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Legal Cannabis Market Just Can’t Compare to the Black Market

black market cannabis
Written by Sarah Friedman

There’s no rule that says legal markets have to be bigger or smaller than black markets. In life, legal markets and black markets form counterparts that can change and vary in size and growth. In the case of cannabis, the black market wins out easily, and for very good reason.

Legal markets are your above-board markets. Products or services that are registered, that are taxed, that are counted in official inventories, and reported on to local and federal governments. If you want to buy a shirt and you go to Walmart, congratulations, you’ve helped support the legal clothing market. You’ve also helped support sweat shops and slave labor, but that’s beside the point.

The market itself, however unsavory, is legal. I point out the unsavoriness for a reason though. In all the talk about the negative aspects of black markets, it should always be remembered that legal markets can be just as dirty, dangerous, and detrimental to those involved.

Black markets (and I’ll include gray markets here) encompass the large blurry underbody. It’s like the big hulking iceberg underneath the tiny Titanic-tearing tip. It’s every sale that no government knows about. Every untaxed product and service. Every unregistered item that will never be counted in official inventories or reported to government bodies.

So if you’re buying knock off sunglasses from a guy on a street corner, or getting an 1/8 of really great skunk from your friendly neighborhood pot dealer, or giving in to the super cute kids on the street selling lemonade from a stand, you, my friend, have participated in a black market purchase. To be fair to those cute little kids, there aren’t many government bodies that are going to bust up their lemonade selling operation, but if the same kids continue that same operation into adulthood, they could be arrested for tax evasion.

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The cannabis markets

The first things to know about the cannabis market is that it’s old, it’s huge, and it’s pretty stable. For as long as humanity has understood what the cannabis plant is, it’s been using it in different formulations ranging from medical applications to relaxing and feeling good.

When talking about the size of the market there is no definite or specific number. When splitting off legal markets it’s easier to be exact – like last year, global legal cannabis sales hit about $15 billion. When it comes to how much the legal cannabis markets are able to expand, you won’t find a shortage of estimates from nearly every publication out there, but the numbers vary by publication and report.

When it comes to the idea of the global cannabis market, it includes every legal recreational sale, every legal medicinal sale, and every illegal sale made. While the legal recreational and medical sales are counted and tallied, reported to governments and taxed, the illegal ones are not. And they encompass every single deal that goes down between people, in every little corner of the world. From buying a gram of bush weed from a friend in South Africa to getting a pound of high-grade marijuana in New York from a delivery service.

Every single time that any amount of money is transferred for the acquisition of a little of the plant, it counts. Every single sale, in every single place. Unlike many products, cannabis only showed up in stores recently, meaning that whereas some markets have natural legal and illegal counterparts, until recently, cannabis only existed in the black market, with every single sale counted as a black market sale. Now, its split between legal markets and the black market, but how much really is it all together?

The company New Frontier Data has been putting together cannabis related research for a little while now, and they seem to be one of the only organizations to really tackle the question of how big the global cannabis market is – legal and illegal. In last year’s Global Cannabis Report: 2019 Industry Outlook, it was estimated that the global cannabis market is valued at about $344 billion.

The report also put the number of global cannabis smokers at 263 million people. Are these numbers accurate? Not a chance! But they could be close, and if nothing else, they at least start to give a numerical peak to the extent of what’s being spoken of when we’re talking about cannabis markets, and how much they’re worth.

Grey Market and Black Market in the World of Cannabis

What that means to legal markets

The cannabis black market didn’t come as an offshoot of the legal cannabis market, or a reaction to it, but rather the other way around. So, it’s not the black market diverting revenue away from the legal market, so much as the legal market diverting revenue away from the black market. Which means the legal market can technically reach as high as the black market so long as it can divert the entire revenue stream through legal markets.

How well legal markets are set up to divert this revenue stream will be what really determines their ability for growth. Most estimates I’ve seen fail to take into account, not the limit that’s possible to get to as per the size of the total overall cannabis market, but the realistic possibility of capturing it at all.

Most people looking to get a little cannabis, really don’t care where it comes from. They care about the price, the type (if they have the luxury to do so), and not getting into trouble while procuring it. Having a personal cannabis dealer is so typical, that in many parts of society it’s very much a standard, and not often put into the same category as having a dealer for harder drugs. While governments and official organizations might have a hard time with this concept of differentiation, no one in regular life does, and this is how the regular life marijuana market functions.

