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More than a year after Maryland legalized recreational cannabis, the state’s illicit market remains active. The transition from medical-only to adult-use retailers, facilitated by a ballot referendum, was designed to curb illegal sales. Lawmakers crafted regulations and taxes based on successful models from other states, aiming to support new businesses while reducing black market activity.
Despite the commercial success of licensed dispensaries, which have seen revenue and transaction numbers soar, the illegal market persists. Amanda Reiman, chief knowledge officer for New Frontier Data, a global cannabis industry analytics firm, told The Baltimore Banner: “Low taxes, easy access to retailers, and a tested, reasonably priced product can pull illicit cannabis customers over to a legal market.” Maryland's 9% tax rate, among the nation's lowest, and the planned proliferation of over 300 retail stores, support this strategy.
However, states like California and New York, which delayed setting up regulated markets, allowed illicit sellers to thrive. Maryland lawmakers avoided this pitfall by synchronizing the launch of the legal market with the legalization of small amounts of cannabis, utilizing existing medical retailers.
Changing consumer behavior remains a challenge. In states with established illegal markets, consumers are accustomed to purchasing bulk, untaxed products. Reiman notes, “If you're going to consume a lot, you want the Costco model.” Maryland's dispensaries limit purchase amounts per visit, but sales continue to grow, averaging 900,000 adult-use transactions and $62.6 million in monthly revenues this year.
Cannabis law expert Mathew Swinburne, head of the Cannabis Legal Resource Center at the University of Maryland, emphasizes the importance of drawing consumers to safe, regulated products. "Legalization is a harm reduction technique," he said, highlighting the benefits of safety testing and product tracking offered in exchange for Maryland's modest sales tax.
Licensed retailers, like Darren Weiss, president of Verano Holdings (OTC:VRNOF), face competition from unlicensed hemp retailers. Weiss reports the illicit market is “alive and well but it is not growing.” He views the unregulated hemp market as a significant threat, potentially undermining consumer safety and the legal market's stability.
Maryland's legal market operates under the scrutiny of multiple regulatory bodies. The Alcohol, Tobacco, and Cannabis Commission inspects businesses selling hemp-based products, while the Maryland Cannabis Administration oversees industry licensing and regulation. Despite efforts, illegal cannabis trafficking continues, driven by financial incentives and consumer demand for cheaper products. Elena Russo, spokesperson for the Maryland State Police, notes that “Cannabis-related robberies and homicides have remained steady.”
State prosecutors, like Anne Colt Leitess of Anne Arundel County, acknowledge that illegal cannabis continues to flow into Maryland from West Coast grow operations. Stopping this supply chain would require substantial political and law enforcement efforts, which are currently beyond reach.
The persistence of Maryland's illegal cannabis market reflects broader national trends. Federal sentencing data shows a sharp decline in cannabis trafficking offenses from 2019 to 2023, yet the problem endures, highlighting the complexities of transitioning to a fully regulated market.
Posted In: VRNOF
