Despite legalization continuing to spread, and efforts advocating towards federal legalization of cannabis, the black market in the U.S. for cannabis continues to thrive across the nation.
Simply put, despite access and legal product being available, people are still as or more likely to purchase their cannabis from black market sources, with this trend not showing any signs of stopping.
Consumer Research Around Cannabis, a U.S. research company specializing in data for the cannabis market released data from a survey that tracked where people were sourcing their cannabis in many major U.S. states.
Black Market Sales In Fully Legal States
Here are just a few snapshots of cities, and where their citizens are sourcing their cannabis, in some of the legal recreational states:
- Denver, Colorado: In Summer, 2018, 9.4% of survey respondents were still purchasing cannabis non-legally, a small incline from the 9.2% of the previous year. In comparison, 28.4% were purchasing from legal markets in 2018, up from 26.6% the previous year;
- Las Vegas, Nevada: Illicit market purchases rose from 9.7% to 12.8% from Spring to Fall 2018. At the same time, legal purchases rose from 21.5% to 29% in the same time period;
- Seattle, Washington: Purchases in the illegal market rose from 7.8% to 10.3% from Winter 2018 to Winter 2019. Purchases in the legal markets rose from 25.6% to 28.6% during this time period.
Comparison of Legal and Non-Legal Purchase of Cannabis Among Adults 18+ in Four US Markets Where Recreational Cannabis Purchase Is Legal, 2018 and 2019
|Visited legal cannabis retailers/dispensaries at least once a month or less||28.4%||28.3%||29.0%||17.9%|
|Non-legal purchase as a percentage of legal purchase||33.1%||39.2%||44.1%||66.5%|
Massachusetts recently legalized adult use cannabis sales and BDS Analytics believes that its black market sales will fall from 90% in 2018 (when recreational sales were illegal) to 76% in 2019. However, the state has been slow to issue adult use licenses to retailers. Until the dispensaries are open in larger numbers the black market consumers aren’t likely to make the switch if it is inconvenient.
Black Market Sales in Legal Medical States
Here is a snapshot of cities, and where citizens are sourcing their cannabis, in some of the legal medical cannabis states, showing a trend of an increase in illicit market purchases:
- Albany, New York: Illicit market purchases rose from 8.5% in Winter of 2018 to 12.5% in just a year; at the same time, purchases in the legal market rose from 4.1% to 9.6%;
- Cincinnati, Ohio: In Fall 2017, 9.9% of survey respondents indicated they bought from the legal market, compared to 12.4% in Winter 2019; legal purchases rose from 4.2% to 6.6%;
- Detroit, Michigan: Illegal purchases rose only slightly from 11.3% to 11.6%; legal purchases rose from 26.6% to 28.4%;
- Jacksonville, Florida: Illicit market purchases rose from 7.1% in Fall 2017 to 11% in Winter 2019; at the same time, legal market purchases rose from 3.4% to 7.7%;
- New Orleans, Louisiana: Between Winter 2018 and 2019, illicit market purchases rose from 7.3% to 12%; there was an equally large jump in legal market purchases from 3.6% to 10.6%.
In these medical states, illicit purchases, according to this survey, slightly declined:
- Minneapolis, Minnesota: In Spring 2018, 9.4% of respondents were purchasing from the illegal market, in Winter 2019, that number had declined to 6.8%; legal purchasing rose from 4.3% to 7.2%;
- Pittsburgh, Pennsylvania: In the spring of 2018, illegal spending was at 9%, and had fallen to 7.8% by fall; legal market purchases rose slightly from 5.4% to 6.4%.
Comparison of Legal and Non-Legal Purchase of Cannabis Among Adults 18+ in Four US Markets Where Only Medicinal Cannabis Purchase Is Legal, 2018 and 2019
|Visited legal cannabis retailers/dispensaries at least once a month or less||6.4%||8.8%||7.1%||6.5%|
|Non-legal purchase as a percentage of legal purchase||140.0%||111.4%||119.7%||190.8%|
The trend is clearly showing that where legal cannabis is available, people will purchase it, yet, they are still as comfortable, if not more, sourcing cannabis from the black market despite the rise in legalization.
The Cases of California & Colorado
The survey completed by Consumer Research Around Cannabis did not focus on areas in California, save for representing that 11.9% of respondents in Sacramento were purchasing from the illicit market, while 17.9% were purchasing from the legal market in Fall 2018.
This being said, California’s illicit market stands out as one that will never be snuffed out.
80% of California’s over 500 municipalities currently do not allow for legal cannabis stores, forcing the black market to go darker. From Northern California’s cannabis farm raids to the raids in Southern California on hundreds of illegal cannabis shops, California’s illegal market is not expected to die down any time soon.
In comparison to Colorado, which has 562 licensed cannabis stores, California has only 620 licensed stores, despite being six times the size of Colorado. This number is 10% less than what was expected when the state legalized.
According to a 2018 Eaze report titled “The High Cost Of Illegal Cannabis” 1 in 5 Californians purchased cannabis from the illicit market. In addition, Eaze found that 84% of those are highly likely to repeat that behavior in the future due to the illicit market having cheaper products and no tax.
At the same time, despite being the first state to legalize cannabis and cannabis being widely available, Colorado’s black market is growing, with much of the cannabis that is being grown in the state being sent to other illegal states where there is greater profit potential.
Barriers to Legal Market Participation
With each state facing challenges to get consumers’ buy-in to legal cannabis markets, there are some common barriers inhibiting legal market participation, including:
- Lack of brick-and-mortar stores;
- High taxation and pricing (i.e. in Denver, cannabis is taxed 23.15%);
- Regulations on products such as THC limits that are deemed restrictive;
- Hesitancy to support “big cannabis” with a value often placed on craft growing;
- Habit, convenience, and discretion of being able to purchase from the black market (i.e. delivery services);
- People are growing their own cannabis with new home growing laws;
Cannabis in Canada: A growing black market
Despite being the first G7 country to legalize cannabis at a federal level this past October, Canada’s black market is growing stronger than ever.
Scotiabank analysts Oliver Rowe and Ben Isaacson calculated in a research report that the black market in Canada could control 71% of all cannabis sales in 2019, but they expect that figure to drop to 37% by 2020. In the report cited on BNN Bloomberg, Scotiabank said, “We forecast illicit conversion will be swift, although limited form factors and potentially limited supply may keep 2019 low.”
The analysts believe that packaging and regulatory red tape issues will be resolved and that will curtail illicit sales. However, that would mean that over 30% of the cannabis consumers buying in the black market would then shift to legal purchases within a year. That’s a big move in a short amount of time.
People cite waiting for the kinks of legalization to be ironed out as well as pricing as the biggest reasons they don’t turn to the legal market.