Retail shops that start legally selling cannabis products this summer in Massachusetts will likely find themselves going head-to-head with a formidable and long-established competitor — the black market.
Advocates of adult-use marijuana, known also as recreational marijuana, have long argued legalization could help eradicate the illicit trade. But how quickly — and, if at all — that happens is still being debated and measured throughout the country. In Massachusetts, the question will be put to the test in the months and years after commercial sales begin July 1.
“Some states have handled this better than others,” said Kris Krane, president of 4Front Ventures, a Boston-based holding company of Mission Massachusetts Inc.
Mission has plans in July to open a medical-marijuana dispensary in Worcester and is eyeing another in Adams. The company is trying to set up a third location in Burlington, but has so far been unsuccessful because of local pushback. Burlington is one of at least 74 municipalities to ban adult-use sales at the local level.
Mission also does business in Illinois, Maryland and Pennsylvania and recently started the application process for an adult-use license in Massachusetts. Krane said he’s confident commercial sales will help get rid of the black market, but encourages local and state officials to be patient in the early days as the market establishes itself.
“It’s not a matter of whether it eliminates the black market, it’s more a matter of how long it takes,” he said.
The issue in part, he added, is tied to how quickly the legal market can bring down prices to a level competitive with the black market. In the beginning, the supply of legal cannabis products will most likely be scant, as the burgeoning grow market, known also as cultivators, simultaneously becomes established.
At the same time, commercial sales will be taxed at about 20 percent. Added all together, consumers should initially expect to see relatively expensive costs, Krane said.
A similar trend has played out in other states where recreational marijuana is legal. In Oregon, an eighth of an ounce of marijuana sells on the black market for $25 to $30, according to Krane, which made it difficult at first for retailers to compete in the early days of legalization, as legal commercial prices were about double.
But after more cultivators started doing business there, and supply subsequently grew, prices dropped and became more competitive.
Once cost is no longer an incentive for consumers to buy from the black market, the illicit trade starts to disappear, Kane said. The trend should play out in Massachusetts, he added.
“In the early days in Massachusetts, I think you’re going to see $60 to $70 eighths because there’s going to be so little of it,” he said.
Local law officials, however, don’t share the enthusiasm of advocates that commercial sales will help stamp out the black market. Conversely, a so-called “gray market” has flourished since voters approved adult-use marijuana by referendum in 2016, according to Walpole Police Chief John Carmichael.
The police chief was appointed by Massachusetts Gov. Charlie Baker, a Republican, to serve on the 25-member state Cannabis Advisory Board, and has visited Colorado, where he met with fellow law enforcement agents to glean what trends he should look to emerge in the Bay State.
The gray market, he explained, is the cropping up of illegal businesses that sell cannabis products under the guise of it being legal. The trade plays out brazenly on the internet.
Indeed, a quick Craigslist.com search using cannabis-related keywords, including “cannabis,” “marijuana,” “shatter” and “dabs,” yields multiple results for unregulated sales and delivery services throughout the state, both currently illegal under state law.
The unregulated sales, fueled largely by home-grown operations where residents are legally allowed to cultivate up to 12 plants per household, are difficult to police and thus breathe life into the black market, Carmichael said.
He predicts the cottage industry to grow and expand to interstate sales with neighboring states where the recreational industry is illegal, a trend Carmichael said is playing out in Colorado and other West Coast states.
“The legal sale of marijuana doesn’t get rid of the illicit market. It doesn’t even make a dent. It makes it a lot worse,” Carmichael said. “I think we’ll see Massachusetts become the Colorado of the East Coast.”
The state is banking on consumers choosing the legal market, estimating recreational marijuana sales will generate $63 million in revenue during the fiscal year beginning July 1, according to the Massachusetts Department of Revenue.
Steve Hoffman, chairman of the Mass. Cannabis Control Commission, said he’s hopeful the commission’s regulatory and safety requirements of the legal market will also appeal to consumers.
“The commission has implemented careful regulations so buyers will have the information they need on mandatory packaging and labeling about the potency, chemical content and testing of the products they purchase,” Hoffman said. “These provisions will provide the public confidence that they are consuming safe products, which I hope, will drive them to the legal market first.”
