What Colorado can teach Virginia about legalizing retail cannabis

[Simple Jack]

What Colorado can teach Virginia about legalizing retail cannabis

 

All that leads to a simple question: What effect does legalization of retail sales have on the black market? Unfortunately, there’s not a simple answer. By definition, the black market is just that — operating in the shadows, so no one has good data on just how big or small it is in states that have legal retail sales. However, there are some glimmers of data that we can seize on.

You can’t eliminate the black market completely

The best evidence of that comes from here in Virginia with alcohol. The production of moonshine in certain parts of the state — you know which ones — continued long after prohibition. It probably still continues today — wink, wink — although there’s no formal evidence of that for reasons we’ll get to next.

Virginia records almost no black market alcohol arrests

Whether Virginia makes cannabis laws the same as alcohol laws or not, the two are similar in this respect: They both involve the prospect of illegal manufacture (or cultivation in the case of week) and illegal sales.

Illegal cultivation would be akin to making moonshine. The Virginia Alcoholic Beverage Control Authority hasn’t recorded an arrest for illegal manufacture of alcohol since 2019, when it recorded a single one that year somewhere in its Region 3 Southside area. (And no, that region doesn’t include Franklin County.) That tells me that they’re not looking very hard (and that today’s moonshiners are more discreet than their predecessors).

Selling black market weed would then be on the order of operating a nip joint, although the classic nip joints are unlicensed establishments, not a dealer going door to door to make deliveries. In any case, Virginia ABC recorded just three arrests for the illegal sale of alcohol in 2023, all in its Region 7, which stretches from Suffolk and Southampton County up to the Middle Peninsula, and brings in the metros on the Peninsula. In 2022, ABC notched two arrests for the illegal sale of alcohol, one in the Richmond area, one in the Shenandoah Valley. The point is, there aren’t many.

If the concern is that treating marijuana like alcohol would lead to more arrests, that doesn’t seem supported by ABC’s annual reports. Of course, that assumes that future cannabis enforcement would be carried out the same way, and that’s something we don’t know. I suspect ABC no longer racks up a lot of moonshine busts and nip joint busts simply because there aren’t as many of those unlicensed entrepreneurs as there used to be, and the ones that remain are a lot more discreet. Future cannabis enforcement in Virginia might well look different because there might be more conspicuous violations of the law or a more concerted effort to crack down on the black market after legalization. All we know is that the vast majority of ABC charges — 383 of 386 last year — were for selling alcohol to underage customers.

For what it’s worth, 54% of those arrested by ABC in the fourth quarter of last year were white, while 68.5% of Virginians are white.

Colorado saw a big black market even after legalization, perhaps even a bigger one

Colorado was the first state with legal retail weed — Jan. 1, 2014, so we’re now a little more than a decade into that market. It’s easy to measure the size of Colorado’s retail market — licenses, sales, revenues, taxes, all that. There’s a whole bureaucracy set up to monitor it. What’s harder to measure is the size of the black market, which can really only be measured through what law enforcement finds. If police find more illegal weed, is that because there’s more illegal weed out there, or because they’re looking for it more? Or some combination of the two? That’s a long way of saying there’s no reliable data we can track.

However, on the theory that where there’s smoke, there’s fire, or at least someone blazing a blunt, there’s a lot of evidence that the black market in Colorado soared after legalization. Colorado Politics reported that between 2014 and 2016, the number of arrests for illegal marijuana increased by 380%, and that the number of pot plants found growing on federal land between 2014 and 2017 increased by 95%. Again, maybe police were simply looking harder, or maybe not. 

The general consensus in Colorado, though, seems to be that legalization initially increased the size of the black market for cannabis. Why would this be? Imagine milk instead of marijuana. If milk were illegal, you’d do your best to hide your cows up in the hills or out in the barn. If milk were legalized, but only a certain number of dairy farms were allowed, some farmers would be more tempted to graze their cows openly even if they didn’t have a license for them — hoping no one would suspect that the herd was actually illegal. Put another way, you’d be less likely to get caught — and demand for milk is probably up now that it’s legal. People who had always been tempted by milk might now be more likely to buy a jug and not worry about whether they’re getting it from the store or out behind Farmer Jones’ barn. 

However, there are two other reasons why Colorado’s black market for cannabis might have expanded after legalization.

Maybe Colorado didn’t grow enough weed to meet the new demand.

The otherwise staid Colorado Department of Revenue produced a report in 2014 that said the demand for cannabis in the state was so high that the legal market could only supply 59% of what the public wanted — and the rest was coming from the black market. One way to read that is that legalization didn’t make much of a dent in the black market, or perhaps even increased the size of that black market. However, another way to read that figure is that Colorado simply didn’t issue enough licenses for cultivation and retail, which raises the question of whether Virginia will likewise underestimate the market demand. If the latter interpretation is the correct one, then the best way to undercut the black market is to flood the market with cannabis — and, of course, to make sure it’s competitively priced. 

A lot of that black market weed is actually headed for other states. 

