recognized in the first quarter of 2023.

News of the job cuts was first reported by Insider earlier on Tuesday. Lucid’s shares closed down over 7% on Tuesday following the Insider report.

In a letter to employees, CEO Peter Rawlinson said the job cuts will hit “nearly every organization and level, including executives,” and that affected employees will be notified over the next three days. Severance packages will include continued healthcare coverage paid by Lucid, as well as an acceleration of equity vesting, Rawlinson wrote.

Lucid ended 2022 with about $4.4 billion in cash on hand, enough to last until the first quarter of 2024, CFO Sherry House told CNBC last month ahead of the company’s fourth-quarter earnings report. But there have been signs that demand for the high-priced Air has fallen short of Lucid’s internal expectations, and the company may be struggling to convert early reservations to sold orders.

Lucid said that it had more than 28,000 reservations for the Air as of Feb. 21, its most recent update. But it also said that it plans to build just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 that Wall Street analysts had expected.

With Lucid’s factory currently set up to build about 34,000 vehicles per year, the company has warned of continuing losses.

“As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we will continue to experience negative gross profit related to labor and overhead costs,” House said during Lucid’s earnings call on Feb. 22.

Lucid hasn’t yet announced a date for its first-quarter earnings report.

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Virgin Orbit extends unpaid pause as Brown deal collapses, ‘dynamic’ talks continue



NEWQUAY, ENGLAND – JANUARY 09: A general view of Cosmic Girl, a Boeing 747-400 aircraft carrying the LauncherOne rocket under its left wing, as final preparations are made at Cornwall Airport Newquay on January 9, 2023 in Newquay, United Kingdom. Virgin Orbit launches its LauncherOne rocket from the spaceport in Cornwall, marking the first ever orbital launch from the UK. The mission has been named Start Me Up after the Rolling Stones hit. (Photo by Matthew Horwood/Getty Images)

Matthew Horwood | Getty Images News | Getty Images

Virgin Orbit is again extending its unpaid pause in operations to continue pursuing a lifeline investment, CEO Dan Hart told employees in a company-wide email.

Some of the company’s late-stage deal talks, including with private investor Matthew Brown, collapsed over the weekend, people familiar with the matter told CNBC.

Hart previously planned to update employees on the company’s operational status at an all-hands meeting at 4:30 p.m. ET on Monday afternoon, according to an email sent to employees Sunday night. At the last minute, that meeting was rescheduled “for no later than Thursday,” Hart said in the employee memo Monday.

“Our investment discussions have been very dynamic over the past few days, they are ongoing, and not yet at a stage where we can provide a fulsome update,” Hart wrote in the email to employees, which was viewed by CNBC.

Brown told CNBC’s “Worldwide Exchange” last week he was in final discussions to invest in the company. A person familiar with the terms told CNBC the investment would have amounted to $200 million and granted Brown a controlling stake. But discussions between Virgin Orbit and the Texas-based investor stalled and broke down late last week, a person familiar told CNBC. As of Saturday those discussions had ended, the person said.

Separately, another person said talks with a different potential buyer broke down on Sunday night.

The people asked to remain anonymous to discuss private negotiations. A representative for Virgin Orbit declined to comment.

Hart promised Virgin Orbit’s over 750 employees “daily” updates this week. Most of the staff remain on an unpaid furlough that Hart announced on Mar. 15. Last week, a “small” team of Virgin Orbit employees returned to work in what Hart described as the “first step” in an “incremental resumption of operations,” with the intention of preparing a rocket for the company’s next launch.

Virgin Orbit’s stock closed at 54 cents a share on Monday, having fallen below $1 a share after the company’s pause in operations.

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Virgin Orbit developed a system that uses a modified 747 jet to send satellites into space by dropping a rocket from under the aircraft’s wing mid-flight. But the company’s last mission suffered a mid-flight failure, with an issue during the launch causing the rocket to not reach orbit and crash into the ocean.

