Currently in California there are more than three times as many illegal cannabis dispensaries than legal ones. A study by BDS Analytics projected that in 2019 the legal market was on track to reach $3.1 billion in sales in 2019 alone, but the illegal market would generate $8.7 billion. There are multiple factors weighing in on why the black market is thriving, especially in times of legalization
When California cannabis regulations hit on January 1st, 2018, the entire market changed. Companies were going under on an aggressively regular basis, as dispensaries went from seeing hundreds of patients a day to far less. Greg Meguerian, owner of The Reefinery in Los Angeles, told WAMU 88.5 that his sales were down noticeably once an illegal dispensary opened near his legal entity. He even went as far as reporting them, yet they were still open for business afterwards. This is merely one example of how illicit dispensaries can thrive in areas of legality. The dispensaries and brands that are complying with the law are the ones most struggling, with the whole legal market floundering in what can only be referred to as a vicious cycle. The question is why?
In the age of cannabis legalization, licensing and legitimacy are expensive. Licensing fees coupled with the costs to form legal dispensaries can run the average investor several hundred thousand dollars, focings a mark-up on the price of product. Cannabis brands must raise their pricing to factor in the aforementioned plus include their wholesale costs, tax costs, and lab fees, just to name a few. Dispensaries are seeing less patients, so they are taking on less product. The product they do purchase is heavily taxed. The patients who come in purchase their product and usually leave disgruntled due to the price of the taxing alone
One of the primary reasons that the black market is thriving is due to the high cannabis tax rates in the United States. The black market does not pay taxes, therefore its consumers pay no taxes. For example, an illegal dispensary that charges $35.00 for a cannabis dose can charge their consumers $35.00, tax free. Whereas a legal dispensary can charge $50.00 for that same dose once taxes are factored in. The average cannabis consumer spends $33.00 on products per trip to a dispensary according to headset.io, even more for those who utilize cannabis for medicinal purposes such as pain management, as their consumption is typically more frequent based upon necessity. The taxes for legalized cannabis make funding a patient’s cannabis incredibly difficult when traveling the legal route. Most don’t know the difference between a legal dispensary and an illicit one; they are just in search of the best price for their product.
In a market that is in its infancy stages, education is difficult but necessary. Consumers may assume they are receiving the same quality product regardless of legality because a dispensary is a dispensary, right? Wrong. As bank-breaking as the large cannabis taxes can be, compliant products go through extreme lab testing to ensure the products are clean and reflect the quality of their label. Only products that pass testing are allowed to be placed on the shelves in legal dispensaries. In illegal dispensaries, there is no way to tell the quality of the product, because illegal shops are not subject to testing. To be frank, these illicit places can put a label on anything and claim it’s “medicinal cannabis.”
There are a multitude of problems that can be caused by unregulated cannabis products. A major one is pesticides. When ingested through cannabis, pesticides can cause sickness and in some cases lead to death. According to the Center of Disease Control and Prevention, 19 patients have died from an outbreak of vaping-related illness. Another issue is mis-dosage. There is a high likelihood that the products purchased from an illegal dispensary are not correctly dosed—leading to over and under dosing, which can especially be dangerous for medical cannabis patients. This further poses a problem when the patient finds a dosage that works for them and then purchases a mislabeled dose from an illegal dispensary. As previously mentioned, there is a deficit of education, slowly being filled as cannabis becomes destigmatized.
For those curious to try cannabis, it is important to purchase from a legal dispensary, despite the price tag that comes with it. The quality of the product and the dosage will meet quality assurance standards, thereby providing the best experience possible. The biggest question is how to distinguish between legal dispensaries and illegal ones. A few tell tale signs that a dispensary is illegal include the absence of taxes in pricing, late night open hours (after 10pm), and the presence of individuals smoking within the shop. In short, legal dispensaries run a tighter ship.
At present time, the legal cannabis market cannot currently compete with the illegal market, as states are continuously making it difficult for illegal dispensaries to make the switch due to excessive taxing. Once cannabis is legalized on a federal level and the blueprint of alcohol taxation is followed, the severity of taxing on a state level will lighten. The waiting game continues.