What Colorado can teach Virginia about legalizing retail cannabis

Got questions about Virginia’s laws on weed? We’ve got answers in our FAQs on the state’s cannabis policies.

Senate Majority Leader Scott Surovell, D-Fairfax County, recently invented a new word: “moonweed.”

Well, maybe not exactly. I have found an electronica composer named Kaitlyn Aurelia Smith who has a song called “Moonweed.” For our purposes, though, it’s a new word, coined by Surovell in a Senate debate to describe what we’ll face once Virginia legalizes retail cannabis — there will inevitably be people who break the law by growing and selling cannabis without benefit of licensing.

With alcohol, we call that moonshine. With cannabis, we’ll have moonweed.

For all of the clever wordsmithing here, there are some serious issues involved, and not simply the threshold question of whether Virginia should or should not legalize the retail sale of cannabis. We’ve already legalized personal possession — in 2021 — so at some point Virginia probably will take the next step and legalize a retail market. Whether that’s this year, we don’t know yet.

The bills moving through the legislature are not quite as simple as yes or no. They involve a push-and-pull in multiple directions. How much should the market be weighted toward medical marijuana companies (who have the experience with cannabis) and how much should it be weighted toward small entrepreneurs (who might help grow not just cannabis but a startup sector)? Should cannabis laws be modeled after alcohol laws or should they be different?

It was the latter point that caused some pro-cannabis advocates to oppose the latest version of the legalization bill in the state Senate. Some legislators — notably Surovell and state Sen. Creigh Deeds, D-Charlottesville — felt that cannabis laws should mirror alcohol laws as closely as possible. Both are intoxicating substances; why should the law favor one over another?

However, Chelsea Higgs Wise, the executive director of Marijuana Justice, a Richmond-based nonprofit that works to legalize marijuana and achieve social equity, said that modeling cannabis after alcohol is wrong because historically, minorities have been targeted for drug offenses. “We have not seen the ABC [laws] enforced on Black and brown communities the way that we have seen marijuana, and that is why we have these different approaches,” she told the Senate Courts of Justice Committee. “To line these up directly with ABC enforcements is again not considering how this has been implemented in the past.” 

In other words, she’s concerned that minority communities have been targeted for drug offenses in the past, so using alcohol standards for cannabis — rather than something lower — would result in minority offenders being hit with harsh punishments. Of particular concern seemed to be the penalty for unlicensed sales, which, if treated like alcohol, would be a Class 1 misdemeanor punishable by 30 days in jail for a second or subsequent offense. She saw the potential for inequity. Surovell saw consistency: “I’m not a fan of mandatory minimums, but I think it needs to be identical [to alcohol].”

This debate points to other factors pushing and pulling on cannabis policy — social equity concerns on one hand, economic forces on the other. One of the main arguments for legalizing retail sales is to crack down on the black market for cannabis. If there aren’t strict penalties for unlicensed sales, what incentive is there for people to leave the black market? However, there are also concerns from some Republicans that legalizing a retail market will actually increase the size of the black market, not decrease it — if cannabis is so widely accessible that you can walk into a store to buy it, why would police bother to enforce any laws dealing with cannabis? Wouldn’t that just lead to a profusion of black market weed dealers who would have the dual advantage of a product that no longer arouses suspicion — and the price advantage of not having to file any of the paperwork that licensed cannabis retailers would?

All that leads to a simple question: What effect does legalization of retail sales have on the black market? Unfortunately, there’s not a simple answer. By definition, the black market is just that — operating in the shadows, so no one has good data on just how big or small it is in states that have legal retail sales. However, there are some glimmers of data that we can seize on.

You can’t eliminate the black market completely

The best evidence of that comes from here in Virginia with alcohol. The production of moonshine in certain parts of the state — you know which ones — continued long after prohibition. It probably still continues today — wink, wink — although there’s no formal evidence of that for reasons we’ll get to next.

Virginia records almost no black market alcohol arrests

Whether Virginia makes cannabis laws the same as alcohol laws or not, the two are similar in this respect: They both involve the prospect of illegal manufacture (or cultivation in the case of week) and illegal sales.

Illegal cultivation would be akin to making moonshine. The Virginia Alcoholic Beverage Control Authority hasn’t recorded an arrest for illegal manufacture of alcohol since 2019, when it recorded a single one that year somewhere in its Region 3 Southside area. (And no, that region doesn’t include Franklin County.) That tells me that they’re not looking very hard (and that today’s moonshiners are more discreet than their predecessors).

Selling black market weed would then be on the order of operating a nip joint, although the classic nip joints are unlicensed establishments, not a dealer going door to door to make deliveries. In any case, Virginia ABC recorded just three arrests for the illegal sale of alcohol in 2023, all in its Region 7, which stretches from Suffolk and Southampton County up to the Middle Peninsula, and brings in the metros on the Peninsula. In 2022, ABC notched two arrests for the illegal sale of alcohol, one in the Richmond area, one in the Shenandoah Valley. The point is, there aren’t many.

