5 Legalization of Marijuana and Its Effects on Licit and Illicit Markets in the United States

-by Adeline Dixon

In 2016, a 22-year-old woman was charged with manslaughter for killing a man and one of his twin daughters in a car crash while high on legally-purchased marijuana.[i]  Amendment 64, an amendment to legalize the purchase of marijuana for recreational use, was approved by voters in November 2012 in Colorado and Washington.[ii] These were the first states in the United States to allow marijuana to be purchased and consumed for any use. Although marijuana has been legalized in many states in America, the black market for the drug remains, and the licit and illicit marijuana markets are creating a positive feedback loop where both markets are increasing the other’s size and power.

Although many people believe marijuana is dangerous, multiple states have legalized it for recreation use. Marijuana is currently classified as a schedule 1 drug on the federal level, putting it in the same category as heroin.[iii] So why did legislation legalize marijuana in certain states in the first place? The legalization of marijuana was passed simply because voters wanted it. Fifty-five percent of voters wanted to legalize recreational marijuana in Colorado. [iv] Voters wanted legalization so the consumption of the drug could be taxed, its quality regulated, and associated gang violence decreased.

For the selling of marijuana to collect taxes, legislators had to find a balance between a high enough tax to make money, and a low enough tax for people to leave the black market. Currently, in Colorado, the tax on marijuana includes a 15 percent excise tax on the sale of marijuana from a cultivator to a retailer and a 15 percent sales tax on retail sales to customers.[v] This is enough for the state to make money, but voters want to slowly increase tax rates. If they do it too quickly, the black markets will still thrive because the price of illegal marijuana will be much lower. If they slowly increase the rate, the black markets will fade out of the economy and the legal market will be much more prevalent.

Legalization has had a positive effect for consumers as well. The legalization of marijuana has led to improved quality and safety regulations and a decrease in drug-related gang violence, and it allows for law enforcement to focus on more violent crimes.[vi] Marijuana has been known to be laced with different harmful drugs. If the selling of marijuana is regulated by the state, consumers know what they are getting in their product. A study published in Addiction shows that consumers are willing to pay a premium for regulated marijuana.[vii]

Legalization also leads to a decreased rate in gangs committing violent crimes. Violent crimes in states where marijuana was legalized have dropped 12.5%. Gangs are usually associated with illegal drugs, and legalization has decreased the number of gangs and frees victims of gang violence to turn to the police.[viii] Lastly, marijuana legalization will decrease the number of incriminated Americans. Before legalization, marijuana arrests made up 52 percent of all drug arrests in the country.[ix]  By legalizing marijuana, citizens will no longer be incriminated for small amounts of marijuana.

Even though marijuana was approved by voters, it is not without consequences. Negative effects of the legalization of marijuana include more fatal car crashes where the driver tested positive for marijuana, homelessness levels have increased, and there has been a spike in teen usage of marijuana.[x] Driving drunk has always been dangerous, and driving high has the same risks. Currently, detecting smoking in drivers is especially difficult because the level of impairment is different for different people.[xi] Since legalization of marijuana, the homelessness rates in Colorado have surpassed all other states. Employees at homeless shelters attribute this to the availability of marijuana at these facilities.[xii] Finally, with the legalization of marijuana comes the increased risk for teenagers to obtain the drug. Marijuana is especially damaging to teens because the chemical makeup of marijuana affects white matter in the brain, leading to lower performance rates on neurocognitive tests.[xiii] Since most neurons in the brain are incapable of going through mitosis to replicate, when a neuron is damaged, it cannot be repaired. Although the overall levels of marijuana consumption have increased since the legalization of marijuana, that shouldn’t be the only factor to vote against it.[xiv]

To try to understand the long-term effects of legalizing marijuana, we can analyze other countries that have already done so. Portugal legalized many drugs, including marijuana, in 2001. [xv] In the first few years they experienced a spike in drug usage, but it eventually decreased. Newly legalized drugs attract people who are more willing to try them absent legal risk. If America follows the same path as Portugal, the spike in teen and adult usage of marijuana should be temporary. By legalizing marijuana, eventually the level of consumption will decrease to levels significantly lower than consumption before legalization. If this is the case, if voters want to see lower marijuana consumption rates in the long run, it might be wise to support legalization.

