Some U.S. municipalities inadvertently supporting illicit cannabis markets

By forgoing regulated pot sales, communities create “an economic sanctuary for illegal street vendors to continue their businesses.”

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Cities and counties in legal US states that oppose regulated cannabis sales may unintentionally help sustain and expand local illegal markets, a new report by Leafly and Whitney Economics suggests.

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Released this week, Leafly’s Opt-out report 2022 addresses some unintended consequences of local communities simply saying no. The report information is based on a variety of public and private sources, including licensing data from cannabis regulators and the 2020 U.S. Census, and represents market conditions as of July 1, 2022.

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Both Leafly and Whitney Economics have strong interests in cannabis, with the former being an online cannabis information resource and marketplace and the latter having a mission to “develop robust data-driven economic models for hemp and cannabis operators, investors and regulators.”

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By refusing, according to Leafly, these communities create “an economic sanctuary for illegal street vendors to continue their businesses. This revival of prohibition at the local level exists even in communities that voted overwhelmingly for legal cannabis at the national level.”

The report claims that local regulations, not local bans, are the right way to deal with cannabis to best serve the needs of the community. “This report shows that legal, regulated cannabis stores are putting illegal marijuana dealers out of business,” notes Bruce Barcott, lead author and editor-in-chief of Leafly.

“Adults in every community are already buying and enjoying cannabis, legal or not,” Barcott points out, adding that jurisdictions that choose not to are “essentially voting to keep their local illegal marijuana markets in business.”

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The report claims that the opt-out triggers a range of developments – including local, illegal sellers who will essentially be shielded from competition – see sales increase and this encourages more such traders to enter the local market.

It cites the example of illegal street vendors in California, who reportedly still supply more than half of adult consumer demand despite the legal market having existed for four years. “It’s no coincidence that 62 percent of the country’s municipalities have opted out of regulated retail sales.”

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Leafly and Whtney Economics warn that “the trend is also happening in new markets that are getting out before sales begin,” like New Jersey, where 71 percent of local communities have ditched pot shops.

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“With just one store for every 358,000 people, illegal street vendors still control more than 80 percent of the marijuana market,” the press release said.

“States with the fewest legal cannabis stores per capita — such as New Jersey, California, Illinois, and Michigan — were more likely to have had the most robust illicit marijuana markets,” the report states. “States with the highest number of deals per capita — like Colorado, Oregon, and Alaska — were more likely to put local illegal sellers out of business,” she adds.

The report goes on to say that, generally speaking, states with about 20 to 40 legally regulated stores per 100,000 people “received 80 to 90 percent of all cannabis sales from the legal market.” Compare that to states with single-digit sales per 100,000 people, where the illegal market still accounts for 30 to 50 percent of sales.

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Assistance with illegal sales is sometimes dependent on time and distance. The report cites a 2016 Access Development study that found 87 percent of consumers typically travel 15 minutes or less to make everyday purchases. “We estimate that cannabis users are willing to travel between 12 and 14 minutes from home to make a legal purchase,” the new report reads.

Beau Whitney, founder of Whitney Economics, suggests that access and taxes are key to getting people who use black market cannabis to switch to legal options. Whitney argues that the US “is seeing illicit cannabis sales propped up by opt-out cities and counties.”

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Aside from perpetuating the illicit market, the report claims that phasing out can help put public health at risk.

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“Products sold in the illicit market are unregulated and potentially toxic for circulation,” the report said. “And illegal sellers offer these products to everyone, regardless of age,” she adds.

A recent Canadian study found that 19 of the 22 unregulated products tested by investigators contained at least one of Health Canada’s 96 restricted pesticides. In some cases, the pesticide concentrations in the products were several hundred times the reporting limits set by the federal agency.

The Leafly report also points out that local jobs and tax revenue will be lost as a result of the opt-out. “Legal cannabis now supports 428,000 American jobs. In 2021, legal adult cannabis sales generated $3.7 billion in tax revenue, but not in cities and counties where these sales were banned.”

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