In California, the legal medicinal cannabis market has over one billion dollars in annual revenues, which is only one third to one fifth of the size of the total market reports economics blog Priceonomics, adding:
Even in states where recreational marijuana is legal, the black market remains strong. The government of Colorado (the U.S. state with the most developed recreational marijuana market) estimates that only 60% of marijuana consumed in the state was purchased legally.
If you are willing to disobey the law, there is a financial incentive to head to the black market. Though savings vary by geography, residents in most states can save at least 10% by purchasing marijuana illegally.
We calculated the average price of street marijuana from online websites, and we found that the incentive to hit the black market is greatest in California. By our estimates, buying marijuana on the black market saves consumers 27%—more than double the percentage savings in any other state.
The price gap between legal and black market marijuana in California is largely driven by huge differences in the northern part of the state. In northern California cities like Sacramento (65%), Oakland (49%), San Jose (45%) and San Francisco (31%), savings from the black market are larger than they are in major cities in the south like Los Angeles (14%) and San Diego (29%). This is primarily driven by the low cost of black market marijuana in the northern part of the state, rather than higher legal prices.
Priceonomics predicts that prices at legal dispensaries won’t be low enough to completely keep marijuana users from the black market. This puts additional pressure on policy makers as they set taxing and regulation policies as well as on participants in the legal cannabis industry to create incentives for their consumers to purchase their products instead of the illegal market (e.g., quality, testing, packaging, branding, etc.). For example, would a typical beer or wine consumer purchase a black market spirit just because it was a few dollars cheaper? Not likely, but marijuana companies have a long way to go to create the type of consumer relationship where consumers will pay more for a legal product.