Business & Economy

Even with legal pot sales, Vermont’s black market could stay strong

Marijuana. Photo by Andrew Kutches/VTDigger

Proponents of legalizing marijuana sales in Vermont say a regulated market would cripple the illicit drug trade. But experience in other states shows that legal sales don’t have an immediate impact on the black market.

As Vermont legislators are once again poised to consider expanding marijuana legalization to include a regulated market, research in states that have implemented legal sales systems shows black markets for the drug continue to thrive.   

Two years after marijuana dispensaries started to open in California, state officials said in December, about 80% of marijuana sales are still happening outside the regulated setting. 

Analysts studying the commercial marijuana markets estimated that in Massachusetts in 2019, two years after pot shops began to set up shop, about 75% of marijuana sales in the state would still be illegal, the Boston Globe reported last year.

Illegal transactions also make up about three-quarters of marijuana sales in Canada, which legalized cannabis nationwide about a year ago, the BBC reported this week.  

Officials and industry observers tracking burgeoning marijuana markets in Massachusetts and California say that the price of cannabis is much lower on the black market than it is in dispensaries — in some cases about half the cost — driving many to continue to purchase the drug illegally. 

They also say that there haven’t been enough dispensaries opening up to make purchasing the marijuana products at a storefront convenient for consumers. 

In Vermont, even with a legal market for the drug in place, it would likely take years for the black market to recede. 

Sen. Dick Sears, D-Bennington, the chair of the Senate Judiciary Committee, who has touted a regulated system as a way to suppress the black market for marijuana, says it could take three years or so for the legal market to seriously curb illicit sales.  

Before marijuana users migrate to the legal marketplace, dispensaries need time to open, and consumers need time to become accustomed to the legal system. 

“I think other states who have been at it longer than us would agree that it takes time for the public to set up the system, to have the stores available,” he said. “I just think it takes time for the market to balance itself out.” 

Analysts with the California-based RAND Corporation, who have studied marijuana legalization across the country, agree that it can take a few years before a legal market has enough of a supply of marijuana and sufficient dispensaries to drive prices down and compete with the black market. 

Beau Kilmer, the director of the RAND Drug Policy Research Center, said the retail systems in Massachusetts and California need time to mature. 

“Those markets just opened up in 2018, so one can imagine that it’s going to take some time before you see large reductions in the size of the illicit market,” he said. 

“What we’re seeing right now is not surprising, it takes time.” 

Kilmer pointed out that in older markets, including Washington and Oregon, which have had legal retail marijuana sales since 2014 and 2015, respectively, the black market has lost influence. 

Cannabis products available for sale at the counter of Medicine Man in Denver. Photo by Elizabeth Hewitt/VTDigger

The RAND policy center found that by 2017, about 50% of the products that contained THC, the psychoactive chemical in marijuana, and were sold in those states, were obtained through the legal market. 

Still, the slow growth of the new markets in California and Massachusetts — and their minimal impact on curbing illicit sales — are concerning some Vermont policymakers. 

Rep. Sarah Copeland-Hanzas, D-Bradford, the chair of the House Government Operations Committee, said that after watching the rollout of California’s marijuana market, she’s rethinking whether municipalities should have the right to “opt-in” to the market before dispensaries can set up shop within their borders. 

In California, two-thirds of towns and cities have voted to prohibit dispensaries from opening up, which cannabis industry leaders have said has stalled the growth of the market. The bill that Copeland-Hanzas’s committee passed this spring includes an “opt-in” provision that would only allow dispensaries to open up if towns voted in favor to do so. 

But after seeing California municipalities block dispensaries, and the illicit market continues to thrive, she said she’s concerned about giving towns that power. 

“That’s just not a good way to snuff out the black market,” Copeland-Hanzas said. 

“What that ends up doing is ensuring that people who are willing to sell in the black market can stay in business,” she added. 

“If we are not careful we could end up with municipalities along the 89 and 91 corridor benefiting from this, and other places in the state being stuck having to drive to Burlington or Williston or Brattleboro in order to buy legal weed, and I don’t think that makes a whole lot of sense.” 

The bill that would establish a retail system for marijuana passed the Senate last year, but stalled after it passed out of Copeland-Hanzas’ committee. The legislation is backed by Democrats and some Republicans in the House, although House Speaker Mitzi Johnson D-South Hero, has expressed reservations over establishing a regulated cannabis market in Vermont

However, Johnson has said that the legislation will see a vote in 2020 if it meets public safety and regulatory concerns, and has the support to pass out of the chamber. 

In 2020, lawmakers on the House Ways and Means Committee will be working on the legislation and determining how the drug would be taxed under a legal system. Under the version of the bill passed by the Senate, the drug would be subject to a 16% sales tax.

Sears said that it’s important to keep the tax rate low, to keep the price of the drug down, and discourage people from relying on the black market. 

California imposes a 15% sales tax on marijuana, while in Massachusetts the combined tax rate on the substance can be as high as 20%. 

Art Woolf, a recently retired associate professor of economics at the University of Vermont, said that if the price of marijuana at Vermont dispensaries is substantially more than the price on the street, it’s unlikely that consumers will bring their business to the legal marketplace. 

“If the dispensary version is still 100% more than the street version, customers are going to buy it from the street unless the street version is of such poor quality that they don’t trust it and that probably is not the case,” he said.

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Xander Landen

About Xander

Xander Landen is VTDigger's political reporter. He previously worked at the Keene Sentinel covering crime, courts and local government. Xander got his start in public radio, writing and producing stories for NPR affiliates including WBUR in Boston and WNYC in New York. While at WNYC, he contributed to an award-winning investigation of how police departments shield misconduct records from the public. He is a graduate of Tufts University and his work has also appeared in PBS NewsHour and The Christian Science Monitor.

Email: [email protected]

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