Weed is Legal in Most States, So Why is Marijuana's Black Market Still Thriving
In 1996, California became the first state to legalize medical marijuana. Today, 40 states and D.C. have legalized medical marijuana, and 24 states and D.C. have legalized recreational marijuana.
So, while there has been significant progress in recent years in more states legalizing cannabis and even some momentum toward legalizing cannabis at the federal level, why is the cannabis black market still thriving? Amanda Reiman, a researcher for a cannabis intelligence company, estimated in 2022 that the U.S. cannabis market is worth around $60Bn, and the legally regulated market that comprises those sales is just half that.
Almost every state is facing a constant battle with the black market:
- Unlicensed operations in many of California’s biggest cultivation areas outnumbered licensed farms by as much as 10:1, per The LA Times.
- As of July 2023, there were an estimated 1,500 unlicensed smoke shops in New York City, per the New York City Independent Budget Office
The primary reason black market sales are thriving is price. States legalized weed to generate additional tax revenue. Legal cannabis operations are subject to these taxes and regulations, which make it much more costly to produce cannabis products than illegal cannabis operations, which don’t adhere to those same requirements.
States failed to implement policies to curtail the black market, and as a result, it hurts the consumers and legal cannabis operations. Most consumers can’t tell the difference between legal and illegal cannabis products, which presents significant issues since illegal cannabis products don’t have the same stringent testing and pose serious health risks. For legal cannabis operators, they are competing with cannabis products that are playing by a different set of rules. Illegal operators can undercut legal operators on price. As a result, this has caused massive price compression, and thus, very few legal cannabis operations have been able to stay afloat.
