Legal Cannabis and Competing with the Black Market

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    A funny thing happens on the way to legalizing cannabis at the state level: proponents promise that legalization will either bring an end to the black market or greatly reduce its influence. The thing is that it never happens. Across the country, the black market continues to thrive in states that have legalized medical and recreational consumption.

    Virginia is among those states wrestling with the idea of expanding their medical-only program to include recreational consumption. State lawmakers recently killed a bill that would have done just that. How  ironic that one lawmaker urged his colleagues to vote in favor of the bill by declaring, “The longer we wait to have a regulated market, the harder it will be to compete with that illicit market.”

    Newsflash: Virginia is not going to successfully compete against the black market if it follows the example of so many other states that have already gone recreational. The black market thrives because state governments cannot stand to keep their hands out of the business.

    Cannabis in Medical-Only States

    Medical-only states like Virginia and Utah regulate their markets through the use of licenses. They tend to limit the number of licenses they issue, ostensibly to prevent a wild west environment lacking any sort of control. But licenses cost money. They also limit competition. The result is higher prices.

    On top of that, state governments have a bad habit of taxing cannabis products. After all, they want their piece of the financial pie. Yet taxes only push retail prices even higher, giving patients all the motivation that they need to purchase their medications on the black market.

    Unfortunately, the problem is more acute in some states than others. Take Utah. According to Park City’s Deseret Wellness, there are currently only fourteen active cannabis pharmacies in the entire state. Most of them are located in urban centers. Patients without the ability to travel have no other choice but to look to the black market.

    Cannabis in Recreational States

    Virginia lawmakers seem to believe that they can better compete with the black market if they expand beyond their medical-only program to include recreational use. Perhaps they should check with California, Colorado, Arizona, etc. So many states that adopted recreational cannabis laws have found out that doing so does not curb the black market. If anything, it encourages it.

    Black market operators are more than happy to serve customers whether recreational marijuana is legal or not. In states where it is not legal, the customer base is somewhat limited. That’s because there will always be a core group of potential users unwilling to violate the law. But approve recreational cannabis and you change the game.

    Suddenly, people who were terrified of possessing and using cannabis are now more than happy to jump on board. They can legally possess and use regardless of where they obtained the product. If they can get cannabis cheaper from a black market supplier, that is exactly what they will do.

    Let the Industry Alone

    If Virginia lawmakers know what is good for them, any bill to approve recreational cannabis will also include stipulations that force the government to let the industry alone. Regulation, taxes, and fees should be kept to a minimum. Otherwise, the black market will continue to flourish.

    The one thing Virginian lawmakers should not do is follow California’s example. Not only have California lawmakers taxed cannabis excessively, but they have also decided to double down on their taxes even as the industry is pleading for relief. That is a sure-fire way to keep the black market in business.