Gun Manufacturers Fear Their Days Are Numbered in California as New Anti-Gun Tax Becomes Law

BY ALEXEI KOSEFF, CalMatters

There are two decisions about the future of gun rights in California that the employees at Rifle Supply are closely watching these days.

Like many firearms enthusiasts, they anticipate the imminent end of California’s ban on “large-capacity magazines” capable of holding more than 10 rounds, a potential boon to their business. U.S. District Judge Roger Benitez of San Diego overturned the law on Friday, with a brief stay to give the state a chance to appeal.

To be a gunmaker in California is to whipsaw between hope and frustration, with the constantly changing contours of America’s gun control battles. 

Weeks before the ruling, Rifle Supply, a gun manufacturer and retailer, began thinning out the inventory stocked in its suburban Orange County store, which is already decorated with witch hats and cobwebs for Halloween. A rifle magazine engraved with a sanctified image of Benitez, who has also tossed several other California gun regulations for violating the constitutional right to bear arms, is among its top sellers.

Plastic bins of standard 30-round magazines, not yet pinned to make them California-legal, are piled in the back, ready to be moved to the sales floor as soon as the judge’s decision takes effect.

Meanwhile, a new state tax on firearms and ammunition looms in July, if it survives a near-certain legal challenge. Gov. Gavin Newsom—the architect of California’s large-capacity magazine ban and a vocal critic of Benitez, whom he has derided as “a wholly owned subsidiary of the gun lobby”—signed the bill on Tuesday, creating an 11 percent excise tax, paid by dealers and manufacturers, to fund gun violence prevention programs.

It’s not a death knell for Rifle Supply. Though that 11 percent is more than the typical profit margin for gun and ammunition sales, owner John Koukios said he would pass on the cost to customers, as much as he can.

But it’s another burden, in a long line of California laws and regulations and restrictions and paperwork—so much paperwork—that makes many people in what remains of the state’s firearms industry wonder whether those in charge are simply looking for a way to push them out.

About six dozen California-based companies in 2021 collectively made 82,532 firearms, fewer than 23 other states and comprising less than 1 percent of the national output.

“Recently, I’ll be honest with you, we felt like this business in California has an expiration date,” said Koukios, sitting in his sunny second-floor office, where antique rifles and shotguns leaned against the wall in one corner.

“Every time they change a law and take something away, it takes another chunk out,” he said. “At what point does it get whittled down so far that I can’t employ all of my employees anymore, that I can’t actually make enough money to operate a functional business?”

‘You Can’t Run a Business Like That’

To be a gunmaker in California is to whipsaw between hope and frustration, with the constantly changing contours of America’s gun control battles.

Lately, there’s the promise of a federal judiciary, empowered by a historic Supreme Court ruling last year, that seems determined to dismantle California’s strict firearms laws. And then there’s the uncertainty that comes with state leaders still looking for ways to counteract that momentum, including by passing dozens of new gun control measures.

“When you’re selling a product that’s…a purveyor of death for our kids, how about a little humility and grace and accountability?” Newsom said at a press conference to promote the gun and ammunition tax, which was among 23 bills related to firearms that he signed. “The carnage is too much. We just can’t normalize it. We can’t accept it. So this is a small price to pay.”

Operating in such a challenging political and business climate, the gun manufacturing footprint in California is modest, even as sales remain robust. The FBI has already completed nearly 1 million background checks for prospective buyers in the state this year through the end of August.

About six dozen California-based companies reported commercial production to the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives in 2021, the most recent year for which data is publicly available. They collectively made 82,532 firearms, fewer than 23 other states and comprising less than 1 percent of the national output.

“When you’re selling a product that’s…a purveyor of death for our kids, how about a little humility and grace and accountability? The carnage is too much. We just can’t normalize it. We can’t accept it. So this is a small price to pay.”

GOV. GAVIN NEWSOM, ON THE NEW GUN EXCISE TAX

More than three-quarters of California’s production was from three companies: Senga Engineering in Santa Ana, FMK Firearms in Placentia and Phoenix Arms in Ontario, all of which did not respond to interview requests or declined to comment. Rifle Supply reported making 600 guns in 2021.California gunmakers note that not only is it more expensive to manufacture here—labor, materials, insurance and taxes all generally cost more—but the state also has design restrictions that don’t exist in most of the country. The popular AR-15 model rifle cannot be sold in California, for example, because it is classified as an assault weapon. That narrows the market for weapons made in California, according to manufacturers, because their more limited functionality holds less appeal to out-of-state customers.

“You just can’t run a business like that,” said Adam Weatherby, who generated headlines five years ago when he announced that he would relocate his company, Weatherby, a manufacturer of hunting rifles and shotguns, from Paso Robles to Wyoming. “At the end of the day, we were unable to stay competitive.”

