How Legal Marijuana Is Helping the Black Market

How Legal Marijuana Is Helping the Black Market

Expensive regulation and high demand across the country have made the illicit trade more profitable than going legit.

by Natalie Fertig

When the new marijuana shop opened up just down the street from his own marijuana shop, Greg Meguerian, owner of The Reefinery in Los Angeles, kept an eye on it. When that shop stayed open past the legal closing time of 10 p.m. and sold customers over a quarter-pound of cannabis at once, four times more than the legal limit, Meguerian knew he wasn’t competing with a licensed dispensary.

“It’s so shady, if you look at it,” Meguerian said. “It looks like a shady crack house.”

The 15 Spot—as the tarp sign hung in front saysdoesn’t appear on Los Angeles’ list of authorized retail businesses. Meguerian and his lawyer reported the dispensary, but it’s still open—and Meguerian is paying a price. He said his sales are down noticeably since his illicit competitor moved in. Calls to the 15 Spot went unanswered because its phone is disconnected.

“I told the state, ‘If I lose 20 percent, you just lost 20 percent in taxes,’” he told POLITICO Magazine. “You feel like your words are falling on deaf ears.”

What’s happening to Meguerian is a window into one widespread side effect of marijuana legalization in the U.S.: In many cases it has fueled, rather than eliminated, the black market. In Los Angeles, unlicensed businesses greatly outnumber legal ones; in Oregon, a glut of low-priced legal cannabis has pushed illegal growers to export their goods across borders into other states where it’s still illegal, leaving law enforcement overwhelmed. Three years after Massachusetts voters approved ful legalization of marijuana, most of the cannabis economy consists of unlicensed “private clubs,” home growing operations and illicit sales.

Though each state has its own issues, the problems have similar outlines: Underfunded law enforcement officers and slow-moving regulators are having trouble building a legal regime fast enough to contain a high-demand product that already has a large existing criminal network to supply it. And at the national level, advocates also point to another, even bigger structural issue: Problems are inevitable in a nation where legalization is so piecemeal.


“You’re never going to eliminate [the illicit market] until most of the states are legal,” says Adam Smith of the Craft Cannabis Alliance, a group in Oregon advocating for small cannabis farmers. “As long as half the country still can’t get it legally, there’s a market for it illegally.”

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