Some states continue to struggle with illegal cannabis, even years after legalization

click to enlarge Some still grow on the sly.
Some still grow on the sly.

This year marks a decade since Washington and Colorado opened the floodgates on cannabis legalization. That was supposed to signal the beginning of the end for the illicit cannabis market. Ten years on, though, illicit markets still thrive, even in places where legal markets exist and have had time to integrate into their communities.

Washington is doing relatively well, but California and Oregon are struggling.

Oregon legalized cannabis eight years ago, but officials are facing an evolving illicit market. Last week, a state task force set up to work on the issue announced that foreign cartels are operating massive illicit cannabis grows in southern Oregon. Much of the illegal cannabis is being transported out of the state for sale. For the past year, law enforcement agencies in southern Oregon have been working to take out illegal outdoor grows, but now the cartels are adapting and moving to indoor grows, according to reporting from the Associated Press.

One potential destination for some of that illicit Oregon cannabis is California, where despite cannabis being legal for six years, the illicit market still far outperforms the legal market. Last fall, Politico reported that California's illicit market generated upward of $8 billion annually, more than twice that of the legal market.

Gov. Gavin Newsom seems to recognize this problem and last week offered a solution. In his proposed budget, California's cannabis industry would get a sizable tax break. Cannabis in California is currently taxed at four different stages of the process from seed to consumer. Newsom's budget would remove the first of those four taxes, placed on growers.

Unlike our neighbors to the south, Washington has been more of a success story in eliminating its illicit market. A 2019 study from the University of Puget Sound and University of Washington found that cannabis use was increasing, but also was shifting away from the illicit market and into the state's legal market.

In 2020, cannabis data analytics firm Headset looked at cannabis prices around the country and found that Washington is home to the nation's cheapest. That is despite having, at 37 percent, the highest cannabis excise tax in the country. Headset noted that Washington's market is not vertically integrated, with growers and processors unable to sell directly to consumers. There are far more growers and processors in the state than retailers, which encourage competition to land on limited shelf space.

Cheaper, in this case, might be better. ♦

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