Weatherby said he also had trouble recruiting employees to California because they had to give up so many personal weapons that are illegal in the state. Those he did hire were delayed starting for months while the California Department of Justice conducted background checks.

After four years of talking to other states and weighing the massive disruption of moving across the country, Weatherby finally committed in 2018 to Wyoming, which offered financial incentives. Though he was sad to leave California, where his grandfather founded the company in 1945, Weatherby said “it’s been the absolute best decision” — especially as he watched the state’s gun laws grow only tougher while his business doubled in size during the first three years in Wyoming.

“Hunting is a way of life here, so it culturally fit us as well,” he said. “We lost that in California some time ago. It didn’t feel like home anymore. We didn’t feel welcome anymore.”

‘I’d Leave California in a Heartbeat’

Not every gunmaker has the desire or the freedom to leave California. But it’s not uncommon at this point for owners and employees of these companies to imagine their own futures elsewhere—echoing a broader reorientation of the industry, away from its historic roots in the Northeast to friendlier territory in the South—even if it feels like pure fantasy.

“It definitely would be suitable and better for business if we moved out of state,” said Laurenzo Russi, who founded Titan Ballistics in Orange in 2015 to make competition rifles.

The following year, California revised its ban on assault weapons to make it more difficult for shooters to rapidly swap out magazines in their firearms. After Titan Ballistics updated its designs, Russi said he lost customers in other states, and he leaned into luxury customization, such as paint jobs and laser engraving, to offset the drop in revenue.

Yet all of his family, and their longtime business that Russi expects to eventually take over, is in California. “It’s not a realistic or a smart move for me,” he said.

Less than a mile away, along a stretch of auto body shops, Juggernaut Tactical’s workshop whirred on a recent afternoon as more than a dozen computerized machines shaped hunks of metal into lower receivers, thumb rests and rear pins.

“I’m ready to leave here. I’d leave California in a heartbeat,” gunsmith Don Gregory said as he presented the company’s display models in its small showroom. The owner had talked lately about moving out of the state, he said, but not seriously.

Gregory was less concerned about California’s mounting restrictions on firearms. Last year, Attorney General Rob Bonta ordered Juggernaut Tactical, which sells rifles, pistols and parts online and in gun stores across the state, to stop distributing a series of rifles that he said qualified as illegal assault weapons.

“Restrictions, we’ve always found our way around those,” Gregory said. “There’s tons and tons of smart people in California who are using their brains to keep innovating.”

When California moved last summer to crack down on homemade “ghost guns,” it cost Rifle Supply about 20 percent of its business. The store has leaned more into selling ammunition and accessories to make up for it.

For the Rifle Supply team, leaving California seems out of the question. It’s not that they haven’t thought about going to Arizona or Idaho. They certainly understand why some other companies have. But they have aging parents to take care of and two dozen employees to consider. California is their home.

“I don’t think abandoning this state in a fight where it’s our constitutional right to bear arms is good,” said Justin Baca, Rifle Supply’s chief operating officer. “That would be like tucking tail and running. And that’s not our personalities.”

What feels more likely is they eventually get forced out. California’s Democratic leaders are clearly not fans of guns, they figure, but the Second Amendment prevents them from banning firearms altogether. So the state will just keep passing laws that make it more difficult for gun manufacturers and dealers to operate, until they no longer can—a potential nightmare for California residents as much as the businesses.

“The day that happens,” Rodriguez, the marketing manager, said, “it’s Gotham City.”

The Rise and Fall of ‘Ring of Fire’

It’s not entirely out of the question. Only a few decades ago, Southern California was a hub of handgun manufacturing.

In the wake of the federal Gun Control Act of 1968—which outlawed the import but not the domestic production of small, poorly made pistols known as “Saturday night specials”—a network of manufacturers primarily controlled by members of a single extended family developed on the outskirts of the Los Angeles metropolitan area.

Marketed as a cheap self-defense option, the weapons gained popularity during an era of rising crime, and by 1992, six Southern California companies produced more than a third of all handguns manufactured in the United States that year, some 686,000 pistols.

“It was an anomaly,” said Garen Wintemute, a UC Davis gun violence researcher who dubbed the companies the “Ring of Fire” in a 1994 report about their operations.

The guns were unreliable, spurring safety concerns and product liability claims. They were also recovered disproportionately at crime scenes, fueling a political crackdown that bubbled up from local governments to the Legislature, which in 1999 mandated that any handgun model sold in California pass independent safety testing.

Wintemute said the law created standards that advocates knew the Ring of Fire companies would largely fail to meet. Most closed up shop or relocated to other states; only Phoenix Arms remains.

