You’ve seen the headlines: “Massachusetts legal pot sales sparking illicit marijuana market” and “Black market pot sales booming in wake of legalization: Cops” and “Legal marijuana didn’t end black market elsewhere. What can Michigan learn?”

One thing you can note about all these news stories: the evidence for the black market is anecdotal.

There are, of course, multiple reasons for the success of illegal sellers. For example, there is a shortage of legal cannabis in Michigan. The slow regulatory process of approving legal growers plays a role. But, let’s take those accounts on face value. Is the persistence of a “black” market evidence that cannabis legalization is failing? First, we have to look at how estimates of the size of the black market are made; then we can look at factors responsible for the illegal market and reflective of it. Finally, we can consider what happened at the end of alcohol prohibition.

Estimating the Illegal Market

I was able to connect with Dr. Adam Darnell of the Washington State Institute for Public Policy.  The best estimates of the illegal market for cannabis are from the RAND and BOTEC (Back of the Envelope Calculation) corporations.  These groups start with an estimate of the total cannabis market. How much cannabis is totally consumed based how many users, how many days, and how much cannabis is consumed per day. The amount of cannabis sold on the legal market is subtracted from this total amount, and the difference is the illegal market.

Alternative Methods

Dr. Darnell also suggests various other means of estimating the size of the illicit market. These include using the amount of cannabis the Post Office seizes, as well as that seized in vehicle searches, growing outdoors, or at the border. The amount destroyed in the DEA’s Domestic Cannabis Eradication/Suppression Program. All of these methods might provide a consistent view of the illicit market for cannabis. But tracking down these data can be very difficult.

Teens and Prohibition

Having a good estimate of the size of the illegal cannabis market would potentially be very useful.  Estimating how much tax money the government is losing is important. Also, teens use the illicit market now.  Attacking the black market for cannabis should make it harder for teens to obtain. In fact, this is exactly what happened when alcohol prohibition ended in 1933—for a while, it was harder to get a drink after alcohol sales were legalized. The government structure for approving and overseeing liquor sales took time to establish. And you couldn’t just bribe the local cop like before.

Cannabis researchers found the same result in Washington, Oregon and Colorado following cannabis legalization. I attended a conference on cannabis research a couple of years ago at the WSU Medical School in Spokane. Researchers reported that teens found it was harder to find cannabis than it had been before legalization. More recent studies also find that teen use of cannabis has either stayed the same or gone down. A little over a year ago, researchers reported that in Colorado, adolescent use of cannabis was the lowest it had been in ten years.

Setting the Tax Rate is Key

So, it’s hard to get a really reliable estimate of the illegal market for cannabis. We can use surveys of teen use as an indicator of what is going on in the illegal market. Teen use of cannabis has stayed roughly the same following legalization. This suggests that the black market is still operating at a fairly strong level.  But, there was a persistent black market in liquor sales after Prohibition ended. We should not be surprised that there is a similar period for legal cannabis sales. The persistence of the Black Market is not a reason to dry “Failure!” Setting the correct tax level, as Connecticut and Michigan are figuring out now, is essential.