Illicit Cannabis is Cannibalizing the Regulated Market

Recent headlines from across the country make one thing clear about cannabis: The illicit market is booming and everyone from consumers to regulators to licensed cannabis operators, big and small, is paying the price for it.

When Colorado and Washington became the first states to legalize cannabis for adult use in 2012, they did so because the federal government wasn’t keeping up with the times, leaving states to fill the void. Since then, a seismic shift in attitudes toward cannabis has led 21 states to legalize “recreational” adult use of cannabis. An overwhelming 88% of U.S. adults say marijuana should be legal for medical use, and 59% say it should be legal for adult recreational use; just 10% say marijuana use should be illegal. 

Legal adult-use and medical-cannabis sales in the U.S. are expected to reach $33 billion this year. But for anyone paying close attention, the true picture is murky. Federal and state policymakers are permitting the illicit market to consume a regulated and taxed industry.

To understand how we got here, it’s worth recounting the challenges that states, advocates and entrepreneurs encountered when legalization first became a priority. States had to take on two tasks. First, states had to decriminalize the sale of unregulated cannabis to end the senseless victimization and incarceration of far too many individuals during the War on Drugs. Second, states had to swiftly create a novel regulatory framework for legal cannabis. Done right, a thriving legal cannabis industry would yield safer products for consumers, thousands of good-paying local jobs, and a multibillion-dollar windfall in tax revenue. 

Unfortunately, far too many states have yet to figure out how to build a well-regulated legal cannabis market, which means illicit cannabis sales are thriving, accounting for an increasing loss of the jobs, product sales and tax revenue that voters were promised when cannabis was legalized. In fact, over the past few years, we have seen repeated cases of states’ best-laid-plans gone to waste, often stemming from inaction in approving business licenses for cannabis entrepreneurs. Exacerbating the issue is lack of enforcement of illicit cannabis sales. 

This slow pace of action has begun to create environments in which brazen scofflaws sell untested, untaxed and potentially unsafe products to consumers in storefronts on Main Streets across the country. 

As the CEO of the nation’s leading multi-state operator, I’ve had a front-row seat to the peaks and valleys of this decade-plus journey. We are at a critical low point. In the past six months, we’ve had to cut over 200 jobs across several states and close most of our locations in California, Oregon and Colorado — three states that legalized cannabis but failed to control the illicit market.

New York’s nascent legalized cannabis program is the latest example of good intentions falling flat. Despite having provisionally approved 165 retail dispensary licenses, just six are currently operating, while an estimated 1,500 illegal shops openly sell cannabis products to the public with no oversight from the state Office of Cannabis Management. 

New York is far from the only state haunted by these issues. Nationwide, 75% of the $100 billion U.S. cannabis market was generated through illegal sales in 2022. In California, 55% of the state’s cannabis purchases were made through the illicit market, costing the state an estimated $1.3 billion in lost tax revenue.

The good news is that although the problems are manifold, solutions are within reach.

First, states must move quicker in licensing cannabis cultivators, distributors and retailers. Even a small investment in resources to the agencies responsible for approving applications would pay dividends in the long run by bringing more businesses, entrepreneurs and social equity applicants into the regulated fold. 

Second, states should leverage civil regulatory authority to crack down on storefront sales of illicit cannabis. Now that there is a legitimate path for an entire generation of cannabis entrepreneurs to establish licensed businesses, those selling unregulated, unsafe and untaxed cannabis must be held accountable, civilly, by the same regulatory bodies responsible for building a thriving legal market. 

Out West, Nevada and Arizona have set a positive example for how to control illicit cannabis sales while growing the legal market. As a result, an estimated 74% of cannabis products in Nevada and 55% in Arizona are sold through legal channels. Elsewhere, in Illinois, since legalizing cannabis in 2019, regulators worked quickly to license hundreds of cultivation, transportation and retail businesses. As a result, the state collected more tax revenue from cannabis sales — $445.3 million in 2022 — than alcohol. 

But until states improve the regulatory frameworks surrounding cannabis, legal cannabis businesses of every size will continue to struggle as our top competition — the unregulated illicit market — continues to thrive unchecked, selling products with no apparent regard for health and safety standards, no protections for their workers, and no reservations about selling to minors.

To create a truly thriving — and above all, safe and legal — cannabis industry, states must tip the scales toward more robust licensing of vetted entrepreneurs and stronger civil enforcement of actors operating outside the regulated market.

Matt Darin is CEO of Curaleaf, which operates 152 retail dispensaries and 28 cultivation sites in 19 states, accounting for over 5,500 jobs across the country.