STORIES

Black-Market Cannabis in the Age of Partial Prohibition

By David Jenison on December 6, 2017

The National Bureau of Economic Research published a study in 2017 that highlights the redistribution of state-legal cannabis to states where full prohibition is still in effect. 

Per the trio of researchers, "Oregon began allowing recreational marijuana sales on October 1, 2015, after Washington, its neighbor, began allowing sales on July 8, 2014. Using comprehensive administrative data on the universe of Washington sales, we find that Washington retailers along the Oregon border experienced a 41% decline in sales immediately following Oregon's market opening. Retailers along Washington's borders with Idaho and Canada experienced no such decline."

Moreover, the largest decline involved large-scale transactions, which arguably suggests redistribution rather than cannabis tourism. 

"Our estimates suggest that 11.9% of the marijuana sold in Washington was trafficked out of the state before Oregon legalized and 7.5% remains trafficked today," the study concluded. 

Differing cannabis laws might not be the only factor contributing to a black market. Many long-time growers are struggling to comply with the new state laws, and as VICE put it, a California cannabis "surplus… threatens to push cultivators into the black market." 

Likewise, a recent Fitch Ratings report suggests recreational cannabis might be taxed up to 45 percent in California. CNN wrote, "Buying legal marijuana in California could be pricey enough to keep the black market healthy," while the Fitch Report concluded, "California's high taxes are likely to keep black market prices competitive into the long term."

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