Local bans on marijuana businesses are helping illicit markets thrive in legal states, report notes

One of the main promises of marijuana legalization is that the reform can help curb the illicit market by providing adults with legal access to stores where products are tested and IDs are vetted. But not all states have had the same experience in delivering on this promise, and a new report suggests local opt-out policies are key factors.

Leafly and Whitney Economics collaborated to analyze the relationship between opt-out laws and unregulated sales. The report, released Thursday, found that states where cannabis stores are more widely available, without as many jurisdictional gaps, have proven far more effective in eliminating the illicit market.

For example, states where there are 20-40 marijuana dispensaries for every 100,000 residents have seen the most success in competing against illicit vendors, with 80-90% of adults claiming to buy cannabis from regulated storefronts.

Via Leafly / Whitney Economics.

In contrast, states where there are fewer than 10 dispensaries for every 100,000 residents tend to continue to see a thriving illicit market, in which about 30-50% of sales take place in the legal market, the report found.

Colorado, Oregon, and Alaska stand out as examples of early adoption states that have implemented policies that have allowed licensed marijuana stores to become widely accessible to adult consumers.

Colorado had 18 marijuana stores for every 100,000 people at the time of the analysis in July, and virtually all recreational cannabis sales (99%) are from licensed retailers. In Oregon, there are 19 stores for every 100,000 residents, and the state also appears to have the majority of its sales (75%) taking place within the regulated market.

Via Leafly / Whitney Economics.

But other states like California, where local governments are able to forgo allowing most types of cannabis licenses in their jurisdictions, have been less effective in mitigating the illicit market.

While a person aged 21 and over can easily find a plethora of California dispensaries in major cities like Los Angeles and San Francisco, more than half of the state’s cities and counties have banned all types of licensing, creating a political vacuum that it has enabled illicit sellers to continue providing consumer assistance outside the regulatory framework.

California cannabis regulators have tried to draw attention to the problem, with officials releasing an interactive map earlier this year showing exactly where marijuana activities are banned locally. Governor Gavin Newsom (D) signed a bill this week that partly aims to address the problem by preventing localities from banning medical cannabis delivery services, but the issue is more systemic.

With just three marijuana stores for every 100,000 residents of the Golden State, the legal market captures only 45% of cannabis sales, while the remaining 55% continues to engage in the illicit trade, the new report shows.

“This report demonstrates that legal and regulated cannabis shops have put illicit marijuana traffickers out of business,” Bruce Barcott, senior editor of Leafly and lead author of the report, said in a press release.

“Fears surrounding local cannabis shops may lead elected officials to ban cannabis companies in their cities,” he said. “But adults in every community already buy and enjoy cannabis, legal or not. Cities and counties that renounce cannabis are essentially voting to keep their local illegal marijuana markets running. ”

New York regulators are currently accepting applications for the first adult retailers in the state, and the state may soon serve as another example of how local opt-out policies affect market trends. While a large portion of New York City councils have decided to allow cannabis businesses, hundreds of cities have decided to give up before a deadline earlier this year.

The report’s lesson is that those opt-out areas will likely continue to see people buying marijuana, but the incentive to switch to the regulated market will be mitigated by the lack of conveniently located authorized access.

In New Jersey, where recreational marijuana sales opened in April and where most cities initially chose not to allow retailers following the implementation of the reform, there were 0.3 dispensaries for every 100,000 people in July. . As a result, the illegal market has maintained its dominance over cannabis sales, accounting for 80% of purchases.

Via Leafly / Whitney Economics.

Another factor likely to hinder efforts to eradicate illicit sales are the high state and local tax rates for products sold in regulated stores. Analysts and stakeholders have long argued that the imposition of excess taxes on marijuana will dissuade people from switching to a legal market, and therefore have urged lawmakers to take this into account when making legalization policy.

“Access and taxes, these are the keys to migrating clients to the legal market,” said Beau Whitney, founder of Whitney Economics and co-author of the report. “And right now we are seeing illegal cannabis sales supported by opt-out cities and counties.”

The new report is based on an analysis that looked at public licensing data from state marijuana regulatory agencies and population information from the 2020 United States Census. The percentage of cannabis sales from illicit versus legal sources was calculated “by comparing each legal state’s annual cannabis sales with that state’s total market (TME) estimate,” says the methodology section of the reports.

Not only will local opt-out decisions benefit illicit marijuana sellers, but the report also found that areas that block regulated cannabis businesses are more likely to see public health issues related to untested products, lose. job creation opportunities and losing revenue from local tax options.

“Legal cannabis regulation works. It puts illegal marijuana traffickers out of business and gives minors less opportunities to access weed. It protects public health by preventing the circulation of contaminated products, ”concludes the report. “It allows law-abiding adults to comply with the law, while creating local jobs and tax revenues. By joining: it’s the right thing to do.

Similarly, an earlier 2020 report commissioned by California’s Hispanic Chambers of Commerce and Weedmaps found that local bans on marijuana operations in California helped the illicit market thrive and deprived the state and municipalities of tax revenue that have been made even more urgent in order to offset the economic losses caused by the coronavirus pandemic.

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