2022 was not a particularly good one for cannabis businesses in Colorado. According to the most recent numbers out of the state’s Department of Revenue, sales of legal marijuana products plummeted in that year. The steep decline is hurting small businesses most of all. Is the black market to blame?
At least one prominent industry group in Colorado thinks it is a possibility. According to the Marijuana Industry Group (MIG) “some medical patients are turning to the unregulated markets” where they can get their cannabis more cheaply. If that’s true of “some” medical patients, it is probably true of a whole lot of medical and recreational users.
Tax Revenues Are Down
So, how do we know that cannabis sales in Colorado have plummeted? Tax revenues are down. The most recent reports out of the state suggest a $100 million drop in tax revenues in 2022. As a percentage, the state’s cannabis revenues are off about 25%.
Total cannabis tax receipts in 2021 were $423 million. In 2022, the state pulled it $325 million. Revenues for November 2022 alone were off by 22% compared to the same month in 2021. The numbers are probably similar for every other month of the year. What does it all mean? It means fewer Coloradans are purchasing their cannabis from licensed sellers.
Colorado Isn’t Alone
If Colorado lawmakers are surprised by plummeting sales, they shouldn’t be. They are not alone in experiencing this phenomenon. The same thing as happened in other states as well, most notably in California, where annual reports consistently show that the illicit market outpaces the legal market.
In state after state, legalizing marijuana has not slowed down the black market. If anything, it has strengthened illicit operators in the sense that more residents are comfortable with the idea of using medical cannabis or recreational marijuana. The chances of getting caught for purchasing off the street are low, and they know they will never be prosecuted for possession and consumption. What have they got to lose?
It’s the Same Old Story
The black market might be to blame Colorado, but why? It is the same old story. Black market operators can afford to sell for much less. They do not pay for costly licenses. They do not set up compliant operations. They do not pay sales taxes.
It is a problem even in more conservative states like Utah. According to Utah medical cannabis pharmacy Beehive Farmacy, the state released a November 2022 survey with data showing that 58% of medical cannabis patients in the state admit to considering buying their medications from unregulated sellers. What is their primary motivation? Some 66% said it is affordability. Medical cannabis is just too expensive at licensed pharmacies.
Taxes and Regulation Are Killers
States obviously want their piece of the pie when legalizing marijuana. Let’s face it. marijuana is a huge revenue generator. But state after state also learns that taxes and regulation are ultimately revenue killers. Revenues explode early on, due to the novelty of state legal marijuana. But after that novelty wears off, sales plummet.
It’s far better for states to minimize taxation and regulation in order to secure long-term revenues than to levy heavy taxes and strict regulations for short-term gain. But unfortunately, too many lawmakers and regulators are shortsighted. They do not think long-term. Then it comes back to bite them.
Legal marijuana sales in Colorado are plummeting. Could the black market be to blame? Perhaps. But the black market only continues to thrive because it has a competitive edge created by regulation and taxation. Only one entity can change that: the state of Colorado.