Over-Regulation of Legal Cannabis Fuels the Black Market

Over-Regulation of Legal Cannabis Fuels the Black Market

It is no secret that in U.S. states that have fully legalized cannabis, and nationally in Canada, the stated purpose of these governments in fully legalizing (and regulating) cannabis use was to stamp out the cannabis black market.

The outbreak of vaping-related illnesses in the United States emphasizes this point. These illnesses (and deaths) are from unregulated and poorly regulated products entering the U.S. supply chain.

However, while regulation of the supply chain for the legal cannabis industry has proved to be inadequate (in the U.S.), regulation of the actual cannabis operations has been intensive and restrictive.

Cannabis itself is safe. We need cannabis to be fully legalized, fully regulated, and have the industry fully supported in order to prevent more public health issues such as the current threat in the U.S.

The problem is that the legal cannabis industry isn’t getting that support. States like California allow local governments to freeze-out the legal cannabis industry, preserving these areas for black market commerce.

Provinces like Ontario have been ridiculously slow in licensing cannabis stores. And it has also been extremely inefficient in its provincial online sales. This also fuels the black market.

More generally, governments in the U.S. and Canada are strangling the legal cannabis industry with red tape. Over-regulation is likely the #1 impediment preventing the legal cannabis industry from displacing the cannabis black market.

This is the finding of a new study, as reported by Marijuana Moment. The study zeroed-in on Washington State’s legal cannabis industry. Washington instituted more intensive regulations for the cannabis industry in June 2016.

“Although the findings are not conclusive, the results of Washington data show that regulation intensity may be one of the main factors that influences or explains the persistence of illegal cannabis transactions after the legalization,” the study states. “The fact that Washington’s marijuana black market kept growing after the implementation of more complex and sophisticated regulations at least indicates a correlation between regulation intensity and the increase of the black market in the case of Washington.”

As noted, the findings are based upon a correlation and are thus not conclusive. But it is a correlation that has a strong factual foundation.

Note also that Washington’s legal cannabis industry couldn’t even retain its market share after more intensive/complex regulations were introduced. It lost market share to the black market.

This is the opposite of what our governments promised to deliver in legalizing cannabis.

Over-regulation of the legal cannabis industry generates some or all of the following problems for the cannabis companies and the industry as a whole.
 

  1. Significantly (and sometimes greatly) adds to the unit cost of bringing cannabis products to market.
  2. Reduces the availability of certain types of cannabis products, reduces the variety of products, or simply reduces consumer access altogether.
  3. Reduces the visibility of legal cannabis products (necessary to build consumer awareness) through extremely strict regulations on marketing, branding, and advertising.

It would be surprising if a study like the one above did not find that over-regulation of legal cannabis had a detrimental effect in attempting to reduce the size of the black market.

Yet the ongoing paranoia and prejudice of public officials toward cannabis persists. It is derived from all the years of War on Drugs anti-cannabis propaganda – pseudo-science that has now been completely discredited.

Cannabis is a safe, non-toxic substance. It is now safely cultivated and sold at potency levels that would be dangerous (alcohol) or fatal (tobacco) with other legal drugs. Despite this, regulators are imposing extensive, complex and onerous regulations on the legal cannabis industry.

Colorado is one of the few jurisdictions that has been able to avoid such pitfalls. The study also looked at cannabis regulations in that state.

Colorado has fine-tuned its cannabis regulations twice (in 2015 and 2017). But it managed to do so without having any detrimental impact on the legal cannabis industry, i.e. no rise in black market sales – as was seen in Washington State.

Colorado is the Poster Child for the proposition that a legal (well-regulated) cannabis industry can phase-out the cannabis black market. Its recipe for success appears to be getting duplicated in the province of Alberta, which also boasts a booming legal industry.

In other U.S. and Canadian jurisdictions, politicians and regulators continue to give in to their anti-cannabis paranoia – and continue to over-regulate the legal industry.
Our governments promised they would do better. The legal cannabis industry deserves better.

Perhaps most importantly, cannabis consumers deserve better: a legal and properly regulated (not over-regulated) cannabis industry. Consumers don’t need to be “protected” from cannabis. They do need to be protected from shoddy (and dangerous) black market products.
 

Published at Wed, 25 Sep 2019 17:05:16 +0000

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