Illicit Cannabis Undercutting Legal Market Big Time: Who's To Blame? Let's Ask Congress

Cannabis companies have been ready to launch their products for several years, chomping at the bit actually. Cannabis consumers have been ready to buy their products for even longer, but they’re tired of waiting so they’ve turned to the illicit market.

When cannabis became legal in Colorado and Washington in 2012 then Oregon and later in the 39 states that have gone legal, people flocked to local shops and dispensaries and waited in line for hours. But as years passed and with legal marijuana exorbitantly taxed and subjected to a patchwork of state-by-state regulations, those who once stood in lines are buying from legacy vendors who are selling their products as they’ve done for the past five decades.   

No Way To Treat A Billion-Dollar Industry

Legal cannabis companies rightly complain that the unregulated market is undercutting the legal market, which also has the disadvantage of still being regarded as illegal under federal law. One of the more onerous results of this US policy, in effect since the 1970 Controlled Substances Act (CSA), is that state-legal pot businesses have no access to loans, capital, bank accounts and tax reform, to mention a few obstacles.  

Cannabis banking reform initiatives have been shot down by Congress on a regular basis over the past several years. The most recent was a last-ditch effort by Senate leader Chuck Schumer et.al. who’d hoped for a lame-duck Christmas miracle: the inclusion of the Secure and Fair Enforcement Banking Act (SAFE) in the $1.7 trillion funding bill. That didn’t happen.

“This is, sadly, a win for the illegal market, which pays no taxes and has no regulations or testing safeties in place,” said Boris Jordan, co-founder and executive chairman of Curaleaf CURA CURLF, adding that the entire industry will suffer as a result.

Jordan got that right. Cannabis stocks tanked big time after SAFE got dumped, pushing the sector down even further from its 2018-2019 heyday. The biggest losers over the several days following the disappointing outcome in Congress were Cresco Labs CRLBF (- 5.6%), Green Thumb GTBIF (-25.28%), Tilray TLRY (-19.6%) and Canopy Growth CGC (-17.44%).

Amanda Reiman of the data, analytics & tech firm New Frontier Data confirmed that illicit cannabis sales are “taking a pretty hefty percentage of the potential market share,” per WNBC. 
Take New York for example where none of its 36 newly licensed dispensaries have started operating yet although one is expected to open on Dec. 29.

New York farmers who dutifully cultivated thousands of pounds of weed to supply what is expected to be one of largest cannabis markets in the country are watching as their crops get moldy while legacy weed sellers ply their wares via delivery trucks, bikes and even pop-up shops.

Despite NY's Office of Cannabis Management cease-and-desist letters to unlicensed operators, they just won't go away. Some say there are likely tens of thousands of illegal businesses in the Big Apple alone.  

Though New Frontier does not track data on illicit cannabis companies around the US, Reiman estimates the marijuana black market is worth around $60 billion. The legally regulated industry is just half that, she noted.

Rep. Ed Perlmutter (D-CO), a key sponsor of the SAFE Banking Act, Senator Sherrod Brown (D-OH) and Sen. Jeff Merkley (D-OR) are among lawmakers who have said that they'll keep pushing to get banking reform passed. Although at this point, the clock has nearly run out and the political makeup of the upcoming Congress might not be any more amenable to cannabis banking reforms than the current one.

Photo: Kindel Media and Paula Nardini by Pexels