Tuesday July 24, 2018
By Erin Hiatt
Despite the fact that a growing number of states have legalized adult-use marijuana in one form or another, the black market continues to thrive, and, some argue, may even be benefiting from these legal markets. While some are quick to judge that legal cannabis is to blame, many overlook the fact that nationwide legalization would be a more effective tactic to end the black market. With only nine states legalizing cannabis, it’s not rocket science to believe that Americans in non-legal states would want access to cannabis as well – thus creating demand for the black market.
Until demand from non-legal states is reduced or ended completely, there will always be an opportunity for black market suppliers and dealers to make a buck. Regardless, let’s take a look at the current state of the black market and some of the ways nationwide cannabis legalization could help fight it.
Why the Black Market is Still Hanging Around
One factor as to why black market cannabis is prevalent lies in the patchy legal framework surrounding legal cannabis markets. What may be legal in one state may not be legal in another, and even well-meaning and law abiding buyers might take cannabis across state lines without realizing they’ve committed a crime.
This legal ambiguity has also created an opportunity for black market growers to set up clandestine grows in legal states, then take their bounty beyond state confines for a bigger financial haul, oftentimes leaving environmental devastation in their wake – a practice that could be severely limited if legal cannabis was available in all 50 states.
Since cannabis legalization became law in Washington and Colorado in 2012, there has been less and less cannabis coming across the southern border, but a huge demand for black market cannabis remains. This is due in part to the fact that there’s no taxation on black market purchases, making for a more affordable, yet illicit, product.
Frequently, high tax rates on cannabis purchases are cited as the reason for the expansion of the flourishing black market. Taxes on recreational cannabis products are typically high in emerging states, prompting some people to keep purchasing from the black market.
Despite the taxation, most states do see a reduced price in cannabis products over time as their market matures.
Cannabis prices in Colorado have been on a steady decline over the past several years, resulting in an all-time low price point on wholesale cannabis products. Similarly, marijuana prices in Oregon are also at an all-time low, partly because of issues with overproduction. So, although taxes might be high, the price of legal cannabis is coming close to competing with black market rates – and nationwide legalization could help bring marijuana process down even further.
Newly Legal States
As legalization continues to emerge across the United States, many people will be looking at newly legal states as a measure of adult-use marijuana’s effectiveness against the black market. Again, this metric is difficult to gauge without nationwide legalization because there will always be a state without legal cannabis that is in high demand of quality cannabis.
Regardless, all eyes are on California right now as their legal market continues to emerge. Another complication for California is that the Emerald Triangle, made up of Trinity, Mendocino and Humboldt counties in Northern California, has long been a cannabis-growing mecca for the U.S. black market. California’s new laws aren’t likely to change that but may instead give it renewed life. Many small farmers in the Triangle fear that the counties will be taken over by large-scale marijuana growing operations, pushing them out of business and away from the law’s legal protections, leaving them between a rock and a hard place; to go out of business or stick to illegal sales.
How Legal Marijuana Can Effectively Fight the Black Market
Even though the black market is still alive in the age of legalization, there are many ways its prominence could easily be reduced. One of the most important aspects to take note of here is that as long as states without legal cannabis exist, there will always be the demand for black market cannabis. Legalization cannot be blamed for these instances, rather, the governments (State and Federal) who refuse to give their citizens safe, legal access to marijuana products.
The easiest way to curb the black market would be to legalize cannabis nationwide. Once each state has access to legal, adult-use cannabis products, the demand for black market weed would be reduced over time as prices in emerging markets become stable. After all, it’s safe to assume the majority of upstanding citizens would appreciate the opportunity to purchase cannabis legally from a dispensary rather than wait around for their dealer.
Lower Taxes On Legal Purchases
Credit rating agency Fitch Ratings, in their legal cannabis outlook, says that there may be a “strengthening of the black market in response to taxation.” Finding the taxation sweet spot between taxing legal buyers out of the market and legal cannabis prices dropping too much should be a law and policy-maker priority
Currently, only a handful of states allow medical cannabis reciprocity, meaning that a medical cannabis card is recognized beyond its state of origin. This is particularly important for patients who frequently have to decide between traveling with their medicine and chancing arrest, going without, or making illegal purchases.
Don’t Mess With The Rohrabacher-Blumenauer Amendment
With Jeff Sessions rescinding the Cole Memo in January of 2018, The Rohrabacher-Bluemenauer Amendment, which allows for cannabis businesses to operate as long as they adhere to state law, is still in place – at least until September. The amendment must be renewed annually, and Attorney General Jeff Sessions, an avowed anti-cannabis crusader and unearthed time capsule from the 1980’s “Just Say No” campaign, continues to surround himself with anti-cannabis policy makers and advocates.
The Future of the Black Market and Legal Cannabis
Without nationwide legalization, it’s unlikely that the black market will ever disappear completely, but it could be hobbled by thoughtful federal oversight and cooperation between states. Jeffrey Miron, the director of economic studies at the Cato Institute, believes that deregulation is the key, writing in The Denver Post, “thus legalization without excessive regulation or taxation is the only way to eliminate the black market. And this approach has the added virtue of maximizing the revenue from legalized sales, minimizing enforcement costs, and respecting the freedom of those who wish to consume marijuana.”
Only time will tell whether or not legal cannabis can help eliminate the black market. One thing is for sure though, recreational marijuana is not to blame for why the black market is thriving. So, if black market sales are of concern to you, give your local politicians and get out to vote for change!
What are your thoughts on legalization’s impact on the black market? Let us know in the comments!