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Illegal cannabis is massively undermining the legal market: who’s to blame? Let’s Ask Congress – Cresco Labs (OTC:CRLBF), Canopy Gvth (NASDAK:CGC)

Cannabis companies have been ready to launch their products for several years, actually eating a little bit. Cannabis consumers are willing to buy their products even longer, but they are tired of waiting and have turned to the illegal market.

When cannabis became legal in Colorado and Washington in 2012, then in Oregon and later in the 39 states that have become legal, people flocked to local shops and dispensaries and waited in line for hours. But as the years have passed and legal marijuana has been heavily taxed and subject to patchwork of state regulations, those who once lined up are buying from legacy vendors who sell their products as they have for the past five decades.

No way to treat a billion dollar industry

Legal cannabis companies rightly complain that the unregulated market undermines the legal market, which also has the disadvantage of still being considered illegal under federal law. One of the harshest results of this US policy, which has been in place since the Controlled Substances Act (CSA) of 1970, is that state-owned businesses lack access to credit, capital, bank accounts, and tax reform, to name a few barriers.

Congress has regularly rejected initiatives to reform cannabis banking over the past few years. The latest was a last ditch effort by Senate leader Chuck Schumer et al. who was hoping for a Christmas miracle: the inclusion of the Safe and Fair Banking Act (SAFE) in the $1.7 trillion funding bill. That didn’t happen.

“This is, unfortunately, a victory for the illegal market, which pays no taxes and has no regulations or safety checks,” said Boris Jordan, co-founder and executive chairman of Curaleaf THE GIRL CURLFadding that the entire industry will suffer as a result.

Jordan got it right. Cannabis stocks fell significantly after SAFE was thrown out, pushing the sector further away from its 2018-2019 peak. The biggest losers in the days following the disappointing outcome in Congress were Cresco Labs CRLBF (- 5.6%), Green thumb GTBIF (-25.28%), Tilray TLRI (-19.6%) and crown growth CGC (-17.44%).

Amanda Reiman of the data, analytics and technology company New Frontier Data confirmed that the illegal sale of cannabis “takes up a fairly large percentage of the potential market share,” according to VNBC.
Take New York City, for example, where none of its 36 newly licensed dispensaries have yet opened, although one is expected to open on December 29.

New York farmers who have dutifully grown thousands of pounds of weed to supply what’s expected to be one of the nation’s largest cannabis markets are watching their crops grow moldy as old-time weed vendors transport their wares via delivery trucks, bicycles and even and pop-up stores.

Despite letters from the New York Office of Cannabis Management to unlicensed operators, it just won’t go away. Some say there are tens of thousands of illegal businesses in the Big Apple alone.

Although New Frontier doesn’t track data on illegal cannabis companies across the U.S., Reiman estimates the marijuana black market is worth about $60 billion. The legally regulated industry is only half of it, she noted.

Rep. Ed Perlmutter (D-CO), a key sponsor of the Safe Banking Act, Sen. Sherrod Brown (D-OH) and Sen. Jeff Merkley (D-OR) are among the lawmakers who said they will continue to push to pass banking reform. Although at this point the clock is almost up and the political makeup of the upcoming Congress may be no more amenable to cannabis banking reforms than the current one.

Photo: Kindel Media and Paula Nardini, Pekels

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