Costly regulations, lack of federal legalization and high demand have made illegal trade more profitable than becoming legitimate
Too often, the legalization of marijuana in several states has not only ended the black market, but in many cases has increased it. Currently, in Los Angeles, unlicensed businesses far outnumber legal ones.
GM, the owner of a licensed dispensary saw another dispensary open the doors a little higher up the street, GM got worried and started paying attention to the activity of the new competitor. The first thing that surprised him was to see that he did not respect the legal closing time, which is at 10 PM and also that he sold to a single client amounts much higher than those legally allowed.
GM looked for the new dispensary in the list of authorized retailers of Los Angeles but he realized that it did not exist, at least of legal form. GM informed the authorities warning them that if because of that illegal dispensary he sold 20% less, the state also lost 20% of the taxes. However, GM had the feeling that his complaints were falling on deaf ears.
What is happening to GM is the reflection of a widespread side effect of the legalization of marijuana in the United States. The reality is that, in many cases, it has fueled, rather than eliminated, the black market.
In Oregon, a state in which there is a large quantity of low-priced legal cannabis, many illegal growers have started exporting their products across borders to other states where marijuana is still illegal.
Three years after Massachusetts voters approved recreational marijuana, most of the cannabis economy now consists of unlicensed “private clubs,” homegrown crops and clearly illegal vendors who export their marijuana to states where it is still illegal. The situation is leaving the police overwhelmed.
Although each state has its own problems, all problems have points in common: law enforcement officials do not have sufficient funds and lawmakers are having trouble building a legal system fast and efficient enough to contain a product in high demand. that already had a large criminal network to supply it. And at the national level, advocates also point to another, even greater structural problem: problems are inevitable in a nation where legalization is so fragmented. While marijuana is not legal throughout the country, the black market will continue to operate.
Adam Smith, of the Craft Cannabis Alliance, a group in Oregon that advocates for small cannabis growers, says the black market will never be eliminated until marijuana is legal in every state in the country. . “As long as half of the country still cannot legally obtain it, there is a market for it illegally,” he told the media.
This is the Idaho problem. Given that Oregon producers produce three times more marijuana than consumers in the state can consume, the neighboring state of Idaho has reported a 665 percent increase in the amount of illegal marijuana seized by police officers. . In 2016, the year before Oregon’s adult marijuana recreational use laws came into force, police confiscated about 300 kilograms of marijuana.
The new recreational market in Oregon began on January 1, 2017, and the number of licensed dispensaries increased from 99 to 260. That same year, the amount of cannabis confiscated by the Idaho State Police increased to 900 kilos and continues to rise. Last year, seizures totaled almost a ton.
However, Oregon law enforcement officials know that the farmers in their state are responsible for this supply. Sargeant. Brandon Boice of the Oregon State Patrol says the situation has gotten worse since legalization.
When Oregon legalized marijuana in 2014, the state tried to control the black market by making sure that the path to the legal market was as easy as possible. It did not limit the number of licenses and simplified the regulations process, creating a program with one of the least demanding entry barriers in the United States. In fact this policy worked out.
Currently Oregon is an easy state to find legal, cheap and high quality marijuana. There are more than 650 licensed marijuana dispensaries in the state. If you are a citizen of Oregon and want to buy marijuana, there is no reason to buy illegally.
On the contrary, some cannabis experts say they do not believe that the legalization of Oregon is related to an increase in cannabis exports on the black market. But the reality is that the legislature of the state of Oregon has taken specific measures to stop the diversion of its excess production out of the legal market. Last April, Oregon State Senator Floyd Prozanski cited the black market as a cause to create a bill that would reduce the number of licenses available in Oregon.
But there are too many states where marijuana remains illegal for recreational use and has proven to be an attractive market for Oregon producers. Sergeant Boice believes that there may actually be more illegal marijuana grown in southern Oregon than before legalization and that almost all of it is being exported out of state. “The police are flooded with illegal marijuana for export,” says Boice. “There are not enough resources for us to do something about it.”
