On Tuesday, a long story appeared on the website of NBC News, detailing the ways in which foreign drug cartels are using legalization as a “cover” for their operations. This presents a good opportunity for me to discuss some misconceptions and unreasonable expectations when it comes to just how legalization will affect the cannabis black market.
The two most important things to remember about this issue are: 1) no one has ever said that legalization will eliminate the black market overnight, or even completely and 2) the key to undercutting the black market in marijuana is fostering an environment where the price of marijuana can experience a massive drop.
Opponents of marijuana legalization love to point out every instance of black market activity in states where it is legal for recreational purposes, as if this proves that legalization is a failure. But not only does the black market have the advantage of being firmly entrenched for decades, it has familiarity to consumers and often still lower prices on its side in the battle versus the legal market. Taxes, regulations, fees and inconvenience all come together to suppress the legal market. Add this to the fact that most states in the U.S. do not have widespread legalization – meaning prohibition-inflated prices/profits are still relatively intact. This means that cartels still have plenty of places to ply their trade for big profits.
In the article, the assertion is made that legal growing jurisdictions provide cover for cartels to move people into houses where they grow tons of plants, destroy the house and the surrounding land, then move out before authorities catch up to them. This very well may be true, but I will point out that not only are law enforcement officials and U.S. attorneys still focused on prosecuting operators who are cartel-affiliated and violating state law in legal states, but this activity happened under full prohibition as well, which is the only other direction authorities can take besides legalization.
The only way to undercut the profits that cartels make from marijuana is to tank the price nationwide. Let it fall to what it would naturally be if prohibition didn’t exist, which many estimate is a small fraction of what it is now. Heck, you can buy high-quality cannabis flower wholesale for less than $3 a gram in many places in the Pacific Northwest as I write this. And prices continue to drop.
As long as regulations are kept to a minimum and taxes low, falling prices will eliminate all but the best cannabis companies, the ones that can produce good quality while maintaining razor-thin profit margins. This means companies in the legal marketplace with large farms (or contracts with large farms) and the ability to take advantage of technological advances as they are introduced.
As profits fall, cartels will move on to other substances and ways of making money, even if it seems like they are taking advantage of current, temporary situations.