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The Legal Cannabis Industry Struggles with Regulations

As the Legal Cannabis Industry Struggles, the Cannabis Black Market Thrives

By Don Drake, Connelly Law Offices, Ltd.

Connelly Law Offices, Ltd.
Attorney RJ Connelly III

"A few weeks ago, we wrote about some of the health risks seniors face when using cannabis recreationally," said RJ Connelly III, a professional fiduciary and certified elder law attorney. "Today, we will discuss the legal cannabis industry's struggles with varying state regulations, high taxes, and an oversupply of dispensaries, leading to falling prices and cost-cutting measures that may lead to bankruptcy and consumers returning to the black market."


Attorney Connelly pointed out that some states have too many cannabis licenses, leading to oversaturation, lower prices, and economic stress for operators, while other states are hindering the legal industry by issuing too few licenses. According to the Daily Mail, a cannabis chain in California is facing financial ruin due to these high taxes and licensing delays. This could be problematic on multiple levels, not only for older adult cannabis users but also for states that have become dependent upon tax revenues should the market collapse.


Last year, states that legalized recreational cannabis collected over $15 billion in tax revenue. In nearby Massachusetts, the Commonwealth levies a 10.75% excise tax on cannabis and allows local governments to levy up to 3% on retail sales. According to the net tax revenues for FY 2022, nearly $157 million was collected in taxes from recreational cannabis sales, while alcohol brought in $97 million. Losing that money could result in states cutting services, which could include addiction treatment programming. But there is an even more concerning problem: users going the black-market route for their cannabis.

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Legal cannabis provides states with tax revenue

The interplay between the legal and illicit marijuana markets spawns a destructive circle. The legalization of marijuana in certain states not only fuels the black market in non-legalized states but also within the legalized states as well. Disparities in state regulations compel smugglers to cross borders, bolstering the thriving black market. Make no mistake; cannabis is not the panacea many say it is because along with the positives proponents focus on come the negatives that must be acknowledged and ultimately dealt with using taxpayer funds. So, a collapsing market spells trouble.


The Positives and Negatives of Legal Cannabis

Since the legalization of marijuana, quality and safety regulations have improved, and drug-related gang violence has decreased relative to cannabis but is on the rise in some states again, given the lax attitude toward enforcing all drug-related offenses. The push for federal regulation to help bail out the struggling legal cannabis market will, according to some proponents and customers, make pricing more reliable and continue to keep the product safe.

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Negative effects cost money to treat

Those who are against the federal legalization of cannabis cite the negative consequences that are becoming known, which include an increase in fatal car crashes where the driver had tested positive for marijuana, a rise in homelessness levels, and a spike in teenage usage of the drug.


They also cite the risk marijuana poses for teens to acquire the drug. This is concerning because marijuana has a detrimental effect on white matter in the adolescent brain, leading to lower performance on neurocognitive tests. Neurons in the brain cannot undergo mitosis to replicate, so they cannot be repaired when they are damaged.


As we mentioned in a recent blog post, older adults and seniors are at risk of developing cardiovascular, pulmonary, and cognitive issues due to cannabis use. Since the recreational use of cannabis is relatively new, there hasn't been enough research done on how it affects aging brains, which again costs taxpayer funds.


Pricing

According to a survey conducted by Whitney Economics, the cannabis market is encountering significant challenges, with prices dropping and profits dwindling. Presently, only 24% of cannabis businesses are profitable. The Daily Mail reports that when legal sales began in Oregon, a pound of the product was selling for $3000. Today, it retails for $100 to $150.


"While this may seem like a boon for cannabis consumers, eventually, it could prove to be the end of the recreational cannabis market in some areas as less profitable dispensaries are forced to close, as regular users turn to the black market once again, and new users left scrambling to obtain cannabis from a dangerous source," stated Attorney Connelly.


A History Lesson

"The high taxes and differing state regulations faced by the legalized cannabis industry have historical parallels," said Attorney Connelly. "Over two centuries ago, the American government was one of the first to tax and control the alcohol industry, leading to the rise of the illicit moonshiner industry. The term 'moonshine' comes from illegal spirits being made under the moon's light. In every part of America, early moonshiners worked their stills at night to avoid detection from authorities."

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Many parellels with "moonshiners"

The United States implemented taxes on liquors and spirits in the aftermath of the American Revolution. The country was struggling financially after the war, and this tax on alcoholic beverages proved to be an efficient way to generate revenue. As a result, many farmers were able to rely on moonshine production during difficult years, as they could transform low-value corn crops into high-value whisky.


In 1920, Prohibition was enacted across the US, causing a surge in illegal liquor production. Many Americans who consumed alcohol resorted to buying it from unreliable sources. This led to organized crime taking over the moonshine industry, and producers selling watered-down moonshine made with sugar instead of corn, effectively putting the farmers out of business. However, not all "moonshine" was of the same quality.


Moonshine earned the nickname rotgut due to the dangerous and deadly effects of "bad" alcohol during this time. Questionable ingredients were commonly added, making it unsafe for human consumption. Illegal production methods led to increased sales and profits and severe health consequences for those who consumed it, and for some, death.


Laced Cannabis

The attempt to decrease black markets by legalizing marijuana has proven unsuccessful in some states, such as California, where the black market has increased. The existence of illicit markets in legalized states has enabled unlicensed farms to prosper by providing lower prices than the premium cost of legalized marijuana, leading to uncertainty regarding the product's origin.

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Black market cannabis can be dangerous

Should the legal market collapse, users may again look towards the black market to purchase cannabis. If so, they may be exposed to laced marijuana since street cannabis may not be as potent as that purchased legally.


Lacing drugs with other substances is a common and dangerous practice. It can be done to increase profits, add weight, or alter the effects of the drug. However, this often results in a potentially deadly combination of drugs. Street cannabis has been laced with:

  • Lead or other heavy metals

  • Fungus and bacteria

  • PCP, aka Angel Dust

  • Heroin

  • Embalming fluid

  • Laundry detergent

  • LSD

  • Methamphetamine

  • Ketamine

  • Cocaine

  • Bath Salts

Although marijuana is less likely to be intentionally laced with other psychoactive substances than many other illicit drugs, it still happens. This is especially true when drug dealers are trying to bulk up the product or when low-quality cannabis is mixed with other drugs to enhance its effects.


The Bottom Line

The use of cannabis has become increasingly prevalent and accepted among all age groups, much like alcohol. The industry believes that legalizing it at the federal level would help it remain viable and prevent users from accessing potentially dangerous products from unregulated sources. Furthermore, they say, it would effectively eradicate the black market (although this has not been the case to date), which will thrive in the absence of dispensaries that may be forced to shut down due to differing state regulations and a glut of retailers in "cannabis-friendly" states.


According to Attorney Connelly, the current state of affairs with cannabis is worrisome. States that have legalized the drug for recreational purposes heavily rely on its tax revenue, so they certainly don't want the legal market to crash, meaning they may also push for federal legalization. And, if obtaining it through legal means becomes challenging, users are unlikely to cease consumption and will turn to street-level dealers, which would pose a whole separate set of challenges.


While refraining from any judgment on users, he emphasized that there is still much to be learned about the positive and negative effects of cannabis. The fact that it poses specific health risks for teenagers and seniors is a cause for concern. Should these groups resort to purchasing it illegally, it could lead to additional complications requiring more taxpayer funds to address. We have undoubtedly created a problem extending across various levels that only continues to grow.

Connelly Law Offices, Ltd.

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