Let’s Starve the Black Market

The president of the largest cannabis company in the United States discusses the true power of cannabis legalization.

Every month I purchase hundreds and hundreds of pounds of marijuana, grind it up and turn it into a variety of consumer cannabis products that are taxed, regulated and sold much like alcohol or medicine. Every time I sell legal marijuana, I help divert sales from the illegal black market and solidify the highly regulated legal marijuana marketplace.

While there are those in Washington, D.C. who complain that the legal marijuana market is being hijacked to supply the illegal market, from where I sit, the conclusion is exactly the opposite. With each passing year of legal cannabis in Colorado (and now around the nation) it is clear to me that you are either for legalization and regulation or for the black market. There is no in-between.

Legal cannabis oil is produced at the Organa Labs facility in Denver

For decades, the price for a pound of marijuana has been ridiculously high. In 2010, a pound of black market marijuana sold for up to $4,000. How many other plants can be sold at such exorbitant prices? Economists estimate that as much of 80% of the street price of marijuana is a “risk premium” — a fee tacked onto the base cost to compensate for the risks and dangers of illegal drug dealing. At $4,000 a pound, underground dealers across America risked their life, their freedom and were literally willing to kill to get their product to market.

In 2017, that is all changing. Prices in the marijuana market have fallen below US$800 per pound thanks to the booming market in legal cannabis, massive outdoor grows and the evolution of cannabis into an agricultural commodity. The black-market business model for cannabis is changing radically. Smuggling marijuana into the US is no longer the booming business it once was. Interdictions statistics bear this out — over the past five years, marijuana seizures at the US-Mexican border are down by 75%. As one Mexican marijuana grower told an NPR reporter: “Two or three years ago, a kilogram of marijuana was worth $60 to $90. Now they’re paying us $30 to $40 a kilo. It’s a big difference. If the U.S. continues to legalize pot, they’ll run us into the ground.”

The marijuana black market is increasingly the result of the patchwork of marijuana laws inside the United States which creates borders where one state prohibits cannabis sales as a crime and the other state reaps hefty sales taxes from the sale of the same plant. This quilt of regulations is a recipe for arbitrage. Neither a revived “war on drugs” nor a $20-billion wall on the US-Mexican border will end the black market under these conditions. In the ten states where my company has cannabis laboratories the black market caters almost exclusively to out of state trafficking. States like Texas, which don’t regulate or legalize high THC cannabis, are propping up the black market.

When you eliminate the black market’s ability to capture revenue in your state, you invite the unsavory elements to move into a state that does not have cannabis regulations. When the criminals leave your town to sell their illicit drugs elsewhere, a whole myriad of good things happen to the local community. Things like lower violent crimes including homicide and assault, fewer crimes associated with firearms and lower rates of property crimes. Youth consumption also remains flat, or even goes down. And 25% fewer people die from opiate overdose fatalities.

I am proud to produce legal cannabis oils, edibles and medicinal marijuana at such competitive prices that it disrupts the black market.

Marijuana is among America’s most lucrative agricultural crop with annual sales estimated at US$40 billion — roughly US$3 billion a month. An estimated $35 billion is still in the underground and illegal market. Given that legal sales are just 10–15% of the overall US marijuana sales isn’t it a stretch to blame that fraction for the thriving black market?

Chris Driessen is President of Organa Brands U.S., a Denver, Colorado based cannabis company.