How Oregon Fought the Black Market and Won
One of the biggest hurdles within the legal cannabis industry is trying to weed out the black market. Irrespective of most legalization efforts, there is always a sector of black market activities that simply do not go away.
We have previously discussed why the illegal market persists despite legalization. In essence, “partial legalization” creates opportunities for black market sales. On paper, legalizing cannabis should eradicate most black market activities. At the very least, it would make it a non-profitable good for large criminal enterprises.
However, due to the fact that in the US, only half of the country has some sort of legal marijuana on the books, the problem remains. Even though the West Coast is completely “green”, there are parts that are still “red”, and these “red areas”, cannabis cost more.
Last week we spoke about the Oregon “surplus problem” and it’s important to understand how they came about having such a surplus. Their reasoning is one of the biggest reasons why there isn’t a large black market within the Oregonian borders.
Oregon’s solution to Illicit Pot
For Oregon, the idea of driving out the black market was to give as many people opportunities to participate in the legal market. They made licensing relatively cheap (compared to other places), they made the process of getting into the legal market simple and as a result, there are over 600 dispensaries within the state.
Since so many people jumped aboard the green train, the production started to exceed the demand within State borders. In turn, this drove down the prices of cannabis making it competitive with “street prices”.
And this is the essence of stopping black market pot – Make it competitive. For an Oregonian, there is no real incentive to buy illicit pot when premium cannabis can be found with great ease. In fact, the average consumer would much rather like to support local businesses than transnational crime organizations.
Once you can use credit cards and other banking means more easily, this would make the incentive to buy in cash on the street almost non-existent.
Why the Black Market Continues to Thrive
As mentioned, partial legalization is the biggest factor fueling the black market. In Oregon, weed is cheap and abundant. The black market cannot compete with the legal market. However, just go one state adjacent and it’s a totally different story.
The data suggests Idaho has had an increase of pot being shipped to the state via Oregon. It correlates precisely with the legalization efforts within the state of Oregon. This is true for virtually every state that has a legal cannabis regime with a neighboring state that doesn’t. We see it in Oregon, we see it in Colorado.
This is virtually the only reason why the black market is still kicking. We have partial legalization and partial prohibition creating markets for illicit activities.
Some people might argue that this is a problem of legalization, however, it’s rather a problem of prohibition. So how do we fix all of this?
The Oregon Method
Oregon had it right when they made it easy for everybody to get involved in the cannabis market. We should reduce the restrictions, make it accessible and get as many people in the legal marketplace as possible.
But won’t this decrease the value of cannabis? Yes it will. With more competition, there are more options for consumer meaning that retailers would have to be competitive. To do this, you have to adjust the price point to where it’s still profitable, but no longer with a $20/gram price tag. In all fairness, growing cannabis isn’t cheap.
The associated costs should be recovered with a 30% profit margin per gram. Yet when we turn to mass cultivation, we could be driving down the price per gram to the $1-$5 for production. Charging someone 30% over that price plus the tax of any given state, could land the cost per gram between the $5-$10 margin.
This way, the market has a superior choice for buying their goods, the businesses make money and states make money via volume of sales.
It’s truly the only way to combat black market activities. The state has proven throughout an 80+ year campaign that they are inefficient and costly. The legal cannabis market has shown that by making weed accessible, reducing prices and competitive, the market chooses the legal marketplace every time.
People would much rather walk into a boutique and buy cannabis as opposed to doing it in the street. If the rest of the country simply legalizes and makes cannabis very accessible for people, it should take between five and ten years for the black market to become as prominent as slingers of moonshine.
However, as long as there is still a trace of prohibition on the books, there will be economic incentive for criminal enterprises to get their piece of the pie.
The only question we should be asking is; why do we want criminals to be running the cannabis game? Shouldn’t “We the People” have full reign?
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