Cannabis Chaos! - And The Winner IS - Picks & Shovels !

The illegal market in Cannabis has proven to be a tenacious competitor against the legal one

A powerful reason to legalize cannabis is to wrest the market away from criminal enterprises and tax the proceeds. But in Canada and the US states where weed is legal, the illegal market has proven to be a tenacious competitor – and it’s likely to remain so for years.

For example, California is the largest and most complex of the legal US markets. Here underground sales can be divided into two broad categories: the illegal or “black” market that includes everyone growing and manufacturing products for export around the world, which is against the law.

 The so-called “grey market” refers to companies that continue to operate locally in California but take a risk by saving the time and expense to acquire licenses.

For licensed businesses trying to follow the rules, California’s grey market presents the bigger problem. Because these companies don’t adhere to the complex regulations covering everything from security to product testing, they can undersell their law-abiding counterparts by up to 50%, according to Bryce Berryessa, the president of the licensed California cannabis company La Vida Verde.

Beneficiaries of this conflict will be ‘Pick & Shovel ‘companies. So called from the example of ‘The Gold Rush’ where more money was made by a few enterprising individuals providing the means to dig for gold than the thousands scrambling and sweating doing it.

KushCo Holdings Inc. is the largest supplier to the cannabis industry. Currently, 60% of the company's sales come from low-cost vape pens, and vaping is becoming an increasingly popular method for consuming CBD. Vaping gives an immediate effect, both faster and easier to discern than when CBD is consumed as a sublingual tincture.

KushCo's low-cost vaping devices will be the product of choice for many new CBD consumers. KushCo also has another business - it provides the solvents necessary to extract oils from cannabis, whether that cannabis contains some intoxicating Psychoactive THC or not.

With hemp processing facilities popping up across the country, supplying the ingredients necessary to extract CBD could turn out to be a much bigger business than even Kush imagined.

In much of the state, grey-market cannabis companies operate in plain sight, and it’s not necessarily clear to customers whether a store is legal or not. Weedmaps, a popular online dispensary locator, doesn’t distinguish between licensed and unlicensed dispensaries – nor do mainstream sites like Google and Yelp.

 Grey market dispensaries and delivery services also stock counterfeit products, which are packaged to mimic the best known legal brands. (Consumers who want to be certain they are shopping at a legal dispensary can check on the state regulator’s website.)

To combat the illegal market and foster legal businesses, California’s governor, Gavin Newsom, said last month he would be sending national guard troops into northern California’s cannabis-growing regions. There have been crackdowns on unlicensed dispensaries as well, though legal businesses have called for more. Lawmakers have also proposed lowering marijuana taxes so legal businesses can compete against the grey market.

But these proposals do not address what could be the most significant problem for legitimate businesses: while California has legalized personal marijuana sales to all adults, most jurisdictions in the state do not yet allow new marijuana business start ups. (Marijuana is the Mexican word for Cannabis)

 This in effect forces millions of customers to shop on the grey market. “Hundreds if not thousands of companies who intend to shift into the legal market are forced to participate in the grey market infrastructure that has been in place for decades Berryessa said.

 In January 2018, the month California’s adult market opened, he says, there were about 200 fully legal pot shops in California, compared with roughly 4,000 grey market dispensaries.

Unlicensed businesses have continued to thrive in other markets as well. Canada’s grey market has capitalized on rolling supply shortages. In Oregon, where there is a glut of product, growers offload their crop on to the illegal market, sometimes referred to as the “traditional” or “free” market.

As legalization becomes more widespread, it seems likely that the black and grey markets will recede, though many law-abiding businesses are likely to go under in the meantime. Without a mandate from the state capital in Sacramento, every city in California can legalize marijuana businesses on its own timeline. The resulting uncertainty nourishes the grey market.

It also has the ‘Pick & Shovel’ companies legally providing the tools and products to consumers of legal and illegal Cannabis, and go laughing all the way to the bank.