THE UNDERGROUND CANNABIS MARKET AFTER LEGALIZATION
Why Does the Underground Market Persist?
No single cause is the behind the ongoing existence of underground markets in legal states. Factors including convenience, price, and quality are the conventional drivers to regulated products, but that shift depends on comparatively easy access to affordable products that meet consumer demands — conditions that can take time and even major policy adjustments to achieve.
Other motivations to remain in the underground market are ideological. Some consumers might want to sidestep the commercial businesses that are replacing legacy operators, while others might want to avoid paying taxes. After price and convenience, respondents in the 2021 survey said one of the top reasons they continued to purchase from unlicensed sources was loyalty.
The Problem of Enforcement
Because the underground cannabis economy includes such a diversity of activity, how (and whether) to prioritize enforcement is a sticky issue. But the inclination to impose harsher punishments risks reverting to the same criminal harms as the drug war, which disproportionately fall along race and class lines.
Within the underground market are hobbyists, longtime legacy operators, new arrivals who saw a chance to make a buck, and truly bad actors. We can’t paint these people with the same brush, nor should we permit policymakers to engage them in the same way.
Noncriminal enforcement actions offer a range of less-harmful approaches, from warning letters to product seizures to lawsuits against landlords that rent to illegal businesses. Where underground activity poses minimal risk to the public, it may be preferable to instead to revise policy — such as by allowing homegrow and sharing, promoting increased competition legal market, and providing opportunities for more diverse businesses to become licensed.
How Big Is the Underground Market?
Though the persistence of unregulated cannabis after legalization can be a contentious political issue, accurately estimating the true size of the underground market remains problematic. It’s undeniable that in most states, however, even years after legalization, unregulated sales continue. One 2021 study of more than 30,000 U.S. cannabis consumers found that at least 40 percent of people in legal states still obtained cannabis from sources other than licensed retailers.
The underground market tends to gradually shrink after prohibition ends, but it doesn’t go away immediately — or entirely. The same 2021 report found that over the preceding three years, the proportion of sales from licensed sources in medical marijuana states consistently grew. In states where cannabis was legal for all adults 21 and older, meanwhile, steadily about three-quarters of products were purchased from licensed retailers. Over time, the vast majority of cannabis sales transition to a licensed, taxed, and regulated market.
Underground Market Policy Recommendations
Dangers of a Police-Led Response
The prohibition against marijuana has been a key element of the “war on drugs,” which has driven mass incarceration of the Black community for decades. Across the US, people use marijuana at roughly the same rate regardless of race, but a Black person is almost four times more likely than a white person to be arrested for marijuana possession, according to the ACLU.
Decriminalization of possession is an important first step to ending this cycle of violence against Black and Brown communities. But we risk losing hard-won victories on racial justice with ill-advised police-driven “crackdowns” on the underground market.
These crackdowns fall disproportionately on Black and Brown operators, who remain largely shut out of the regulated marijuana economy. According to a report from the Pew Charitable Trusts, Black-owned, fully licensed marijuana businesses remain rare despite laws in many states designed to give license preference to communities previously targeted by prohibition.
We need a new, expansive vision of the legal cannabis market.
Policy Options
A more flexible and inclusive regulatory approach will be far more effective at both realizing the true goals of marijuana legalization and bringing more consumers into the regulated economy.
Policy options for realizing this fall under three tracks:
Continued Decriminalization
The regulated marijuana economy will never be able to thrive in a confusing legal environment when a single misplaced form can trigger civil and criminal penalties. We must finish the work we started with legalizing possession.
Decrease involvement of traditional law enforcement in marijuana regulation.
Increase the threshold amounts of marijuana required to trigger criminal charges that could lead to incarceration.
Allow for non-criminal enforcement options for violations, such as warning letters or confiscation of products. This can escalate as needed to more severe penalties, such as evictions from commercial property, but there must be safeguards in place to prevent coercive abuse of severe civil penalties, as has been seen with civil forfeiture laws.
Protect the right to personal cultivation for personal use.
Fair, Just, and Competitive Markets
Ensuring that small businesses, existing sellers, and entrepreneurs from communities harmed by the war on drugs have a chance to compete with large corporations.
Intentional equity measures that give impacted communities a supported pathway to obtaining licenses.
Regular public reports on implementation of equity measures.
Regular public reports on how police and regulators are enforcing violations, including breakdowns by geography and race.
Anti-monopoly measures that are consistently enforced
More information on just and equitable cannabis policy is available at:
The Parabola Center - www.parabolacenter.com
Marijuana Justice - www.marijuanajustice.org
Civil versus Criminal Enforcement
Some form of non-criminal enforcement options are necessary to reach the goals of legalization, for example to prevent unregulated stores from operating and to protect jobs and small businesses.
In the cases of bad actors (examples: those who sold vapes that made people sick during the outbreak of 2019, or anyone who sells dangerous products and lies about it like tobacco companies did) there may be isolated times when criminal charges are appropriate, but in general broad criminal crackdowns arresting or incarcerating people solely for selling cannabis should be off the table.
A path for underground operators
By reducing barriers to entry, more existing operators can join the regulated economy, both bringing their customers with them and achieving legalization’s original intent of repairing harm done by years of disproportionate policing.
Provide different classifications of licenses for different levels and different types of business, so that existing operators in the underground economy can face fewer hurdles.
Incentivizing tech support and mentoring
not requiring a space for a license
Non-license / ancillary opportunities
Small scale license that can be vertically integrated
Hiring from within legacy community within regulators
Regulating an amnesty program
Adapt the regulatory framework to the many community-based, entrepreneurial businesses that have emerged In this market including things like:
Grace periods
Home delivery services
Pop-up events and seasonal stores
Social clubs
Gifting marijuana in exchange for goods
Shared home cultivation and co-ops
