Jul 12

A look inside the black market for weed shows the huge threat to legal businesses

KEY POINTS

  • An underground economy is cutting into the profits of legal cannabis businesses.
  • The illegal market in cannabis totals about $70 billion nationwide, seven times the legal market, according to New Frontier Data
  • So far in 2019, the LAPD has arrested 277 people in connection with raids at unlicensed cannabis businesses with a total of 562 arrests last year.
  • A team of CNBC producers carrying hidden cameras visited 10 illegal cannabis dispensaries across Los Angeles, and captured illegal activity inside, which authorities say is a significant problem.

LOS ANGELES -The parking lot outside a stark-looking dispensary on a busy Los Angeles street is almost full on a weekday afternoon. Inside, jars of weed line the shelves behind a counter and colorful signs show prices. But if everything looks normal, it isn’t.

The dispensary is part of a booming black market.

“The black market is a huge problem,” said Patricia Heer, an attorney and founder of Cannabis Law Digest. “In some states, it’s between 70% and 80% of sales.”

Many saw legalization of marijuana as a huge economic opportunity, but the reality is its potential isn’t fully realized. An underground economy is cutting into the profits of legal businesses. New Frontier Data, a Denver-based company that studies cannabis trends, estimates there are $70 billion in illegal sales nationally — seven times the size of the legal market. This means the legal market is “capturing only a fraction of total demand,” the company said in a summary of U.S. cannabis demand trends released this month.

In California, early projections anticipated annual cannabis tax receipts of more than $1 billion by 2018. But those predictions were far off, with $345 million actually collected last year, according to the state’s legislative analyst’s office and tax records. The black market is widely cited as a major reason for the lower numbers.

View Article