Overregulation May Be Helping the Illegal Marijuana Market Survive, Study Suggests

Unnecessarily strict regulations may be driving legitimate cannabis suppliers to the illegal market and keeping those already participating in the illicit industry from coming into compliance.

A new research study finds that overregulation may be harmful to the legal recreational marijuana industry, while helping to sustain a thriving illegal marijuana market.

The author of the report used data from Washington State and Colorado, two states where recreational marijuana is legal, to find several driving factors that might be causing cannabis suppliers to go to the illicit market. Those include strict regulations and the high cost of compliance in the legal market.

The researcher, Sikang Song of Portland State University, looked at specific time periods in  Colorado and Washington State to find out if illegal marijuana markets were impacted by changes in cannabis policy.

“In general, the analyses on two states’ marijuana crime rates indicate implementing more intensive regulations may be a possible explanation to the persistence of cannabis black market,” Song wrote.

Song’s findings came as a result of researching whether the number of cannabis offenses increased after the implementation of new cannabis regulation. His data was collected by using the National Incident-Based Reporting System (NIBRS), as well as analyzing the content of news articles with headlines and texts containing keywords such as “marijuana black market” or “illicit cannabis market.”

According to Song’s research, “after Washington State introduced an increasing number of intensive regulations, marijuana crime rates experienced a short-term decline while the crime trend kept growing over time. The influence of regulation intensity on marijuana crime rates is insignificant in Colorado.”

Driving Factors Sustaining the Marijuana Black Market

After analyzing the content of the news articles, three main driving factors for the persistence of the illicit cannabis market after legalization were identified in the report:

  • overly strict regulations and the cost of compliance for operating a legal cannabis business.
  • an unstable market situation.
  • lack of intention to participate in the legal system.

For the study, Nov. 2015 and Jan. 2017 were selected as intervention points for Colorado and June 2016 was selected as an intervention point for Washington State.

“These intervention points represent the month in which Colorado or Washington experienced a significant policy change that substantially increased the intensity of regulations for licensed marijuana businesses and potential licensees in two states,” Song wrote.

In conclusion, Song wrote, “overregulation can be harmful to the legal recreational marijuana market. It is possible that the desire to control the legal marijuana market via regulation is misguided. Unnecessarily strict regulations may create an environment in which operating in the illegal market may be a reasonable option for some marijuana businesses.”

While the study’s findings warned of the impact of overregulation, the author also voiced concerned for under-regulating or establishing weak regulations for the cannabis market.

“For researchers and policy makers, it is important to find a balanced point that regulations do not force marijuana businesses to seek illegal options while the level of intensity is sufficient enough to keep a well-managed legal market,” Song wrote.

The research report, “Effects of Regulation Intensity on Marijuana Black Market After Legalization” by graduate student Sikang Song of Portland State University can be found in its entirety via Portland State University’s PDXScholar.

Cannabis Business News

Check out our news page for the latest reports on cannabis news in politics, business or scientific research.