The company has been looking for new funds for several months, with majority owner Sir Richard Branson unwilling to fund the company further.

Virgin Orbit was spun out of Branson’s Virgin Galactic in 2017 and counts the billionaire as its largest stakeholder, with 75% ownership. Mubadala, the Emirati sovereign wealth fund, holds the second-largest stake in Virgin Orbit, at 18%.

The company hired bankruptcy firms to draw up contingency plans in the event it is unable to find a buyer or investor. Branson has first priority over Virgin Orbit’s assets, as the company raised $60 million in debt from the investment arm of Virgin Group.

On the same day that Hart told employees that Virgin Orbit was pausing operations, its board of directors approved a “golden parachute” severance plan for top executives, in case they are terminated “following a change in control” of the company.

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Historic UAW election picks reform leader who vows more aggressive approach to auto negotiations



Supporters wave signs during an address at the Time Warner Cable Arena in Charlotte, North Carolina, on September 5, 2012 on the second day of the Democratic National Convention (DNC).

Mladin Antonov | AFP | Getty Images

DETROIT – United Auto Workers members have ousted their president in the union’s first direct election, ushering in a new era for the prominent organized labor group ahead of negotiations later this year with the Detroit automakers.

The union’s new leader will be Shawn Fain, a member of the “UAW Members United” reform group and local leader for a Stellantis parts plant in Indiana. He came out ahead in a runoff election by hundreds of votes over incumbent Ray Curry, who was appointed president by union leaders in 2021.

Fain, in a statement Saturday, thanked UAW members who voted in the election. He also hailed the election results as a historic change in direction for the embattled union, which he says will take a “more aggressive approach” with its employers.

“This election was not just a race between two candidates, it was a referendum on the direction of the UAW. For too long, the UAW has been controlled by leadership with a top-down, company union philosophy who have been unwilling to confront management, and as a result, we’ve seen nothing but concessions, corruption, and plant closures,” Fain said.

Curry, who previously protested the narrow election results, said in a statement that Fain will be sworn in on Sunday and that Curry is “committed to ensuring that this transition is smooth and without disruptions.”

“I want to express my deep gratitude to all UAW staff, clerical support, leaders and most of all, our union’s active and retired members for the many years of support and solidarity. It has been the honor of my life to serve our great union,” Curry said.

More than 141,500 ballots were cast in the runoff election that also included two other board positions, a 33% increase from last year’s direct election in which neither of the presidential candidates received 50% or more of the votes.

The election was overseen by a federal monitor, who did not immediately confirm the results. The election results had been delayed several weeks due to a run-off election as well as the close final count.

Shawn Fain, candidate for UAW president, is in a run-off election with incumbent Ray Curry for the union’s highest-ranking position.

Jim West for UAW Members United

Fain’s election adds to the UAW’s largest upheaval in leadership in decades, as a majority of the union’ s International Executive Board will be made up of first-time directors who are not part of the “Administration Caucus” that has controlled the union for more than 70 years.

Fain and other members of his leadership slate ran on the promise of “No corruption. No concessions. No tiers.” The last being a reference to a tiered pay system implemented by the automakers during recent negotiations that members have asked to be removed.

The shuffle follows a yearslong federal investigation that uncovered systemic corruption involving bribery, embezzlement, and other crimes among the top ranks of the UAW.

Thirteen UAW officials were convicted as part of the probe, including two past presidents. As part of a settlement with the union in late 2020, a federal monitor was appointed to oversee the union and the organization held a direct election where each member has a vote, doing away with a weighted delegate process.

For investors, UAW negotiations with the Detroit automakers are typically a short-term headwind every four years that result in higher costs. But this year’s negotiations are anticipated to be among the most contentious and important in recent memory.

Fain has said the union will seek benefit gains for members, advocating for the return of a cost-of-living adjustment, or COLA, as well as raises and job security.

The change in the UAW comes against the backdrop of a broader organized labor movement across the country, a pro-union president and an industry in the transition to all-electric vehicles.

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