If the concern is that treating marijuana like alcohol would lead to more arrests, that doesn’t seem supported by ABC’s annual reports. Of course, that assumes that future cannabis enforcement would be carried out the same way, and that’s something we don’t know. I suspect ABC no longer racks up a lot of moonshine busts and nip joint busts simply because there aren’t as many of those unlicensed entrepreneurs as there used to be, and the ones that remain are a lot more discreet. Future cannabis enforcement in Virginia might well look different because there might be more conspicuous violations of the law or a more concerted effort to crack down on the black market after legalization. All we know is that the vast majority of ABC charges — 383 of 386 last year — were for selling alcohol to underage customers.

For what it’s worth, 54% of those arrested by ABC in the fourth quarter of last year were white, while 68.5% of Virginians are white.

Colorado saw a big black market even after legalization, perhaps even a bigger one

Colorado was the first state with legal retail weed — Jan. 1, 2014, so we’re now a little more than a decade into that market. It’s easy to measure the size of Colorado’s retail market — licenses, sales, revenues, taxes, all that. There’s a whole bureaucracy set up to monitor it. What’s harder to measure is the size of the black market, which can really only be measured through what law enforcement finds. If police find more illegal weed, is that because there’s more illegal weed out there, or because they’re looking for it more? Or some combination of the two? That’s a long way of saying there’s no reliable data we can track.

However, on the theory that where there’s smoke, there’s fire, or at least someone blazing a blunt, there’s a lot of evidence that the black market in Colorado soared after legalization. Colorado Politics reported that between 2014 and 2016, the number of arrests for illegal marijuana increased by 380%, and that the number of pot plants found growing on federal land between 2014 and 2017 increased by 95%. Again, maybe police were simply looking harder, or maybe not. 

The general consensus in Colorado, though, seems to be that legalization initially increased the size of the black market for cannabis. Why would this be? Imagine milk instead of marijuana. If milk were illegal, you’d do your best to hide your cows up in the hills or out in the barn. If milk were legalized, but only a certain number of dairy farms were allowed, some farmers would be more tempted to graze their cows openly even if they didn’t have a license for them — hoping no one would suspect that the herd was actually illegal. Put another way, you’d be less likely to get caught — and demand for milk is probably up now that it’s legal. People who had always been tempted by milk might now be more likely to buy a jug and not worry about whether they’re getting it from the store or out behind Farmer Jones’ barn. 

However, there are two other reasons why Colorado’s black market for cannabis might have expanded after legalization.

1. Maybe Colorado didn’t grow enough weed to meet the new demand.

The otherwise staid Colorado Department of Revenue produced a report in 2014 that said the demand for cannabis in the state was so high that the legal market could only supply 59% of what the public wanted — and the rest was coming from the black market. One way to read that is that legalization didn’t make much of a dent in the black market, or perhaps even increased the size of that black market. However, another way to read that figure is that Colorado simply didn’t issue enough licenses for cultivation and retail, which raises the question of whether Virginia will likewise underestimate the market demand. If the latter interpretation is the correct one, then the best way to undercut the black market is to flood the market with cannabis — and, of course, to make sure it’s competitively priced. 

2. A lot of that black market weed is actually headed for other states. 

KUNC, a public radio station in Colorado, has reported that much of Colorado’s illegal cannabis gets shipped out of state, so legalization there may have increased the in-state black market some, but it really made Colorado a good place to try to “hide” illegal grows for out-of-state markets. The station quoted cannabis industry representatives saying the best way to reduce Colorado’s black market would be to legalize cannabis in other states. By that measure, the increase in illegal cannabis seizures in Colorado after legalization isn’t really a reflection of the Colorado black market, but simply a reflection of what we might be called “a good business climate.” In theory, Virginia could see the same phenomenon; we would be the only state in the South with legal retail weed. It’s easy to imagine black market growers popping up in Virginia to supply our Southern neighbors. 

Colorado’s problem has been growers, not dealers

By 2018, Colorado, the poster child for legal weed, had so much black market pot that it felt compelled to create the Special Investigations Illicit Marijuana unit, a 13-member team tasked with expanding “local law enforcement’s ability — specifically in rural jurisdictions of Colorado — to address, investigate and prevent the cultivation, distribution and exportation of illicit marijuana.” The focus here was a surge in cultivation, not street-level dealers who were operating without a license, although those street-level dealers had to get their product from somewhere and it certainly wasn’t the store.

