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Illicit market thrives in post-'legalization' states —but why?

cannabis Some states that have legalized cannabis are seeing a surge in the illicit market—and attendant police raids and repression. The dystopia that legalization was supposed to leave behind has proved disconcertingly persistent. But is the problem, as conservatives claim, legalization itself—or that is hasn't gone far enough?

There's an unsettling sense of deja vu to recent headlines of big cannabis raids in states that have legalized—from California's Emerald Triangle to Colorado's Front Range.

The upswing on such raids in the Centennial State recently won some national media coverage, which provides fodder for opponents of legalization—and for those who favor a more restrictive model of legalization, in which there is no right to home cultivation.

Backlash in Colorado
The PBS News Hour on July 15 quoted Colorado's ex-governor (and current Democratic presidential hopeful) John Hickenlooper. He was governor both when voters approved legal cannabis with the Amendment 64 initiative in 2012, and when legalization took effect two years later. "We thought that the black market would disappear," he said. "Evidently, it contracted, and then began to expand again. And that's counterintuitive, right? It's not what you would expect.

The PBS report detailed the March 2018 raids in Firestone, a staid suburban enclave north of Denver, in which the DEA seized more than 78,000 plants and more than 2,300 pounds of processed marijuana, serving almost 200 search warrants, making dozens of arrests. The raids were hyped by local media at the time as targeting a "drug cartel."

The report didn't note that there was a reprise of that episode this May, when federal agents backed up by local police arrested dozens in some 250 searches, seizing over 80,000 plants and 4,500 pounds of harvested bud. These raids targeted several locations across the state—again including in upscale suburbs of the Denver metro area. 

PBS likewise hyped supposed international crime machine involvement in Colorado's illicit cannabis sector. Justin Miller, intelligence chief for the DEA field office in Miami, was quoted warning of "Cuban drug trafficking organizations relocating to places such as Colorado, setting up operations, leaving their proxies back here in the state of Florida, and producing large-scale marijuana for distribution, diversion out of Colorado."

Colorado-grown illicit cannabis has been seized in at least 34 states according to official stats cited by PBS—although it is not explained how the state of origin was determined. The stats, from Colorado state authorities, are said to indicate a particular connection to Florida. Colorado-grown illicit product was reportedly uncovered in the Sunshine State at least 70 times between 2013 and 2017.

Miller implicitly blamed the tolerant atmosphere fostered by legalization in Colorado. "It's just the widespread perception that growing marijuana up there is much less scrutinized," he said.

A similar sentiment was expressed by Bob Troyer, who stepped down last year as US attorney for Colorado: "The thing that nobody predicted is that normalization, commercialization would be a magnet for international black market activity."

And even voices from within the legal cannabis industry called for a more restrictive model of "legalization." Chris Woods, president of the cannabis cultivator and dispensary chain incorrectly identified by PBS as "Terrapin Station" (it's actually Terrapin Care Station), boasted of how the company's operations are tracked and scrutinized by the Colorado Department of Revenue and Marijuana Enforcement Division, with each plant fitted with an RFID tag. 

And Woods complained that a too permissive legalization had opened up a free-for-all: "I think one of the mistakes that was made in Colorado and some other states is allowing for home cultivation. And what we're seeing right now is a lot of cleanup from the mistakes that have been made."

West Coast market glut
Big raids, disturbingly reminiscent of pre-legalization days, have also been reported from California in recent weeks. Militarized cannabis raids in Trinity County in late June were followed just two weeks later by a similar campaign in Mendocino, ominously dubbed "Operation Clean Sweep."

An account in the Boston Globe earlier this year blamed overproduction in California and Oregon for driving the illicit market. As the market was flooded, prices in these states plunged, Andrew Livingston of the cannabis-industry law firm Vicente Sederberg said: "That’s encouraged some Oregon growers to sell their crops in states where the drug is illegal and prices are much higher."

Oregon legal producers have called for alleviating the glut by allowing export across state lines to other jurisdictions that have legalized. In June, Oregon lawmakers approved a bill that would allow the governor to enter into trade agreements with neighboring states that have also legalized—although this solution certainly tempts federal interference.

In any case, this is obviously not an immediate solution. "There's a lot of money to be made in the black market," Mendocino Sheriff Thomas D. Allman told the New York Times in April. Legalization, he said, "certainly didn't put cops out of work."

California's Gov. Gavin Newsom, has declared that the illicit cultivation problem in Northern California is "getting worse, not better," and has diverted National Guard troops from border enforcement in the south to cannabis eradication in the north.

The Times account also quoted voices from within the industry who fear a too-freewheeling legalization.  "We are the taxpayers—no one else should be operating," said Robert Taft Jr., who has seen dropping sales at his Orange County retail outlet (identified by the OC Register as 420 Central). He attributed the decline to competition from the illicit market. "This is starting to get ridiculous," he told the Times. "It's almost like the state is setting itself up to lose."

But the Times article actually broaches the possibility that the real problem in California is too many restrictions on the market. State law gives localities the right to bar cannabis businesses—and 80% of California's nearly 500 municipalities have done so. This leaves consumers across much of the state with little alternative to the illicit market.

According to the industry consultancy BDS Analytics, cited by the Boston Globe, a a whopping 82% of California cannabis sales took place on the illicit market in 2018. This compares with one-third of sales in Colorado, 39% in Washington, and 48% in Oregon.

Too much legalization —or not enough?
In Massachusetts, which approved a legalization initiative in 2016, it's estimated that 75% of cannabis sold continues to be on the illicit market. And, by the Globe's account, this may also be due to the limited availability of the legal stuff. With only eight retail outlets operating statewide, many residents have to choose between a long drive or an illegal purchase.

The Globe quoted one consumer in the town of Reading. "They've made it so inconvenient," she said.  Her nearest retail outlet was "in the middle of nowhere." And when she got there, "the line was so crazy that I didn't even bother going in—I kept the black market alive instead."

And the bureaucratic obstacles to getting into the business may also be depressing legal supply. "It takes thousands of dollars just to even think about applying, unfortunately," said Joanna Varner, a medical marijuana user and prospective entrepreneur in Weymouth. "That’s not even talking about your business equipment at all... It's nearly impossible."

"We want to make sure that this law is having the effect it was intended to have, which is to reduce the illicit market," Massachusetts Cannabis Control commissioner Britte McBride told the Globe. "It's the ballgame." But there appears to be little consensus on how to get there. Police are calling for harsher punishments, while rights advocates warn this will replicate the very abuses that legalization was intended to address in the first place.

Lifting the bureaucratic hurdles for legal providers might be a better way to de-incentivize the illicit market. And, contrary to both the perceptions of police and the wishes of Big Bud, so might allowing greater consumer self-sufficiency by giving more elbow room to homegrown.
 

Cross-post to Cannabis Now

 

Photo by prensa420

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