Even in legal cannabis markets, the black market remains a strong competitor
Last year, on 11 December, the New Zealand government passed a law legalizing medical cannabis. Now, chronically and terminally ill New Zealanders can use cannabis without facing the possibility of prosecution.
Now, the country is preparing for a binding referendum on recreational cannabis. The referendum will be held during General Election in 2020 and will seek a vote of party members and the public on whether to legalize marijuana for recreational use. An independent survey of 1,000 nationals, conducted by Horizon Research, shows that the referendum might easily pass.
The need for the legal market
Evidence suggests that the size of the black market in New Zealand is significant. According to the 1998 National Drug Survey, half of the nationals aged 15-45 years had tried marijuana, with 20% having consumed it in the last one year. In the 1990s, the NZ police regularly seized more than 200,000 cannabis plants during the annual Cannabis Recovery Operation.
According to the 2001 New Zealand National Drug Survey, the dollar value of the black market of cannabis in NZ was estimated to be $190 million. These figures have grown significantly in 2019. These figures show that at a time when cannabis use didn’t have as much support as it does today, its use was still widespread and was obviously fed by underground markets given its illegality.
The black market doesn’t only impact the government’s tax revenues; in fact, it also causes health risks, black market violence, victimization of users and dealers and organized crimes. It is bad for the overall well-being of society.
However, in the United States (U.S.) and Canada, where cannabis is legal, the illegal market has proven to be a tenacious competitor to the legal market.
Will legalization really destroy the black market?
The Canadian government fully legalized cannabis for both medical and recreational purposes last year on 17 October. Now, retailers are worried about potential product shortages and website glitches. The Canadian government is still debating the way to handle amnesties, workplace safety, impaired driving, and many other issues.
The same is happening in the U.S. states where marijuana is legal. For instance, in California, cannabis’ underground sales are divided into two categories. One is the illegal black market that includes people growing and manufacturing cannabis products for export out of state, which is illegal. Another is a gray market that refers to companies that operate in California with licenses.
The companies operating in the gray market don’t adhere to regulations covering product manufacturing, security, and testing. They undersell their law-abiding counterparts by up to 50%. For example, Weedmaps, a famous online dispensary locator, fails to distinguish between licensed and unlicensed dispensaries.
No proposals have been made to address this problem. California has legalized cannabis sales to adults, but most jurisdictions prohibit marijuana businesses. This forces millions of customers into the gray market. Similarly, Canada’s gray market is capitalizing on rolling supply shortages.
Looking at what’s happening in Canada and U.S. states, we can say the same may happen in New Zealand after legalization.
Legalization is good for the government
If cannabis becomes legal in 2020 in New Zealand, it could open up a new multi-million dollar industry. The U.S. state of Colorado, which has a similar population to New Zealand, received $199 million in revenue in 2017 from marijuana sales of $1.3 billion. The legal cannabis industry in Colorado created over 18,000 new full-time jobs in 2015 and earned $2.4 billion in economic activity.
Research commissioned by the NZ Drug Foundation found that legal growing and selling of marijuana would generate tax revenues of between $185 and $240 annually. It will save the government $6 million to $13 million in the justice sector.
It is true that the legalization of cannabis will shake up the illegal black market a bit. However, as in the U.S. states and Canada, cartels operating in the legal market will discover some new ways to protect their business.
To avoid the black market thriving underground, the government should learn from the mistakes and situations in other nations where cannabis has been legalized. Taken strict and necessary measures against the black market, the New Zealand government could certainly help people access cannabis legally and appropriately, while destroying the illegal cannabis market.