The Cannabis Black Market and Its Effects

Cannabis: A thriving black market commodity

The black market is any commercial activity that is carried out outside the confines of the law or set regulations. These are economic activities that can’t be taxed as they operate outside set legal markets.  The black market can also be referred to as the shadow economy or the black economy.

Cannabis and its preparations is a predominant commodity available in black markets worldwide. In countries where cannabis is illegal – and in many cases, countries where it is legal as well – it is sold away from the scrutiny of the law to willing consumers.

It is estimated that the black market for cannabis in the United States of America (U.S.A) alone is worth $46 billion. In 2016, the U.S.A recorded an estimated $52 billion in marijuana sales. However, it is reported that only 13% of those sales were recorded from legal marijuana outfits. The remainder – 87% – can be attributed to black market sales.

In Canada – where marijuana is legal for medicinal and recreational purposes – the black market garnered a steep 79% of all marijuana sales made in the fourth quarter of 2018. This figure is 11% lower than the black market’s sales in the earlier quarters of the year. This, however, shows that the legal cannabis market still has a long way to go in completely crushing the cannabis black market. 


The black market dominated cannabis sales in Canada last year, mostly due to shortages at legal outlets. Source

While the thriving black market for marijuana is seemingly ‘understandable’ in countries where cannabis and its preparations are still outlawed, many wonder why the black market equally thrives in countries where cannabis is legal.



Effects of the Black Market on the Econom

The existence of the black market for cannabis – or any other commodity for that matter – can have the following effects on the economy:

  • Loss of tax revenue

Black market activities are not regulated by laws and regulations which govern legal trade. All transactions carried out on the black market are off-the-record transactions and therefore cannot be reported and taxed.

Governments worldwide lose billions in tax revenue annually to black market activities. These lost tax funds could have otherwise functioned as revenue geared towards improving the state of affairs of individuals and society at large in the city and state.

  • Loss of legitimate industries

The availability of black markets can be directly linked to the loss of legitimate industries in society.

The black market affords consumers the ability to trade at cheaper prices or higher prices – for goods difficult to supply. When commodities are bought via the black market, local industries supplying similar services run at a loss. This is because many legitimate sellers cannot compete with black market values while maintaining government required taxes. At day’s end, many businesses run at a loss due to the fierce competition of the black market.

  • Underestimation of national income

Black market activities make determining the income of a nation per set economical periods rather difficult. All black market transactions are off-the-record. Since there are no accurate records for reference, it is difficult for governments to fully determine the economic status of a country. Being unable to determine the economic status of a country can prove a hindrance to economic planning and implementation.


Despite its illegality in most parts of the world, people still use cannabis -- meaning they purchase the drug from the black market. Source



Why
does the cannabis black market exist in countries where cannabis is legal?

The cannabis black market thrives in countries where cannabis and its preparations are illegal as well as countries where it is legal. The popularity of cannabis as a black market commodity in countries where it is legal can be attributed to a number of factors including:

  • Slow legalisation procedures

In many states and countries, the set rules to govern the sale and distribution of cannabis and its preparations are often brought to realisation at a slow pace. For consumers who are more than anxious to get to enjoy their favourite product, by-passing laws which are implemented too slowly does is the usual step.

In Michigan, U.S.A, the legalisation of marijuana for adult use was passed into law in November 2018. However, with set rules due in another year, cannabis entrepreneurs and consumers alike have found a nifty way to wiggle around the law. In these states, entrepreneurs are now ‘gifting’ consumers with cannabis. With every purchase of a t-shirt or book, marijuana is gifted to purchasing individuals. The state estimates that there are currently over 100 operational illegal delivery services for marijuana.

  • Supply shortages

In many states/countries, the shortage of cannabis at legal dispensaries drives many consumers to the black market. Adequate and diverse supply networks are yet to be set up in many communities where marijuana consumption is now completely legal.

In Toronto, Canada, Small Town Buds – a local dispensary and cannabis shop – customers are often turned away because the shop has no cannabis flowers to cater to their needs. Such is the case for many legal dispensaries worldwide.
  • High operating costs and fees for merchants

The average operating cost for merchants who wish to run legal dispensaries is at an all-time high – and this could be driving many further away from the legal market.

In many states in the United States, the cost of setting up dispensaries is absurdly high. In Illinois, U.S.A, people looking to open provisioning centres (dispensaries) pay a non-refundable application fee of $5,000 and an annual renewal fee of $25,000. Even worse, in order to obtain a license as a grower, individuals are expected to pay a non-refundable application fee of $25,000 and $200,000 to fully obtain a license. After licensing, individuals are expected to pay $100,000 annually for license renewals.



Final
words: How can we move forward?

The cannabis black market thrives all over the world, and it’s the main supplier of marijuana in New Zealand given the illegality of recreational cannabis. This market poses a lot of advantages for consumers and merchants alike. Cannabis here is cheaper, readily available, and not riddled with incessant rules, regulations, and taxes like legal cannabis. Many governments have recognised this.

There are steps that can be taken to reduce the attractiveness of the black market. There is some evidence that lawmakers in California are considering cutting excise taxes on cannabis from 15% to 11% over the next 3 years. Reviewing the policies in place for cannabis consumption and distribution can aid in making the legal market more appealing to consumers. By cutting back on excessive fees and taxes, as well as fully tackling issues such as the supply chain, governments could potentially grasp a good amount of the black market share.



Sources