The Illegal Marijuana Market Is Affecting The Legitimate Industry!

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

It’s difficult for legal marijuana markets to compete with the lower prices and greater availability of the black market. New York City’s “tens of thousands” of unlicensed firms are facing off against the state’s newly opened legal market, but crackdowns are starting to bring them under control. Executives in the cannabis industry are sounding the alarm while crucial federal banking reform languishes in Congress.

Legal marijuana marketplaces in the United States are being undercut by the black market, which is thriving despite a lack of banking and tax reform. It’s a problem, but New York has an even bigger one than states like Colorado, Michigan, and Washington. Licensed enterprises are missing out on “a really heavy percent of the possible market share,” as one New Frontier Data researcher put it.

There are still no open doors at any of New York’s 36 newly approved dispensaries. New York’s licensing program lags far behind the state’s savvy underground market. While recreational Marijuana use has been legal in New York for nearly two years, the state only recently began issuing permits to open dispensaries.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

According to Trivette Knowles, a press officer for the New York State Office of Cannabis Management, “these stores are posing as safe, legal entities,” but at the moment, “there are currently no licensed sales happening in the state of New York.” According to Knowles, the issue is especially challenging in the Big Apple.

There are many different places a customer can go to get cannabis, including traditional shops, mobile vendors, pop-up stores, corner stores, and even courier services. Some trade associations estimate that there are tens of thousands of unregistered enterprises in the city alone, but his administration has sent cease-and-desist letters to some of the unlicensed operators in the state.

Reiman of New Frontier Data compared the situation to “whack-a-mole,” saying that it was very similar. If one dies, “another one immediately appears.” Reiman claims her company does not keep tabs on the proliferation of illegal enterprises across the country, but that the industry is worth roughly $60 billion on a national scale based on her estimations.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

She said that only 50% of the industry was subject to legal oversight. When “dispensaries and distribution systems fairly closely match regulated markets,” it might be “extremely difficult to get individuals to migrate over,” Reiman added. According to her, unrestricted markets also expose shoppers to dangers to their health.

According to a study conducted in November and commissioned by the New York Medical Cannabis Industry Association, researchers found that 40% of cannabis products sampled from 20 illegal businesses in New York City included dangerous pollutants like E. coli, lead, and salmonella. New York City has begun taking further measures in addition to sending out cease-and-desist letters.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

More than $4 million in unlawfully traded goods were seized in December, Mayor Eric Adams said. Over 500 criminal and civil summonses were issued by his office during a two-week pilot program with other law enforcement authorities. We will not allow unlicensed businesses to exploit the economic benefits of legal cannabis, the mayor declared during a press conference.

Banking Reform on Hold

The Secure and Fair Enforcement Banking Act (SAFE) has now stalled in Congress for the third time this year after being left out of a $1.7 trillion spending plan. The law was intended to strengthen the legal cannabis market by granting access to conventional banking services for legally operating enterprises. Since cannabis is still a Schedule I narcotic under federal law, banks and credit unions fear federal prosecution and penalties if they provide services to legal cannabis firms.

The Drug Enforcement Administration classifies medications as Schedule I if they have no recognized medicinal value and a high potential for misuse. Businesses that deal in legal Marijuana are limited to a cash-only strategy because they cannot use regular banking services such as loans or funding. “This is a loss for law-abiding businesses and a victory for the black market,” said Boris Jordan, co-founder and executive chairman of Curaleaf.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

As Jordan put it, “the entire industry will be impacted.” There is some support for the SAFE Act on both sides of the aisle, but in order to pass, it will need to be reintroduced during the next congressional session, when the Republicans will be in charge of the House. The future is “pretty uncertain given the changing political composition of the chambers,” according to executives like Sunburn Cannabis CEO Brady Cobb.

Sticker shock

Jason Klimek, a tax attorney who specializes in the cannabis industry, said that consumers often buy weed on the black market since it is less expensive there. He is the head of the Tax Committee for the Cannabis Law Section of the New York State Bar Association and has assisted a number of cannabis businesses. High state and federal taxes, as predicted by Klimek in his study on New York’s cannabis taxes, will certainly double the price of legal cannabis in the state.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

He predicted that purchasers would experience “sticker shock” at the high price of legal weed in New York because it would “make legal adult usage of cannabis that much more expensive than the illicit market.” It does not need to look further than California, he added; the state’s legal profession is still struggling with issues including high taxes and competition from unlicensed businesses six years after it first opened.

The illegal market is booming in California, he claimed, while the legal sector is collapsing because of the state’s stricter regulations and higher tax rates. They were simply outmatched. In July, Gov. Gavin Newsom threw a lifeline to small cultivators by slashing the state’s cultivation tax. However, the adoption of the regulated market is still hampered by high taxes.

There is a 15% excise tax, 7.25% state sales tax, and an additional 15% in local taxes added to the price of all Marijuana purchased in California. According to Lindsay Robinson, executive director of the California Cannabis Industry Association, “although raising money from the legal side is a key component of the present legal paradigm, we also have to balance that with smart laws and realistic tax structures.”

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

Revenue from marijuana taxes in California was over $1.2 billion in 2021, as reported by the Motley Fool. Sixty percent of the funds go toward youth-focused anti-drug initiatives, 20 percent toward green initiatives, and 20 percent toward public safety. Robinson is concerned that legitimate firms in California will be “taxed out of existence” under the state’s present tax system.

Retail sales tax on marijuana in New York is expected to be 13%, with an additional tax dependent on the concentration of the drug’s psychoactive ingredient, tetrahydrocannabinol, or THC. According to Klimek, this tax structure may need to be revised so that store pricing does not scare away customers if New York is to create the prosperous, egalitarian legal market it planned.

The Illegal Marijuana Market Is Affecting The Legitimate Industry.

The Office of Cannabis Management in New York agrees with his suggestion that the state should bring previously illegal businesses into the new legal framework. The OCM spokesperson, Knowles, acknowledged that persons with previous sales experience typically have strong entrepreneurial abilities applicable to the company’s target market. We have always argued in favor of giving people who have had to engage in illegal sales the chance to do so legally in the future.

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