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Why The Illicit Market Still Thrives When Cannabis is Legalized

January 10, 2020 03:36 pm ET
Why The Illicit Market Still Thrives When Cannabis is Legalized

Cannabis legalization is going global. However, it seems that even where retail and/or medical markets exist, the illicit market still thrives. Why would people continue to obtain their cannabis through unregulated sources when they can purchase it legally in a licensed dispensary? This is a question that many people are asking themselves with much confusion.

The answer, however, is quite simple. The combination of strict regulations, high prices, and substantial taxes send many patients and adult retail consumers to the illicit market where they can find stronger products with no taxes, no regulations, and lower prices.  Let’s explore this in more depth.

Price of Cannabis

Cannabis prices are high in most places. In some regulated markets such as Colorado, the prices have dropped significantly since the initial implementation of legal cannabis markets. However, in most legal cannabis markets, the prices paid for cannabis is quite elevated and, in most cases, much cheaper on the illicit market.

According to user-submitted data, the average price for an ounce of cannabis flower in the United States at this time is $319.38 for high-quality cannabis and $283.5 for midgrade average cannabis flower.

Since the price of an ounce is quite high and much more than many patients can afford at once, they are forced to purchase their meds in smaller quantities. This frequently, in return, ends up costing them more in the long run. In some legal markets, patients and retail consumers alike are paying as much as $15-$20 a gram. In case you are not familiar with just how much 1 gram of cannabis is, it is equivalent to a good-sized single rolled joint, something many patients need several times throughout the day to find relief.

According to Metro Times, on the first day of legal retail sales in the state of Michigan, the prices were quite elevated.

“The cost of an eighth-ounce of premium flower hovered at $50 to $60 — nearly twice what you’d pay with a good street connection. And that’s before you pay a 10-percent excise tax and a 6-percent sales tax. An ounce of high-grade marijuana exceeded $400 after taxes for some varieties.”

Speaking of taxes, tax rates are yet another reason why the illicit market continues to thrive in many mature legal cannabis markets. Let’s take a closer look.

Taxes

Products available for purchase in legal adult retail cannabis markets come with some of the highest tax rates of any product available to purchase. Check out some of the tax rates seen in different states below.

  • California: 15% excise tax, $2.75–$9.25 cultivation tax per ounce,
  • Oregon: 17% sales tax
  • Washington: 37% excise tax
  • Nevada: 15% excise tax
  • Colorado: 15% excise tax,
  • Alaska: $50/ounce
  • Maine: 10% sales tax

In some states, recreational consumers must also pay additional taxes such as a generic sales tax, cultivator taxes, and privilege taxes. For example, in the state of Colorado, users pay multiple taxes including a 15% excise tax, 8% state tax on retail cannabis sales, 2.9% state sales tax, local sales taxes averaging 4.6%, and local excise taxes on cannabis which average 3.5% in Denver.

When you combine these tax rates with the high prices of cannabis in many states that we covered above, you can see how those prices can become even that more unaffordable to patients and consumers alike.

Strict Regulations

Another reason the illicit market continues to thrive is the strict regulations that have been placed upon what can be purchased. In many markets, there are tight regulations on the potency of cannabis products as well.

Unfortunately for many, a high potency of THC is required for relief. In legal markets, the potency caps placed on products through regulations require patients and/or consumers to purchase many more products than what should be needed in order to obtain a high enough concentration of cannabinoids to find relief.

As an example, in Michigan’s medical cannabis market, the highest THC content that can be in one single cannabis-infused edible is capped at 200mg with no more than 50mg per dose. In the retail market, the cap is 100mg per product and 10mg per serving. 

For a patient that needs 1000mg of THC to find relief from chronic pain, insomnia, and PTSD for instance, they would have to consume five whole products to receive the benefits they could have from a single infused edible with 1000mg which can be easily made at home and is widely available on the illicit market. Not only would they have to consume all of that product to receive the same amount of THC, but they would also be paying a substantial amount of money to do so, as you can imagine from the numbers above.

If you reside in a state where cannabis is legal but see more benefit in the illicit market, do everything you can to promote adequate reform. Contact local groups in your region and join the mission to fight for better access to your medicine!

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