The Black Market
I am a cannabis farmer.
The story of how I became involved in the cannabis industry is one for which I am immensely grateful. The journey landed me as the founder and CEO of Grasshopper Farms, one of the larger single-season outdoor cannabis farms in the state of Michigan. We also tackled one of the harder aspects of outdoor cannabis farming - premium sun-grown cannabis. There is nothing easy about farming and there is nothing easy about producing premium outdoor flower.
Throughout my time in cannabis (and for decades before), I have watched the dynamics of legalization in the United States market, state by state. But, it wasn’t until I founded Grasshopper Farms did I start to truly appreciate the business and regulatory differences in each state, and their impact on the cannabis black market.
There have been countless articles and news segments discussing the black market. I don’t mean to oversimplify the topic, but perhaps it is less complicated or ambiguous than we might think or understand. To me, the black market is a product of supply of items that are either not available or inaccessible due to the cost to the consumer.
Accessibility to cannabis has been changing at an explosive rate. Cannabis is now medically available in 37 states and available to adults 21 years and older in 21 states, without a prescription. So, we can start to see that accessibility is a factor that is quickly fading. Although, not all people understand the legality in their state and then how to leverage the system in their state. So, to that end, there is still accessibility from a perspective of understanding the local rules and regulations. This, however, is quickly becoming less of a factor.
Accessibility has another arm that isn’t highlighted as often and I have rarely seen it covered as a dynamic of the black market - new state programs with an extreme imbalance of supply and demand.
Everyone knows that a newly legalized state will have an extreme imbalance of supply and demand in the first one to three years.
It’s actually a pretty simple dynamic. The program is approved by voters. The regulations are written. The licenses are awarded. Retail is the easiest entity to build, and thus enters the market first. Process manufacturers (also known as the extractors) need biomass (plant material) to make their products. Which leaves the responsibility on cultivators. The majority of cultivators will start with indoor grow facilities. Others will build greenhouses. And most will avoid the harder type of growing, outdoor farming. Some will aspire to outdoor farming, which some states are still struggling to understand and approve. All of these cultivation disciplines take a lot of time to become operational. And all of these growing facilities take even longer to go through what is known as a “dialing in” period.
That leaves the market starved from a demand perspective.
This dynamic creates an unfortunate scenario in which local licensed businesses are enticed by illegal product being supplied from an illegal grow within the state or an illegal grow from another state.
The second aspect to the black market is the cost to the consumer. That cost works its way backwards all the way to the supplier. Or, maybe more accurately stated, the cost to the supplier works its way to the consumer. This is largely attributed to the regulatory environment of the state - which usually comes down to taxation. While California is a mature state (26 years having legalized medicinal cannabis and 6 years having legalized adult use cannabis) the state is severely challenged. Businesses there are finding themselves having an extremely hard time running a viable business (financially) and are going out of business and/or having expensive prices at the retail level. So, someone can still consider the price on the black market. While illegal, this is a real issue in a time when the price of everything is weighing on most citizens in the United States. On top of that, consider that California is one of the most expensive places to live, and we start to understand (even if we don’t agree with making an illegal decision) of the black market purchase.
Our farm is in Michigan. The market in Michigan dropped severely in November of 2021. Up until that time, there was a lot of black market activity.
Don’t get me wrong, there still is. But, it is less than other states. Why? Because the cost of cannabis products in retail stores is very competitive (and in most cases) less than the black market is charging.
So, what happened to the black market suppliers from Michigan and outside of Michigan? They started sending product to New York, where the market is new and the regulations are still young and confusing.
How do I know this? Everyone in this industry knows. This industry has an incredible communication network. You don’t have to do a lot of looking. You just need to talk to operators and check their facts.
So what do we do about the black market? Well, first let’s make sure we understand the black market is not unique to cannabis. The black market has everything any commercial market has, as well as the illegal markets as well. Secondly, the black market is a business like any other. Accessibility can be addressed by issuing cultivation licenses first (like New Jersey tried to do) and then issuing manufacturing and retail licenses after those cultivation businesses are operational and in a window to provide supply. Price is perhaps not as complicated as we might think it is. States need to think of cannabis as a new enduring industry. It cannot be regulated with exorbitant taxation to do all of these fantastic state programs solely from this previously elicit product. This is a plant-based commodity and should be treated as such.
If we work on these two aspects, accessibility and price, then we will see the black market focus on other areas with better margins. But, make no mistake about it, the black market will always exist. We just need to manage it better.
