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Cannabis Black Market Thrives Despite Legalization

“It’s time to end the War on Marijuana”, declares an ACLU article aimed at exposing the staggering racialization of cannabis-related arrests. Remarking on the tremendous focus police departments had placed on the enforcement of possession laws prior to legalization, it laments the billions of taxpayer dollars that could be re-focused to community improvement projects if such laws were to go away.

And there’s nothing wrong with this promise – a black market designed to facilitate the sale of an illegal substance should dissipate as that substance becomes legalized. This destruction of the illegal marijuana market makes logical sense – so much so that it became one of the primary arguments used by pro-legalization politicians to promote the drug. So now, years after the first legalization of recreational cannabis in 2012, the illegal markets should be fading into obscurity.

But many attentive residents of legalized states know that this promise hasn’t panned out. Cannabis’ illegal market is anything but dying; in some cases, it’s more active than it has been in years.

Take California for example: first in the nation to legalize the medical use of the drug in 1996, the state would go on to legalize recreational use in 2016. But in just the past year, the state reported several massive illegal cannabis busts, with 20 tons of cannabis confiscated off a series of farms, $8 million worth of plants found in a thought-abandoned warehouse alongside a busy highway, and 100+ illegal operations busted in the southern town of Anza – just over the last three or four months.

What’s more, police reports suggest that arrests for pot crimes have increased following the drug’s legalization. Among such reports are a series of police records secured by the Los Angeles Times in early 2019 – compared to the rates of cannabis smuggling from before legalization was implemented, the documents suggest that arrests have risen as much as 166%  since 1996.

And this smuggling is occurring too quickly and too frequently for law enforcement to handle, says Sgt. Ray Kelly of the Alameda County Sheriff’s Office. Sgt. Kelly told The Los Angeles Times that his officers regularly intercept smugglers attempting to depart with large quantities of the drug. Kelly and his department “find it in about 50-pound quantities…the carry-on rate for luggage”, and seemed doubtful that the enforcement is catching all the traffickers.

This troubling event touches on one of the several underlying reasons as to how cannabis’s more dubious markets are managing to survive despite legalization, as recent data suggests that California produces nearly five times the amount of cannabis as is legally consumed. And the off-state smuggling business that could be created by such a surplus can only be strengthened by the drug’s industrialization.

As former dealers and growers fail to keep up with the marketing and brick-and-mortar convenience of fast-growing commercial options such as NETA, they naturally attempt to go where their prime competition cannot, packing up thousands of dollars worth of leaves and shipping them out of state.

But this is not to say that total legalization will bring an end to this underground market either. While it may end the current drug smuggling rush, there are distinct advantages that local, underground pot salespeople have over licensed dispensaries.

Perhaps the most significant of these advantages is the possibility for local dealers to sell bud at far lower prices. Thanks to significant $9.25 tax per ounce of flower required from dealers and an additional 15% excise tax required from the consumer, legal options in CA may end up far pricier than their underground counterparts.

And California isn’t alone in this issue of taxation: Colorado employs a 15% tax from the cultivator to realtor and an additional 15% tax from realtor to consumer, Oregon levies a 17% tax on the consumer alone, and Washington requires a whopping 37% tax on all sales for recreational use.

Illegal operations have also seen an increased prominence in legal states due to the drug’s overarching legalization. Some outlets choose to forgo the acquisition of a legal license while still operating out of a storefront and presenting themselves as a licensed dealer. And the process of conducting investigations against such businesses takes time – far too much time to quell the hundreds of illegal shops popping up.

Weedmaps, an online service designed to help consumers find local dispensaries, came under fire in February 2018 from the Bureau of Cannabis Control (BCC) for listing illegal outfits in addition to legal stores but was able to dodge the BCC’s jurisdiction and continue operating. The app is still active today, mapping hundreds of unlicensed shops and helping the illegal cannabis market continue to thrive through legalization.

Written by Joseph Detrano, CAS Science Writer
Disclaimer: The content is solely the responsibility of the authors and does not necessarily represent the official views of the Center of Alcohol & Substance Use Studies.