If the excess of legal marijuana from Oregon has become a problem for Idaho, the illegal markets that take place in some parts of California and Massachusetts are a big problem for these states. High taxes and state fees are raising the price of legal cannabis, and the few consequences of having an unlicensed dispensary discourage legal business owners who pay taxes in Los Angeles and Boston.
Massachusetts legalized the sale of marijuana in 2017. Since then, nearly 200 commercial licenses have been approved throughout the state. The city of Boston approved its first one last week.
While waiting for permits, marijuana businesses continue to operate in a gray area within the legal system. For this reason, SS opened a private cannabis club in Boston in 2014, when only medical marijuana was legal. In 2018 SS received priority status under the state’s community empowerment program. However, almost a year and a half later, SS still does not have a dispensary open to the public. You need something called the “Boston community agreement” before you can apply for your state license, but the reality is that you do not have it yet.
While still waiting, SS continued to run his private club, one of the few in Boston where customers could bring their own marijuana, much grown at home or bought on the black market, and share and smoke on a community basis. They are not licensed and are supposedly legal because state and local officials do not agree.
When she heard this, Massachusetts cannabis advocate Maggie Kinsella said no one knows what’s going on. Kinsella says that this interweaving between state and local governments has left New Yorkers in the cannabis industry without resources except to fend for themselves.
She says that the lack of open and legal dispensaries with a good product means that 80 percent of the market is still illegal. And many of the clients in the legal dispensaries are mainly from out of state.
Steve Hoffman, a member of the Massachusetts Cannabis Commission, the state’s independent commission created to monitor the licensed cannabis market, believes it is too early to say that legalization has ended the black market and that, in fact, he does not think that it is possible to eliminate it.
Hoffman thinks the same thing that all cannabis advocates do, and it’s likely that the illegal market in the state of Massachusetts does not disappear until cannabis is fully legalized at the federal level, and that access to basic things such as banking In order to get loans and deposits, it is easier for emerging companies. He says that the entry barriers are still large and discouraging.
In California, these obstacles are even greater. And to open a legal dispensary in California is necessary to have a lot of money and a lot of patience.
The high start-up costs, license fees and high taxes make it impossible for legal cannabis companies to compete with dispensaries without a license. Los Angeles has more than 1,000 dispensaries but only 200 of them are licensed. This means that the vast majority is ilegal..
This problem began in the 2000s, when the police did not address the problem of the explosion of medical dispensaries. The result was the growth of a powerful industry without a license, which operated openly, but without permits to sell cannabis. The problem grew when the state legalized the use of marijuana for adults in 2016.
In Los Angeles they were slower to issue licenses than some other cities in California such as San Francisco, leaving a space in the market that those who work without a license can fill. Customers in Los Angeles cannot easily distinguish a licensed dispensary from one without a license.
The city of Los Angeles has spent close to 14 million dollars to solve the problem. Raids have been carried out throughout the city in 2018, which resulted in the closing of 108 businesses without a license. But almost always the dispensaries reappear elsewhere. If the city cuts off the power supply, dispensaries buy generators. The city attorney of Los Angeles has begun to pursue the owners, charging fines of $ 20,000 for each day that the illegal dispensaries remain open.
Alex Traverso of the California Cannabis Commission says that many unlicensed dispensaries in Los Angeles want to enter the legal market, but the barriers to entry are too high. They are paying their taxes and are trying to do things right, but they do not have the ability to obtain a license.
Traverso’s solution is very similar to the approach of defenders in Massachusetts and Oregon: making the market legal in both the state and the nation.
Of all the 542 cities and counties in California, only a quarter of them allow retail stores. But to say that there are no retail stores working in those 542 cities and counties is not real because the reality is that they are there.
It is not just legal business owners who lose money because the state is also losing it through taxes. Before California voted to fully legalize cannabis in 2016, officials estimated that the state would get $ 1 trillion in tax revenue in 2018. But the reality is that it has raised just over a third of that figure.
