However, the same article notes that the illegal cannabis market accounts for nearly 3 times that amount in illegal sales. The existence of this black market represents both good news and bad news for the consumer and for the investor.
Why a large cannabis black market is good news for investors
The cannabis black market is nonetheless a market, and represents a major opportunity for growth among legal cannabis suppliers. There is no evidence that the legal cannabis market is comprised solely of first-time users who waited until cannabis was legal to start purchasing billions of dollars' worth of the product. As law enforcement shifts resources from arresting users to shutting down illegal markets, the illegal competition will shrink.
This means that the illegal market remains a pool of potential customers for the legal cannabis dealers. So companies who have been state licensed in California have a distinct advantage in the burgeoning billion-dollar market that is legal marijuana sales in California.
California currently licenses growers, manufacturers, and distributors to ensure that there is a pipeline of legal and safe marijuana available to responsible and legal consumers. Companies that have earned one or more of these licenses see themselves at a competitive advantage.
A spokesperson for Left Coast Extracts indicates that the future seems bright for a company like theirs who holds licenses for manufacture and distribution.
Knowing that we hold multiple licenses in a multi-billion dollar market experiencing 20% annual growth feels a bit like a dream. We know that the majority of our customers used to get their product illegally. They are happy to finally be above-board.
When asked about the biggest challenges they face, the answer was short Keeping up with demand and growth.
Why a robust black market is good and bad for consumers
This large black market has some structural advantages. The infrastructure that supports California's black market has existed a long time. This means that it will not be eliminated overnight.
Governor Gavin Newsom has indicated the challenges that come with facing illicit growers in northern California, many of who are backed by international drug cartels. They are getting worse, not better, Newsom recently told reporters2.
The markets thrive because of existing relationships between buyers, sellers, and growers. And because the price of illegally grown marijuana is lower, often by more than 10%, some consumers remain motivated by market economics. This has resulted in thriving black markets. Even in Colorado, one of the first states to legalize marijuana, it was estimated that about 40% of marijuana sales remained on the black market during the first full year of legalization3.
The unclear vaping landscape
One of the important growth products in the legal cannabis market were those related to vaping. The spread of legalization of marijuana has increased interest in and usage of and the introduction of cannabis to the vaping world.
Recent hospitalizations have led to a concern about the future of the product, but it is important to note that the FDA proposals left large parts of the already-regulated vaping market untouched. This is in part because vaping is still considered one of the most effective tools to help smokers break the deadly addiction to cigarettes.
So, just as the Governors of a dozen states are committed to protecting the legal marijuana market, likewise federal officials are publicly invested in making sure that the safest, most effective cigarette replacements remain on the market.
The future of legal marijuana
For now, companies like Left Coast Extracts, the first licensed manufacturer and distributor in Oceanside, CA, face one challenge attracting capital. As their spokesperson explained, As one of the fastest growing cannabis companies in California, we can't worry about the illegal market. We work every day to grow our supply chain, keep up with demand, and remain at the top of a very lucrative legal business.
Companies who have one or more licenses do indeed find themselves uniquely positioned atop a multi-billion dollar industry. The data about illegal sales actually gives this industry a window into the future that few others have they know the value of the untapped market.
And they have powerful allies. Spurred on by massive tax revenues from legal sales, governors across the nation have the work of balancing a shift from prosecuting the industry to protecting it. California is one state discussing using their national guard to take on international dealers, and legal marijuana users and dealers stand to gain from their efforts.