Legal Marijuana Shortages Drive Consumers to the Black Market

Source: Thinkstock

If we’ve learned one thing from watching the marijuana markets open up in Colorado and Washington, it’s that the general public has waited a long time for the chance to buy cannabis in a straightforward manner, and that demand has far outweighed supply in the early going. While it shouldn’t really be surprising, both states have had struggles with keeping their shops adequately supplied, and stores in Washington, less than two months after opening to the public, have barely been able to keep their doors open. The process of legalizing a largely underground industry didn’t have a blueprint for regulators to follow.

For states that are looking to end prohibition in their own jurisdictions, taking note of where Washington and Colorado fell short will be of paramount importance. Where they fell short is in estimating how much demand for cannabis there truly is.

Due to the fact that legal stores have not been able to adequately supply customers, some looking to purchase product have been forced to go to other places, namely the black market. Now that marijuana has been decriminalized, it is still not legal for it to be sold outside of licensed stores. By forcing customers back to the black market, states are not only costing themselves potential tax revenue but also causing a large number of individuals to turn to illegal activity that would otherwise be avoided.

Colorado and Washington’s laws are set up differently, and so far, Colorado’s method has been implemented a bit more smoothly. In Washington, those involved in the new industry are labeled as either producers, processors or retailers. It’s possible for producers to also be classified as processors, but either way, there are limits on how much product can be produced and who can actually produce it.

This has been one factor in the shortage — in Washington, at least. But Colorado hasn’t been spared, either.

Source: Rocky Mountain PBS I-News

According to a report from Rocky Mountain PBS I-News, regulators in Colorado have become privy to the situation and may actually take steps to remedy it. Not only does having a low supply force would-be customers to turn to the black market due to low availability, but it also drives up the price of the product that is available, creating even more incentive to purchase from street dealers.

“Right now we are pretty significantly under what should be produced,” said Ron Kammerzell, an official with Colorado’s Department of Revenue, to the news outlet. “What that does is raises the prices and if the price is too high, then we can’t compete with the black market and that was our ultimate goal with Amendment 64 — we wanted to eliminate the black market.”

But so far, the state’s own policies have had the opposite effect, as they have in Washington.

It’s important to mention the part that the medical marijuana markets play in the whole scheme of things, as prior to full legalization and decriminalization, both states housed robust — and in Washington’s case, highly unregulated — medical cannabis industries. In fact, the success of those industries has made for a relatively easy jumping-off point for the legal markets to take place, and for a number of knowledgeable entrepreneurs, growers, and processors to get into the market.

Due to what many have called over-regulation and overreach by Washington’s Liquor Control Board — the body in control of setting the state’s cannabis market policies —  the industry has stumbled out of the gates. Few stores have been able to actually open, and in the case of retailers in Seattle, they were able to open for a matter of days, if not hours, before closing due to lack of product.

Source: Theo Stroomer/Getty Images
Theo Stroomer/Getty Images

The shortages of marijuana were not unforeseen, as many publications reported prior to the legal markets opening up. A simple answer would have been to allow the medical marijuana community, which was already in place, to roll over into the legal framework. But legislators didn’t want to do that for a number of reasons.

“We couldn’t just license medical marijuana growers to become recreational growers because no one even knows where they all are and who they all are — they can only estimate how many there are around the state,” Brian Smith of the Washington State Liquor Control Board said to Vice“What the future holds for medical marijuana dispensaries, I don’t know. Under the law, they’re not supposed to exist.”

Smith went on to tell Vice that the safeguards and regulations the Liquor Control Board has in place are to protect consumers, and that he expects the supply to meet demand in time. While Smith is most likely correct, while regulators sit back and wait for the market to adjust, the state is missing out on potentially huge amounts of tax revenue, and customers are being forced back to the streets.

Everyone can agree that is probably not the ideal solution to the problem.

This is an issue lawmakers in other states will need to monitor closely in order to makes sure industries across the country don’t experience the same problem. This is a case of over-regulation actually stifling the open market and forcing consumers to the black market instead.

Washington and Colorado will eventually find equilibrium in the market. The question is whether regulators in both states are willing to take action to make it happen or if they’re comfortable sitting back and waiting while millions in potential tax revenue goes to street dealers.

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