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I can verify it on a personal level, a thousand times over. It doesn’t need to come in fancy packaging, it doesn’t need to be lab-made super-weed, it just needs to get the job done, and to do it for no more money than it ever did in the past. And that last part, is monumentally, painfully, critically important. In fact, while I have no official documentation to back this up, I expect there’s a pretty airtight positive correlation here which dictates that the amount a consumer cares about quality, it directly related to the amount of money they can spend.

Then, with smaller amounts of money, that care for quality goes squarely out the window making any higher-than-necessary priced item, not likely to be bought. Understanding basic and realistic price points seems to be an issue in this new cannabis industry, and these high prices back up the disconnect between industry intentions and buyer requirements.

Let’s compare

Legal markets have presented a fantastic research point for establishing consumer behavior when it comes to cannabis. And like it or not, if estimates aren’t taking into account this behavior, they’re not worth the clicks their publications get.

One of the best cases for showing the disparity between legal cannabis markets and the black market, is California, which is currently the biggest single cannabis economy in the world – bigger than Canada or Uruguay, the two countries with recreational legalization.

As of 2019, California legal cannabis sales reached approximately $3 billion alone – an 18% increase from 2018, which right there shows us that there is a valid interest in buying from dispensaries, whether for reasons of quality or legality. The second largest market is Colorado which saw $1.77 billion in sales for last year, and then Canada which brought in about $1.2 billion in non-medical sales. In terms of Uruguay, the longest running legal market, supply issues, and a slower running structural format which requires recreational users to be registered (which in and of itself might be hindering the process) has meant lower sales that aren’t competitive in nature to the US or Canada.

Future Hazy for California Cannabis Industry Amid Statewide Shortage and Other Challenges

Let’s look closer at California

Black market numbers are hard to tack down, but they can be estimated. While California brought in about $3 billion in legal sales in 2019, the black market took in an expected $8.7 billion. What this really means is that the legal market diverted about $3 billion from the black market last year.

One of the many reasons undoubtedly causing Californians to forgo the legal means of buying cannabis, is the price. Buyers have a state tax, sales tax, and excise tax to pay. And that’s on top of a standard cannabis price which is already a black market price or above. I never bought from a dispensary in California, but I did buy from one in Boston, and I paid 20% tax on the products since in that State, that’s the cannabis tax.

I can say personally, I will never buy in a Massachusetts dispensary again, or any dispensary that charges that much. If my options are that, or my friendly neighborhood pot dealer, just guess which one I’m going to pick. Cannabis is a cheap product. The reason it’s called ‘weed’ is because of how readily and easily it grows. So long as a legal market jacks up prices unnecessarily in comparison to its black market counterpart, it should never, not ever, expect to even come remotely close to fully diverting its revenue stream.

In Canada, a similar experience is being felt. Despite the market growing, its not to the desired amount. In fact, in reddit forums for Vancouver, it was repeatedly stated by users that the government cannabis is too expensive, and not high enough quality.

Conclusion

I don’t care about most of the estimates out because they’re not being realistic to life, or paying attention to trends or complaints. The one glaring issue with the legal cannabis industry is that the price is high. Far too high for people who already have easy and established means of getting their marijuana fix without paying taxes, and who simply can’t afford a higher price. If legal cannabis markets really want to divert more income from the black market, they have to lower their prices, and if they don’t, the black market will always win. Hands down.

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About the author

Sarah Friedman

I am a US born writer, travelling the world and doing the digital nomad thing.

2 Comments

  • I completely agree with you, but don’t we have a proper authority that should monitor and regulate the process? In general, any black market looks much more profitable and more advantageous than a store that works on white, since the prices for all these street strains are much lower than in certified stores. But of course, no one is responsible for the quality there either. Therefore, it is still better to overpay a little and buy in an official store. It’s like with music, downloading music for free is illegal, but as soon as you buy, for example, in the app store, everything is fine!

  • Let’s remember, first, that this industry has existed just fine without regulation. The burden should not be on the buyer to pay more for a product that has remained at a certain price point for years. The burden should be on the seller if they really want to divert from another market. You’re missing the point. It’s not about whether it’s better to overpay, it’s that people aren’t going to do it. Or, at least, a certain population never will. So it’s great to say that, and a good regulatory system is also good, but that means someone has to take a hit for the price to remain the same. Putting it on the buyer means there’s a ceiling to what can be diverted, and this is basic logic. Make a cheap product expensive, and a certain population won’t be able to afford it anymore. You can’t make people buy expensive weed, it’ll never happen. So, no, it’s not better to pay more, and in fact, it’s better to pay less. You don’t undercut a current market by charging higher prices. You undercut a market by understanding that a smaller profit per product is a greater profit altogether if you can attract a larger base of buyers.

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