SHARE
black and gray cannabis markets in Washington
Original image courtesy of NoExcusesRadio at Pixabay.com

One of the major challenges for policymakers in Washington State — and elsewhere — is how to create a legal market when policy liberalization over the last 15 years or so has made it much easier for consumers to get cannabis through black and gray markets. This is especially true for places like Seattle, where a lion’s share of state cannabis consumption is located.

Cannabis Black Market Still Thriving in Washington

The Washington State Liquor Control Board (WSLCB) figured this out some time last spring, when they began using 15% as a benchmark estimate for how big the legal market would be in relation to gray and black markets. The number is clearly a “back of the envelope calculation,” as there is no way to accurately measure black markets for anything, but it was necessary to come up with something.

One of I-502’s principle advertisements was that it was a way to take away black markets. While the WSLCB clearly understands this, the public has not quite caught on to the fact that black market reduction can only be a Long-Term Goal. I spoke with National Public Radio’s Ross Reynolds not long ago, ostensibly about the impacts of moratoriums and bans on I-502 implementation. The conversation took a substantive turn when he asked me how a ban in one county might encourage black market activity — I responded that the black market is thriving either way.

It will be a while before legal cannabis might make any dents in the black market. I’ll go a step further and say that the main effect of legal cannabis will be on medical cannabis markets, which is policy driven rather than market driven.

Medical Consumers More Likely to Go to Legal Markets

It’s not a secret that key WSLCB figures (not the entire organization) understand this, given the alternative of easy medical cannabis access points with lower prices, broader product selection, and more generous quantities allowed. Many consumers would choose to continue to purchase from those access points.

In the interest of capturing medical consumers to make the 502 market viable, therefore, some Washington state legislators and policymakers have directed their energy towards ending medical marijuana altogether: shut down all the access points. Although the “Health Before Happy Hour” initiative of which I have been a part made great strides towards preserving patient grows and affirmative defense in the short winter legislative session, the “collective garden” law under which our access points operate is endangered. That issue is not one for this entry, though.

How to Create Legal Consumers from the Black Market

What is important is to understand how people who don’t understand the economics of cannabis markets are thinking about how to create legal consumers from primarily black markets — address the gray markets in between. The gray market came from the black market, and gray markets will return to it if not given an opportunity to exist legally. In my view, this will actually help perpetuate black markets, especially given that gray markets have led the way in new product creation and marketing, such as vape pens.

An alternative might be to bring into the policy discussion the subject of “how to capture market share through competition” rather than creating new/old black markets as people seek to preserve their livelihoods. Here are a couple options:

  • One way this could happen is through the establishment of a state certification program for environmentally sustainable production practice to consumers. This would provide a competitive advantage for capturing “Whole Foods”-type consumers that are quite prevalent west of the Cascades.
  • Another way would be to poll cannabis consumers on how they make or would make their decision to participate in legal markets and design policy around that information rather than assuming that gray market consumers would choose legal retail over black market consumption, which is much more convenient for many.

These arguments are both technical and moral, but most of all they would represent a way to think outside of the punishment box that has never worked to eliminate black markets. And that’s the rub: I-502 is supposed to diminish and eventually take over black markets, so doing things that have historically had the opposite effect is probably counterproductive.

Leave your thoughts