Legalization has not curbed the booming cannabis black market. Scarce retail cannabis drives Canadians to purchase it from the black market. Residents in Massachusetts face the same problem with estimates that 75 percent of cannabis obtained will be bought on the black market. California has become a quagmire with local officials banning cannabis in their district even though it is legal statewide, forcing residents to drive great distances or buy illegally. New Jersey is poised to become the 11th state to legalize cannabis, but experts predict its cannabis black market will continue to grow.
High taxes, fees, and operating expenses for legal cannabis retail outlets contribute to the black market because the cost is passed on the customers. Expenditures can quickly add up to tens of thousands of dollars annually for license renewals, attorney services, brick-and-mortar stores leases, utilities, staff, security, and state-mandated product testing. The reality is that unlicensed dealers do not need to incur these expenses and can sell cannabis for much less.
In California, taxes can account for up to 45 percent of the purchase price of legal cannabis in some areas of the state. Consumers in California are estimated to have spent $500 million less on legal cannabis in 2018 than in 2017. This equals to about $100 million of lost tax revenue from cannabis sales.
Cost is not the only factor for booming unlicensed sales.
In Massachusetts, customers turn to the unregulated black market due to the long time needed to license cannabis stores. Officials are predicting at least three more years might be required before there will be enough legal, regulated cannabis to affect unlicensed sales.
Then there is infighting between state, county, and city officials in California over legalized cannabis.
For example, in Sausalito, north of San Francisco, 77 percent of the voters supported ending cannabis prohibition, but its city council blocked all cannabis businesses.
According to a statewide investigation last year by the Southern California News Group and Digital First newspapers, of the 540 cities and counties in California, only 162 (30 percent) permits medical cannabis businesses. As for recreational adult-use, only 89 cities and six counties allow sales for recreational use. The figures break down to 144 cities out of 482 cities and 18 counties out of 58 counties. In addition, one sovereign nation, the Iipay Nation of Santa Ysabel in California, has repurposed its former casino as a cannabis dispensary. While cannabis is banned in the county where the Iipay Nation is located, county officials have no authority over tribal lands.
Proposition 64 was approved by 57 percent of state voters in November 2016. In California, it is now legal for people to carry up to one ounce of cannabis, grow it at home, and consume either for medicinal purposes or recreationally. However, California law also gives cities and counties a strong say in how the new law is implemented within its jurisdictions.
Much like what was known as the “blue laws” in the 20th century when cities and counties could determine if and when alcoholic beverages could be sold, areas are now becoming a “cannabis desert.”
In addition to opposition from government entities, in other states, cannabis boards are facing difficulties designing and implementing regulations, delaying legalized cannabis retail outlets. In Michigan, adult-use recreational cannabis is legal, but no rules or regulations have been enacted. Legal entrepreneurs have found a unique way to make sales. They “gift” cannabis with the purchase of every book, tee shirt, or other product. Still, state officials estimate over 100 illegal delivery services are now operating to bring cannabis to consumers.
There are numerous health and safety risks for consumers purchasing unregulated cannabis. A study conducted four years ago found untested cannabis spoiled with fungus, and filled with pesticides and heavy metals.
The Bureau of Cannabis Control in California recently voted to allow cannabis deliveries statewide, even to jurisdictions banning sales. California lawmakers are considering a bill that would cut excise taxes for legal cannabis from 15 percent to 11 percent for the next three years and completely eliminate a cultivation tax for growers until 2022.
However, until governments find a way to make cannabis easily and widely available throughout their states, as well as affordable, the black market most likely will continue to thrive. This impacts the safety of the product for consumers as well as a loss of tax revenue for states.