One of the main goals of legalizing marijuana was to reduce black markets for marijuana. Black markets, however, actually persist even in states where the drug is legalized. In some states, such as California, the black market for marijuana has actually increased.[xvi] One major problem with the presence of illegal markets in a state where marijuana is legalized is that law enforcement has no way of knowing where the consumer purchased the marijuana. This ambiguity in a products origin has allowed for illegal farms to thrive by offering a lower price than the premium rate of legalized marijuana. Another major concern is that since marijuana is currently illegal on the federal level, there is not a nationwide set of regulations to control the quality of the marijuana that is being produced. The differences in the tax prices and regulations between California and Colorado entice individuals to cross state borders to get a better deal on the drug or make it easier to sell.[xvii] Individuals can produce marijuana that follows the regulations for one state but not the other and sell it in the latter state.

On the production side, growers are not very willing to legalize their farms. With many regulated, legal farms popping up across the countryside in legalized marijuana states, farms selling illegal marijuana can blend in.[xviii] If they can avoid detection by law enforcement, they are unlikely to go through the process of legalizing their farms. Another reason to avoid legalizing their farm is because it requires much more time and labor to uphold the regulations. For example, every plant that is 8 inches or taller needs to have a bar-coded tag attached to it.[xix] Marijuana farmers do not want to spend more time and money to uphold regulations especially if they can easily escape detection. Even some registered farms still commit fraud. There is currently a limit to how large a marijuana farm can be (although there is now a loophole in California policy[xx]) and many farmers will only register the maximum limit, while not regulating the rest.[xxi] This shows that no matter how regulated marijuana sales can be, individuals will find loopholes to make more money, preventing complete the black markets’ complete disappearance.

Even though marijuana was legalized, many consumers will not immediately abandon their old habits. Many consumers still purchase marijuana from their pre-legalization dealer if there have been no prior problems.[xxii] Customers often remain loyal to their dealer, especially since the price of black market marijuana is considerably less than it is from the state. If a dealer is still making money, he or she will continue getting marijuana from an illegal source, preventing the black market’s fading away. Many clients will also continue going to a dealer because marijuana has a stigma and is not permitting by certain jobs. A drug dealer who spoke to CBC News said his role hasn’t changed since legalization because he caters to clients who do not want to be seen going into a dispensary.[xxiii] He caters to a nurse and a truck driver who are prohibited from using marijuana because of their job. If they were reported as going into a dispensary, they risk losing their job. Because of this and similar situations, black markets still persist even when the state allows the sale of marijuana. Although discovering the exact impact of the black market in these states is difficult, Kenny Morrison, president of the California Cannabis Manufacturers Association, estimates that the black market for marijuana is about five times as large as the legal market in California.[xxiv] This is likely to be similar to other states since they legalized marijuana around the same time with similar regulations.

Currently 30 states allow for the distribution of medical marijuana and 9 states, including Washington D.C., have legalized marijuana for recreational purposes.[xxv] That still leaves residents of 20 states with no way to obtain legal medical marijuana and 41 with no recreational market. There is still marijuana consumption in these states, meaning a black market is supplying these individuals. The legalization of marijuana for any use in certain states has made obtaining marijuana easier even in the 41 other states. It is much simpler to cross a state border than it is to smuggle marijuana through country borders. Currently, federal law prohibits transporting any illegal substance across state line, and since marijuana is still illegal on the federal level, it is a federal offense to move marijuana across state lines, even if both states have legalized marijuana.[xxvi] But as there is no border control between states, catching someone smuggling past state lines rarely occurs, so due to the decreased risk of being caught, drug dealers move marijuana across state lines instead of from different countries. Dealers travel to other states also because the marijuana is cheaper there given the increased supply where legalization has passed.

The legal market and the illicit market thrive off of each other, creating a positive feedback loop with no indication of slowing down. The markets in legalized states are essentially fueling the black market in non-legalized states.[xxvii] The relationship leads to increased black market presence in non-legalized states, and also in legalized states. Black markets thrive when  demand for a product is not met by the legal market. Differences in regulations across states motivate participants in the market to smuggle marijuana across state borders. Legalization of marijuana has actually increased the black markets in surrounding states because access is far easier than before marijuana was legalized.[xxviii]

Currently, black markets in the United States for marijuana thrive due to the imbalance of regulations across the country. If legalization were to occur on a federal level, black markets would not disappear. Black markets will thrive as long as they are making money. Since a goal of legalization is to make money off taxes, illicit markets will persist because their product is cheaper. If taxes increase gradually, however, more black markets will likely be eliminated  because consumers are willing to pay a premium for safer marijuana.

Marijuana legalization has had many effects on markets and the overall well-being of citizens in legalization and non-legalization states. Most legalization states have had negative short-term effects, but hope remains for a positive future impact. Although legalization has allowed for more consumers to obtain marijuana, black markets persist to avoid stigmas and punishment. Legalization has even increased accessibility to those outside of legalized states. The legalization of marijuana in just a few states has changed America, its citizens, and the marijuana black market across the country.