Cannabis Black Market: How Long Will it Survive?
While Cali is one of the most cannabis-friendly places globally, its cannabis black market continues to thrive. Illegal growers and retail operations are still problematic for businesses operating in the cannabis sector legally. But this isn’t something unique to California. The black market is thriving, regardless of the legality.
So, how long will the cannabis black market survive?
New Frontier Data revealed that up to 80% of the cannabis sold in Cali is illegal. The company estimates Cali’s black market cannabis is beyond four times as large as the state’s legal market, with a value estimated at $3.7 billion.
There’s a simple answer to the black market’s survival duration: however long it takes for regulating forces to adjust taxes and compliance demands to ensure legal cannabis is more competitive.
Black Market Definition
Is the black market illegal? Yes, it is. While the cannabis black market is the topic of discussion for this article, anything unlawful and unethical that’s sold contributes to the black market.
Black markets exist for any industry. These are the sellers and producers operating outside of legal and institutional guidelines. Generally speaking, this translates to elevated risk for all parties involved.
At this point, black market cannabis sales are rising in all states. Even though some states have legalized it, the illicit cannabis market continues to thrive.
Black Market Statistics
Statistics about legal cannabis and how it impacts the black market highlight that it lessens the foreign-produced cannabis coming into the U.S. More U.S. consumers can purchase domestic cannabis, and with legalization in place in some states, illicit producers based in the U.S. can blend in better.
CATO reports that the average amount of cannabis confiscated at ports of entry is on the decline. Between 2013 and 2018, this number dropped by 78%.
Market Watch reported that despite some people thinking legal cannabis increases crime rates, it doesn’t. States that have legal weed don’t experience more crime. In fact, legalization allows law enforcement to handle more serious matters, leading to more crimes getting solved. But the weed black market is still growing.
Legalization of Cannabis Black Market
Many wonder what happens to the black market after marijuana is legalized. Unfortunately, this depends on the taxes and regulations surrounding legalization.
While the legalization of a cannabis black market sounds good in theory, the costs of introducing legal weed are passed on to the producers and sellers. These costs then go to consumers, and if the price is driven high enough, consumers tend to stray towards cheaper alternatives. This, of course, happens regardless of the safety aspects of buying black market cannabis.
Illegal black market shopping happens in various industries. But now that cannabis is legal to some degree, the risk has dropped significantly. Thus, the profits of delving into the black market appeal to would-be legal producers, just as the less costly black market cannabis appeals to consumers interested in saving some money.
So what’s the difference between legal cannabis and the black market?
Legal Cannabis vs. Black Market
Black market cannabis shops are still operating in California and other states. While Weedmaps no longer promotes these shops, the legal sector is struggling to compete.
The black market was around long before legal cannabis. With this in mind, illegal product producers can monopolize products that aren’t yet legal. This, of course, includes offering potency levels that the state forbids.
Some states prohibit dry cannabis and extracts. Also, there’s always a chance that the level growers aren’t producing enough to fulfill the demand.
Legal cannabis distributors are also at a disadvantage as they have to pay fees and taxes. Street prices are significantly less expensive because these operations bypass the additional costs of offering legal products.
Over time, legal cannabis could become less expensive to produce. With mass production aimed at decreasing per-gram growing costs, we could eventually see a shift to grow cannabis in countries that have lower wages. This would reduce the price significantly.
Legal cannabis also has the advantage of promotional marketing. While federal law doesn’t allow information advertising, cartoon characters, and other methods, legal cannabis can still market. However, this is still a challenging aspect of running a legitimate cannabis operation.
Cannabis Black Market Prices
Many wonder, “Why does California still have a black market for cannabis?” The fact of the matter is that with the heavy taxation and strict regulations of Cali’s cannabis sector, California’s black market for weed is enticing due to the profitability.
California black market cannabis prices are cheaper than legitimate pot shops. But the reason shouldn’t surprise you. Taxation and costly compliance standards push small operations to operate in California’s black market for weed.
So what about cannabis black market prices? How cheap is black market cannabis?
While Cali’s recreational dispensaries generate beyond $1 billion in tax revenue, the black market continues to thrive. Here’s what makes legal recreational cannabis more expensive in California:
- State taxes in California: Cali taxes cultivators $9.25 for each ounce of flower, $2.75 for each ounce of leaves, and $1.29 per ounce of fresh cannabis plant matter.
- Excise taxes in California: Cali also forces retail operations to charge 15 percent for excise taxes in addition to the products’ market prices.
- Local taxation in California: Each Cali county and city has the right to levy taxes. For instance, Los Angeles demands an 8 percent local tax on recreational cannabis products. Humboldt County taxes cultivators $1 to $3 extra for every square foot, depending on the grow method.
- Quality control compliance: While it’s not a tax, California has rigorous testing requirements for cannabis products, which elevates the price of these products.
Whether you’re on the retail, consumer, or producer side of the cannabis sector, the legal market is more costly. However, while legality comes with additional costs, it’s important to remember that the regulations and taxes in place can ensure safety while allowing cannabis to contribute to society.
Over time, we can expect the regulated cannabis sector to come out ahead. But change is necessary to give legal cannabis a fighting chance against the cannabis black market.
Are you competing with the cannabis black market? We’d love to hear more about your experience and how you’re overcoming the competition!