“The people who ran these companies were not gun people. They were let’s-make-money people,” Wintemute said. “Easy come, easy go. Conditions became difficult. The man who started it all had died. And the rest of them moved on.”

State leaders deny they are trying to shut down the gun industry in California.

“If that was the intent, it would have been a much higher number,” said Assemblymember Jesse Gabriel, the Woodland Hills Democrat who pushed for the new 11 percent excise tax on firearms and ammunition. Modeled on a similar federal levy for wildlife conservation, it will bring in an estimated $160 million annually for violence intervention programs, school safety improvements and law enforcement efforts to confiscate guns from people who are prohibited from owning them.

“We view this as a modest tax,” Gabriel said. “The purpose of it is to raise revenue to support programs that we think are going to protect communities and save lives in the state of California.”

At the signing ceremony, Newsom, his tongue perhaps planted firmly in cheek, suggested that a tax supporting public safety might make Californians look at guns differently.

“Maybe that’s a good business opportunity,” he said.

‘All I Can Do is Roll With It’

Located in an inconspicuous office park, the only thing that distinguishes Rifle Supply from the nearby design firms, flooring showroom, glass workshop, gym and children’s dance studio is a blue banner out front, visible from the road, that says GUNS.

The company, which Koukios founded in 2010 to sell parts online, moved into this larger space when the coronavirus pandemic brought a surge of new customers and allowed Rifle Supply to triple its staff. The original store, opened a few buildings down in 2016, is now a workshop for repairs, custom paint jobs, milling lower receivers and assembling two variations of the AR-15.

Upstairs is a studio where the Rifle Supply team records its podcast. Alongside car wraps and T-shirt giveaways, it’s the sort of unconventional promotion the company relies on to build its brand because more traditional channels are not always available to a firearms manufacturer. Facebook and Instagram don’t accept advertisements for weapons, while a California ban on marketing guns to minors, passed last year and blocked in court this month, further chilled its plans.

“I’ve had this burning, burning want to have billboards up,” Baca, the chief operating officer, said. “I’ve called all the billboard companies. None of them will do business with us because we work with guns.”

Despite its success—Rifle Supply earns about $10 million per year in sales, according to Koukios—the attitude toward firearms in California, wary at best and perhaps downright hostile, has constrained the business’ growth and may threaten its existence.

Recent plans to open another store in San Clemente fell through because the insurance company wanted to jack up rates for other tenants in the building as well. Koukios said he had to hire a second compliance officer because of all the extra paperwork California requires for gun sales on top of the federal background check.

When California moved last summer to crack down on homemade “ghost guns,” reclassifying unfinished receivers and kits to build them into weapons as firearms that must be serialized, Koukios said it cost Rifle Supply about 20 percent of its business. The store has leaned more into selling ammunition and accessories to make up for it.

“I don’t like it, but all I can do is roll with it,” Koukios said. “I think there’s a lot of politicians, especially in California, but all over the country, mostly Democratic, that want to cut their teeth on this particular issue. Because if they get something passed, they’re like, look how much I can do.”

Rifle Supply employees roll their eyes at many of California’s gun control measures. The 10-day “cooling off” period before customers can take possession of firearms they’ve purchased—now being challenged again in court—might make sense for a first-time buyer, they argue, but it’s unnecessary for someone who already owns weapons. While Californians can only purchase one firearm every 30 days, they can buy as many parts as they want and then build their own guns, though that is set to change in January.

“Whatever their ideology is on it is stupid,” Rodriguez said. “It always comes down to politicians making these rules on something they don’t know about.”

Koukios is encouraged by a March court decision partially striking down California’s handgun safety standards, in which a federal judge argued the law has actually blocked guns with updated, safer technology from entering the market here. The state, which is appealing, could be forced to allow the sale of new handgun models for the first time in two decades. 

Then there’s that tax. Another chunk out.

“An additional tax on sales. You can’t sell these anymore. These are illegal. It just keeps going,” Koukios said. “It gets tiring having the conversation with customers about why they can’t have the thing.”

How hopeful is he that things will work out for Rifle Supply? On a scale of 1 to 10, he’s at a 7 or 8 that the company will make it 10 more years in California.

“Well, I’m a perpetual optimist,” Koukios said. On the wall hung a “Star Wars” poster with his face photoshopped onto Luke Skywalker.

He immediately seemed to backtrack as he explained the rating. “Because within that period of time, it’ll either be chipped away so far that it just won’t make sense and we’ll move on to something else or leave the state,” he said.

“That feeling comes and goes.”

The article titled “California gunmakers fear their ‘expiration date’ in a state that doesn’t want them” appeared first on CalMatters.org.

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