This was the message of an earlier TSI article today. MJBiz Daily projects 2018 revenues for the U.S. cannabis industry between $8.6 billion and $10 billion (medicinal and recreational). This is expected to surpass the $15 billion per year in revenues for the National Football League by 2020.
Eli McVey, Research Editor for MJBizDaily added a caveat.
“But legal sales represent just a fraction of the estimated total potential demand for cannabis in the United States, which is roughly $50 billion to $60 billion when black-market demand is included.”
MJBizDaily expects cannabis usage “to grow rapidly as more states and federal jurisdictions remove legal restrictions”. Based on this, it expects overall U.S. economic activity from the cannabis industry to rise from $39 to $48 billion in 2019 all the way to $100 billion by 2023.
The catch?
These projections assume a steady transition away from black market cannabis and toward the legalized market.
The problem?
Government.
A few U.S. states and Canadian provinces have done an effective job in opening up legalized cannabis commerce. Most, however, have earned clear failing grades. The numbers speak for themselves.
In Massachusetts, which has legalized both medicinal and adult-use cannabis, 75% of all cannabis revenues in 2019 are expected to flow to the black market.
California has one of the longest histories of legalized medicinal cannabis. It has also legalized recreational cannabis. Yet 60 percent of all cannabis revenues in 2018 went to the black market. And only roughly 10 percent of the counties in the state are fully opened up for cannabis commerce.
Canada has nationally legalized the recreational use of cannabis for adults. Yet 72% of recreational cannabis revenues in 2019 are projected to the black market.
There are several common themes as to how our governments are failing cannabis consumers, failing the cannabis industry, and failing cannabis investors.
Over-taxation. Excessive regulation leading to punitive costs of doing business. Grossly inadequate access to legalized cannabis.
The latter factor, in particular, is an issue in Canada. A June 7, 2019 article from CBC News provides another snapshot of regulatory failure.
Toronto is Canada’s largest city. Yet thanks to provincial dithering, the first legal cannabis dispensary didn’t open until April 1, 2019 – nearly six months after recreational cannabis became legal.
Symbolically, it was April Fool’s Day. Highlighting this, Toronto’s one-and-only dispensary wasn’t wheelchair accessible. As of today, there are only two dispensaries in the entire downtown area.
The CBC reports that “about a dozen illegal dispensaries” have continued to operate in the city. The City Council has chosen to deal with this in a totally draconian manner: piling “giant cement blocks” in front of these establishments to prevent entry.
This is bad public policy from every perspective.
In general, “illegal dispensaries” are gray-market enterprises. Many have obtained local business licenses. They pay taxes on their revenues. And they operate in the open.
In contrast, true “black market” commerce is underground commerce. No licenses. No taxes. No visibility.
Cannabis Prohibition was a mistake. Our governments criminalized cannabis use/possession for roughly 100 years for no reason.
Now, finally, gradually, governments in North America and around the world are correcting that mistake. As noted, they are doing a generally terrible job of normalizing cannabis commerce.
As we move through the transition to legalized cannabis, governments have a very clear policy decision. This is especially true for those jurisdictions that are doing the worst job of managing this transition.
1) They can allow the continuation of gray-market cannabis commerce as a lesser-of-evils.
2) They can drive much (most?) cannabis commerce back fully to the black market.
Gray market cannabis commerce is admittedly an administrative headache for local governments. It requires additional monitoring precisely because it’s not fully regulated.
Black market cannabis commerce is still worse – by far.
Why are there exhaustive “security checks” involved with starting up a legal cannabis business? Because when our governments criminalized cannabis for a century, they handed much of the industry to organized crime.
Indeed, rather than admitting the mistake of cannabis Prohibition, our governments generally cite “putting an end to the cannabis black market” as their primary motivation for legalization. Regulating the industry (for public safety) and taxing it are also priorities.
The situation in Toronto is somewhat more complex. The “illegal dispensaries” referenced in the CBC article were operating out of private residences. But still operating openly.
What will the cannabis consumers do who have been cut off from these gray market businesses? Some will choose to purchase legal cannabis online. Most won’t.
The cannabis plant is the world’s most versatile and potentially valuable plant species. It is also incredibly complex.
The plant contains roughly 100 (known) cannabinoids, the active ingredients in the cannabis plant. In addition, it contains numerous “terpenes” and other molecular structures.
When regular cannabis consumers purchase cannabis – either medicinally or recreationally – they want to shop in person, like they do when purchasing fresh produce. This means retail storefronts.
There is a second reason why cannabis consumers have a strong preference for shopping in person rather than online. Discretion.
Thanks to a century of cannabis Prohibition, many public and private sector employers still harbor irrational phobias and prejudice towards cannabis. They ban their employees from consuming cannabis even after working hours.
It’s even more complex in the United States. Cannabis is still criminalized federally as a Schedule 1 drug, equated with heroin. Public sector employers in particular find it much simpler to impose Prohibition on their employees.
Over time, such irrational restrictions on cannabis consumption will be thrown out by the courts. In the meantime, large numbers of Americans (and Canadians) have to choose between refraining from cannabis consumption, consuming it discreetly, or jeopardizing their employment.
If local and state/provincial governments refuse to provide their residents with adequate retail access to legalized cannabis (and block off the gray market), the majority of consumers will return to the black market. Everybody loses, except organized crime.
Cannabis is fully legal in Canada. Two-thirds of U.S. adults want to see cannabis fully legalized in the U.S.
Cannabis is safe as a recreational drug. It’s potent (and safe) as a medication. There is no turning back the clock here.
One level of government (the city of Toronto) is punishing its residents by grossly restricting access to cannabis because of the dismal failure of another level of government (the province of Ontario). This is asinine.
Gray market cannabis businesses are fulfilling an important role as we make the transition toward fully legalized cannabis. Directing heavy-handed law enforcement against this (temporary) niche in the cannabis industry is a mistake.
The time to shut down these gray market cannabis retailers is when they are no longer needed. Not sooner.