How the illicit market thrives in opt-out towns
By Kaitlin Domangue
I’m a big believer in freedom. Personal liberty, state freedoms, national liberty: the whole shebang.
That’s why, at one point in my career, I thought “opt-out towns” were just exercising their freedoms prohibiting cannabis businesses from existing in their jurisdictions, as many take the resident’s requests into consideration before banning cannabis businesses.
But, it goes much deeper than jurisdictions exercising their rights. Opt-out towns are directly contributing to the commercialized illicit cannabis market, which is ultimately harmful to consumers and licensed businesses.
And for some – the next town over could be dozens, if not more,miles from their house. What does that mean for people who can’t travel, especially medical cannabis patients?
Local officials who ultimately make the decision to ban cannabis businesses – even if it’s at the request of local residents – are supporting illicit cannabis dealers in their towns. Period. Leafly’s newest report proves it to the skeptics.
We already know that extreme regulations contribute to a thriving illicit market. No state has shown that more than California, where more than 3,000 retailers and delivery services are operating without a permit.
There is a lot of focus on taxes, which are burdensome. But nearly 70% of cities in California ban cannabis retail.
That leaves just shy of 900 licensed dispensaries in the entire state of California. Compare this to California’s nearly-6,000 liquor stores and it makes sense why there’s such an outrage.
The effects of restricting access to legal cannabis
Cannabis businesses are banned in certain towns because officials or residents (or both) don’t want to introduce cannabis to their communities. But, you can find cannabis in every town, whether it’s legal or not.
So preventing legal cannabis businesses does not prevent the introduction of cannabis into your cities. It encourages people to continue buying from illicit sources.
The 2019 Vape Crisis is proof of that. 2,800 hospitalizations and 68 deaths occurred from tainted cannabis vape cartridges on the illicit market in the summer of 2019.
The data is undeniably clear: legal, regulated sales diminish the area’s illicit market.
In Montana, more than 400 adult-use stores were opened in 2022 and captured nearly 80% of the state’s cannabis sales – leaving a small fraction for illicit dealers. Like I mentioned in Sunday’s newsletter, there’s a market gap in New Jersey.
And this market gap impacts jobs, there should be thousands of additional cannabis jobs in New Jersey right now but there aren’t because of the limited number of cannabis businesses. This also contributes to the illicit market.
Less than 20% of New Jersey’s cannabis sales are from the legal market. Only 26 legal cannabis dispensaries were opened in the state to support more than 9 million residents. Montana has 1 million residents for 400 retail stores.
More than 3,400 square miles in Southern New Jersey are underserved by state-licensed cannabis dispensaries. 90% of the region is in an “economic protection zone” for illicit dealers, meaning the illicit cannabis market flourishes in those areas.
A resident of Yreka, California (of Siskiyou County) must drive 60 miles round-trip to purchase legal cannabis at the nearest dispensary. Only 3 towns in Siskiyou have regulated cannabis dispensaries and a customer reach of 940 miles.
This means 5,400 square miles (85% of Siskiyou County’s 6,347 square miles) are underserved by legal sources and are often forced to shop from illicit, untested sources.
Anti-cannabis people want to cry “think about the children!” when voting on cannabis legalization. And to that I say: yes, please think about the children. Think about the children and allow legal cannabis in your towns.
ID-check compliance at legal cannabis dispensaries is at or near 100%, according to independent studies and agency enforcement operations – much higher than alcohol stores.
Research has also identified a slight decrease in teen cannabis use after legalization, which I attribute to the normalization and lack of glamor associated with legal cannabis.
Banning legal cannabis operations reinforces to teens that cannabis is something to be sought after by any means necessary: even the illicit market.
“One of the things that also certainly surprised me is [that] prevalence rates of marijuana use among teenagers have been stable despite the legalization in many states,” said Nora Volkow, the director of the National Institute on Drug Abuse (NIDA).
San Bernardino County Sherrifs reported seizing and destroying nearly $800 million worth of illegal cannabis plants and products. Attaching a 1% cultivation tax, that $800 million in illicit products would have generated $8 million in recurring annual revenue for San Bernardino County.
It would have created jobs, too. And the tax revenue would have been dispersed to the local community. 2021’s tax revenue helped fund the county’s water infrastructure improvements, a crisis nursery, mental health services, and more.
Opt-out towns are doing more than just exercising their freedoms like I once believed.
These towns are supporting the local illicit cannabis dealers, circulating untested products in their communities, potentially encouraging teens to seek cannabis by any means necessary, and leaving tax revenue & jobs on the table.
And thankfully, many local ordinances are beginning to regret their decision to opt out. Paramus, New Jersey’s Mayor Richard LaBarbiera is currently working to reverse his city’s 2021 opt-out decision after seeing the potential for tax revenue.
“To say ‘no’ to this type of windfall and not pass some of those gains on to taxpayers is reckless and irresponsible. It is a wasted fiscal opportunity for Paramus,” LaBarbiera has said.
Reckless and irresponsible? I couldn’t have said it better myself.