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COVID-19 ISO Insights

The Latest on COVID-19's Impacts on the Cannabis Market

September 21, 2020

By: David Geller, CPCU, SCLA

In the past year, we have posted how, despite various states legalizing marijuana in some capacity, the marijuana black market has continued to contribute to different issues, such as the distribution of potentially harmful vaping products and major explosions through illegal extraction processes.

Refresher on the Marijuana Black Market

The black market for marijuana products continues to be robust, even in states where some marijuana use is permitted.

Perhaps no state where marijuana use is permitted has been contending with as prevalent a marijuana black market than in California. In 2019, NBC News reported that the number of illicit sellers of marijuana (2,835) in California nearly triples the volume of licensed stores (873) operating in the state.

With availability of legal products, why has the black market been flourishing in California? Politico points to the state’s tax structure as one possible reason. According to the article, California charges a 15% excise tax on top of the state’s 7.25% sales tax, as well as a variety of other taxes set on cannabis flowers, leaves, and plants. A separate Politico article notes that this leads to unregulated products being 40-50% cheaper then their regulated counterparts.

However, despite all of this, it appears that different dynamics caused by the COVID-19 outbreak may have compelled more marijuana consumers to buy from legal sources.

What Happened?

According to Politico, perhaps more concerned about their own health in terms of the product they purchase, as well as avoiding contact with dealers of illegal products, customers have preferred to buy their products legally during the COVID-19 pandemic.

In general, early numbers reportedly indicate that marijuana sales at permitted locations have been surging in multiple states. Politico cites statistics from New Frontier Data which indicates that revenues are expected to increase by 25% from 2019. In Oregon, for example, legal marijuana revenues were $70 million the first two months of the year, spiking to $100 million in May and June.

Politico also notes that in Florida, the state’s biggest marijuana retailer had to double their delivery fleet to keep up with demand. Additionally, the Sunshine State has also reportedly experienced a surge in registrations of medical marijuana patients: per the article, 50,000 patients have registered since March 2020.

Could Impacts from COVID-19 Outbreak Push More States to Legalize Marijuana?

Looking ahead, there is also reportedly a growing train of thought that U.S. states, with their coffers taking a significant hit due to the economic impacts of COVID-19, may be more receptive to legalizing marijuana to increase their tax revenue. For example, the governor of Pennsylvania, according to CNN, is advocating for the legalization of marijuana as part of the state’s economic recovery plan.

A CEO of dispensaries that operate in different U.S. states opined to Politico that there are some parallels between the lifting of alcohol prohibition after the Great Depression, and marijuana legalization subsequent to the current economic issues many state governments are reportedly facing due to the COVID-19 crisis.

If more legalization is on the horizon (see this page here for the status of different initiatives that may be on the ballot this November), then the populations facing cannabis risks will continue to grow. Check out our Marijuana topic page that features background info and posts pertaining to these risks.

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