KUNC, a public radio station in Colorado, has reported that much of Colorado’s illegal cannabis gets shipped out of state, so legalization there may have increased the in-state black market some, but it really made Colorado a good place to try to “hide” illegal grows for out-of-state markets. The station quoted cannabis industry representatives saying the best way to reduce Colorado’s black market would be to legalize cannabis in other states. By that measure, the increase in illegal cannabis seizures in Colorado after legalization isn’t really a reflection of the Colorado black market, but simply a reflection of what we might be called “a good business climate.” In theory, Virginia could see the same phenomenon; we would be the only state in the South with legal retail weed. It’s easy to imagine black market growers popping up in Virginia to supply our Southern neighbors. 

Colorado’s problem has been growers, not dealers

By 2018, Colorado, the poster child for legal weed, had so much black market pot that it felt compelled to create the Special Investigations Illicit Marijuana unit, a 13-member team tasked with expanding “local law enforcement’s ability — specifically in rural jurisdictions of Colorado — to address, investigate and prevent the cultivation, distribution and exportation of illicit marijuana.” The focus here was a surge in cultivation, not street-level dealers who were operating without a license, although those street-level dealers had to get their product from somewhere and it certainly wasn’t the store.

Even with the Special Investigations Illicit Marijuana unit, Colorado still had problems with illegal grows. The Denver Post headlined in 2019: “Black market marijuana grows are popping up faster than law enforcement can take them down. But is legalization the cause?” (The answer was unclear.) Those illegal sites in Denver were mostly indoor grows, not outdoor ones. However,  The Durango Herald reported in 2020: “Illegal pot farms a persistent problem in Southwest Colorado.”

Colorado has now seen illegal cannabis decline sharply

However, the past three years have seen a sharp decrease in illegal cannabis in Colorado. The Colorado Bureau of Investigation says it arrested just 16 people last year for marijuana-related offenses, down from 56 in 2019. The CBI also says that over the past five years the number of illegal plants seized has fallen, from a peak of 43,421 to just 4,361 last year. The CBI declined to comment on why these numbers have fallen, just that they have.

If the decreased number of seizures indicates fewer illegal plants, as opposed to less enforcement, then that would be less weed on the black market. I made calls to officials in Washington and Oregon — with Colorado, those were the first three states to legalize retail sales. None had any figures to offer on street-level black market dealers in those states; much of the enforcement seems focused on illegal cultivation. However, Mark Pettinger, a spokesman for Oregon Liquor and Cannabis Commission, told me: “Generally the thought is that a lot of participants in Oregon’s illegal cannabis market moved into the state’s legal market.”

In Denver, illegal operations peaked, then nearly disappeared

In Denver, Colorado’s biggest city and therefore its biggest market, the amount of illegal cannabis has also fallen dramatically, at least based on what police have seized. In 2014, the first year of legalization, city police reported 19 illegal grow operations. (And in Denver, we’re talking greenhouses, not farms.) Those numbers grew each year, peaking at 59 in 2018 — more than one a week. Since then, the numbers have tumbled, and by 2022, the city found only four illegal operations. Again, we don’t know if that means there were fewer black market pot growers, or just less enforcement. However, the city certainly thinks it’s the former. The city’s mayor at the time, Michael Hancock, took credit for new rules that “brought unlicensed operators into compliance.”

He also cited this statistic in the city’s annual marijuana report (yes, Denver issues an annual marijuana report): “In 2021, only 11% of Denver high school students reported using marijuana one or more times in the past 30 days, down from 26.6% in 2013, according to the biannual Healthy Kids Colorado Survey.”

If Virginia proceeds down the legal retail path, it might do well to study Denver to figure out how we can skip over Colorado’s initial black market bonanza.

California has a big black market because prices are so high

While no one can precisely measure the size of an unregulated market, there’s universal agreement that California has a big one because the state’s cannabis taxes are so high. A study by Rutgers University’s Center for Alcohol and Substance Use Studies says that California “produces nearly five times the amount of cannabis as is legally consumed.” There are lots of ways to tax cannabis — by seed, by flower, by the ounce, by the wholesale value, by the retail price. If you’re into all that, I suggest you visit the Tax Foundation’s cannabis tax site. The point is that, when it comes to cannabis, California is all those things that conservatives like to say about the Golden State: overtaxed and overregulated.

One cannabis executive wrote an op-ed for Cal Matters last year that said California’s taxes add almost 50% to the cost of the product. The result: Legal cannabis costs so much that consumers aren’t much inclined to take the trouble to go to the store when they can get it cheaper from their friendly neighborhood pot dealer. Debate the penalties all you want, but if Virginia is to put a dent in the black market, it needs to keep cannabis taxes low — because that’s an expense the black market dealer doesn’t have to contend with.

 

https://cardinalnews.org/2024/02/08/what-colorado-can-teach-virginia-about-legalizing-retail-cannabis/

 

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[latigid aikon]

44 minutes ago, Simple Jack said:

People who had always been tempted by milk might now be more likely to buy a jug and not worry about whether they’re getting it from the store or out behind Farmer Jones’ barn. 

I have actualy bought illegal milk from an illegal farmer who was sadly shut down by the authorities eventually. It was non-homogenised and is still the nicest milk I've ever had.

 

Commercialisation is worse than criminalisation in some ways.