ARI SHAPIRO, HOST:
On January 1, it will be legal to buy and sell recreational marijuana in California. It's the eighth and largest state by far to make the move. It's had to rush to get regulations in place since voters approved the measure just over a year ago. From member station KQED, Katie Orr reports.
KATIE ORR, BYLINE: At Buddy's Cannabis in San Jose, an employee carefully measures out bulk marijuana and puts it in smaller containers for resale.
(SOUNDBITE OF JARS CLINKING)
ORR: Buddy's is among the first cannabis businesses in the state to receive an adult-use license.
MATT LUCERO: This certainly is an ongoing social experiment.
ORR: Owner Matt Lucero knows a lot of people are watching.
LUCERO: I think right now we are continuing to build credibility with our community. You know, we work very closely with the city of San Jose, and now we'll be working very closely with the state of California to operate with full transparency.
ORR: The state started issuing recreational pot business licenses in mid-December, but where people live in California plays a big role in whether they'll see any notable changes come New Year's Day. That's because the law allows individual municipalities to say, no pot here.
TIM CROMARTIE: It's been a slow process for a lot of cities.
ORR: Tim Cromartie is with the League of California Cities. He says communities are all over the map when it comes to dealing with recreational marijuana. Some allow cultivation but not retail. Others will allow delivery but no storefronts.
CROMARTIE: Generally, I think it's true that the coastal cities are more inclined to allow some form of at least one or two of the licensed activities. And as you get further inland, folks are more likely to embrace bans.
ORR: Some of those bans might disappear if tax revenues start coming in as projected. The industry is expected to bring in billions in tax dollars every year. The profit potential is drawing a lot of new entrepreneurs as well. Chris Russell is with a financial management firm that caters specifically to pot businesses. It's called California Cannabis CPA. He says since marijuana is still against federal law, most banks won't work with businesses. That means the industry largely runs on cash.
CHRIS RUSSELL: If you understand as an operator that you brought in $10,000 in sales on a given day and you're only showing 9,000 of it in cash, well, you better figure out where that is and who's got their hands on it.
ORR: Under the Obama administration, the Department of Justice generally took a hands-off approach to states legalizing marijuana. It's not yet clear whether President Trump's DOJ will step up enforcement. Still, Russell says rather than being worried about federal pot shop raids, business owners should be more concerned about the IRS.
RUSSELL: Staying current on tax compliance and tax law is going to be very important for our operators. Since we're already kind of in a gray area, if you will, with the federal government, the last thing you'd want to do is run afoul with some tax law.
ORR: And there will be a lot of taxes to consider. There's a state excise tax, a cultivation tax, sales and business taxes. That could add up to 45 percent in some parts of the state. The tax rates are so high; there's some concern users will just stick with the black market. Hezekiah Allen of the California Growers Association says that means the vitality of legal recreational pot isn't guaranteed.
HEZEKIAH ALLEN: There's tens of thousands of businesses currently operating, and the success of the program is really going to depend on how well the state can either attract those businesses to participate and comply with the regulations or enforce and get rid of the folks who aren't complying.
ORR: State officials don't expect illegal pot sales to go away overnight but say eventually the regulated market will become the norm. For NPR News, I'm Katie Orr in Sacramento. Transcript provided by NPR, Copyright NPR.