With Cannabis Legal, Why are Black Markets Thriving?

Even though cannabis is legal for medical purposes in 33 U.S. states, there are still thriving illicit markets in these areas. In this article, we explore how we got here, why prohibition never works, and offer up some solutions as to what we can do to reduce black market activity.

How We Got Here

Prop 215 got the ball rolling on legal cannabis in California way back in 1996. The state now has hundreds of thousands of card-holding medical cannabis consumers. Since California legalized it, 32 other states have since followed. Here in 2020, it is now the norm to have legal cannabis in some capacity. Colorado got the ball rolling as voters decided to legalize cannabis for recreational purposes in 2012, and sales started officially in 2014. Six years later, 11 other states have legalized adult consumption of cannabis for people 21 and over.

Prohibition Never Works

The prohibition of alcohol lasted only 13 years, but just because booze was illegal from 1920-1933, does that mean Americans stopped drinking? Not a chance. Instead, this empowered a thriving black market for booze and gave rise to the infamous mobsters of the 1920s. Underground spots known as speakeasies popped up by the hundreds. Perhaps the most famous gangster of all time, Al Capone, made an estimated $60 million supplying alcoholic beverages to speakeasies.

Making any drugs illegal, cannabis and alcohol included, will not stop people from consuming. Cracking down, making harsher laws, increasing the size of drug enforcement agencies, and so on will not do so, either. There are several countries that drug crimes are punishable by the death penalty - and people still keep doing drugs. Cannabis has been federally illegal since 1933, and perhaps more people consume the plant now than ever.

Former drug czar, Jeff Sessions was the cause of many Americans reviewing the harms that come from the war on drugs - although unfortunately, not much was done about it. Sessions spewed the infamously ridiculous line that “good people don’t smoke marijuana,” at a Senate drug hearing in April 2016. Thankfully, Sessions’ reign as Attorney General didn’t last long. He took the position on February 9, 2017, and he left office on November 7, 2018.

Thriving Black Markets

In California alone, there are an estimated 2,835 illicit cannabis sellers according to the United Cannabis Business Association in the state. Why is this the case, if cannabis is legal? Short answer - insufficient licenses for retail locations, law enforcement challenges, and high taxes. While California is the only state to go legal for adult consumption and see an annual sales reduction, other legal states still have thriving black markets as well.

Of course, these issues vary in different locations throughout states. For instance, rouge cannabis sellers in places like Los Angeles and San Diego are much more prevalent than the Bay Area. The "The Bay Area has been ahead of the curve on licensing for many years," said San Francisco-based Dale Gieringer, director of California NORML.

With such high takes and strict regulation, prices go up and the selection of products goes down in some areas of California when prohibition is peeled back. It’s supposed to be the other way around.

Sky High Taxes and Lack of Licenses

The same issues arise - mostly a lack of licenses and especially high taxes. Washington state has the highest taxes on cannabis currently, a whopping 45% (8% sales tax + 37% excise tax). Massachusetts is second with Massachusetts: 17% (10.75% retail tax + 6.25% sales tax), and California is third at 15%. It doesn’t take an economist to figure out why people in these legal states are still buying a lot of cannabis illegally.

In Los Angeles alone, there were over 1,000 unlicensed cannabis sellers before the licensing laws were established. There were 187 licensed shops as of last year. According to NBC News, police used Weed Maps to get the number of unlicensed sellers below that of licensed ones. Last year around this time, WeedMaps banned ads from unlicensed cannabis sellers, to which those who were legal and legit applauded, reported the LA Times.

What Can We Do About It?

So, what can we do to chip away at thriving black markets? The simple answer is to lower taxes in some of the aforementioned states. However, perhaps a better answer is to demand more transparency from state and local officials as to where your cannabis-related tax dollars are actually going, and what they are being spent on! Transparency isn’t exactly something that government officials are known for, and they will only be transparent if we as taxpayers demand it.

Additionally, it’s important that we as conscious consumers support legit and honest establishments. Many dispensaries and retail location owners pour their lives and their life savings into their businesses, only to be undercut by illicit sellers. It’s better to be safe than sorry, and while no one should be arrested for simply possessing a plant, regardless of how it’s obtained - the fact is that is still happening at a high rate. And with today’s uncertainty with coronavirus, can anyone be sure that a bag of weed purchased on the black market isn’t carrying the virus? Good dispensaries and retail locations will take pride in their strict cleaning, sanitation methods as well as their adherence to other CDC guidelines for COVID-19 prevention. With medical cannabis being deemed essential during the lockdowns, it’s more important than it ever was to support legal cannabis workers.

"...perhaps a better answer is to demand more transparency from state and local officials as to where your cannabis-related tax dollars are actually going, and what they are being spent on!"

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