Even with the Special Investigations Illicit Marijuana unit, Colorado still had problems with illegal grows. The Denver Post headlined in 2019: “Black market marijuana grows are popping up faster than law enforcement can take them down. But is legalization the cause?” (The answer was unclear.) Those illegal sites in Denver were mostly indoor grows, not outdoor ones. However,  The Durango Herald reported in 2020: “Illegal pot farms a persistent problem in Southwest Colorado.”

Colorado has now seen illegal cannabis decline sharply

However, the past three years have seen a sharp decrease in illegal cannabis in Colorado. The Colorado Bureau of Investigation says it arrested just 16 people last year for marijuana-related offenses, down from 56 in 2019. The CBI also says that over the past five years the number of illegal plants seized has fallen, from a peak of 43,421 to just 4,361 last year. The CBI declined to comment on why these numbers have fallen, just that they have.

If the decreased number of seizures indicates fewer illegal plants, as opposed to less enforcement, then that would be less weed on the black market. I made calls to officials in Washington and Oregon — with Colorado, those were the first three states to legalize retail sales. None had any figures to offer on street-level black market dealers in those states; much of the enforcement seems focused on illegal cultivation. However, Mark Pettinger, a spokesman for Oregon Liquor and Cannabis Commission, told me: “Generally the thought is that a lot of participants in Oregon’s illegal cannabis market moved into the state’s legal market.”

In Denver, illegal operations peaked, then nearly disappeared

In Denver, Colorado’s biggest city and therefore its biggest market, the amount of illegal cannabis has also fallen dramatically, at least based on what police have seized. In 2014, the first year of legalization, city police reported 19 illegal grow operations. (And in Denver, we’re talking greenhouses, not farms.) Those numbers grew each year, peaking at 59 in 2018 — more than one a week. Since then, the numbers have tumbled, and by 2022, the city found only four illegal operations. Again, we don’t know if that means there were fewer black market pot growers, or just less enforcement. However, the city certainly thinks it’s the former. The city’s mayor at the time, Michael Hancock, took credit for new rules that “brought unlicensed operators into compliance.”

He also cited this statistic in the city’s annual marijuana report (yes, Denver issues an annual marijuana report): “In 2021, only 11% of Denver high school students reported using marijuana one or more times in the past 30 days, down from 26.6% in 2013, according to the biannual Healthy Kids Colorado Survey.”

If Virginia proceeds down the legal retail path, it might do well to study Denver to figure out how we can skip over Colorado’s initial black market bonanza.

California has a big black market because prices are so high

While no one can precisely measure the size of an unregulated market, there’s universal agreement that California has a big one because the state’s cannabis taxes are so high. A study by Rutgers University’s Center for Alcohol and Substance Use Studies says that California “produces nearly five times the amount of cannabis as is legally consumed.” There are lots of ways to tax cannabis — by seed, by flower, by the ounce, by the wholesale value, by the retail price. If you’re into all that, I suggest you visit the Tax Foundation’s cannabis tax site. The point is that, when it comes to cannabis, California is all those things that conservatives like to say about the Golden State: overtaxed and overregulated.

One cannabis executive wrote an op-ed for Cal Matters last year that said California’s taxes add almost 50% to the cost of the product. The result: Legal cannabis costs so much that consumers aren’t much inclined to take the trouble to go to the store when they can get it cheaper from their friendly neighborhood pot dealer. Debate the penalties all you want, but if Virginia is to put a dent in the black market, it needs to keep cannabis taxes low — because that’s an expense the black market dealer doesn’t have to contend with.

The black market might be bigger in conservative communities than liberal ones.

The legislation in Richmond envisions that localities would be able to opt out of retail sales by holding a referendum to impose a local prohibition. I’ve looked at cannabis votes in other states and in a previous column tried to figure out which localities in Virginia would be most likely to approve weed or ban weed. The map above shows my calculations; I elaborated on them further in this column. The short version: Democratic localities would allow weed. Many Republican localities would allow it, too. But the more conservative a community is, the more likely it is to vote against retail cannabis — with the possible exception of some localities in Appalachia, which might be outliers. (I base that on last year’s cannabis vote in Ohio, where some otherwise conservative Appalachian counties voted for legal weed.)

So if Virginia has legal retail stores in some places but not others, what would happen? Would that encourage a local black market in those communities without retail stores? I contacted officials in Colorado, Washington and Oregon, the first three states to legalize retail sales. Do they see some correlation between counties without dispensaries and the black market? None had any information to address that question. However, that California cannabis executive I mentioned above provides anecdotal evidence. Tiffany Devitt wrote that her state’s weed regime has “two fatal flaws: high taxes and local control.” The high taxes we’ve dealt with; the local control goes like this: “By allowing municipalities to opt-out of legalization, the state has essentially ceded two-thirds of the market to criminals,” she wrote. “In these dry zones, unregulated, untaxed and untested cannabis is king, and consumers are still partying like it’s 1999.” 

Now, it’s in her industry’s interest to say that, but that doesn’t make it wrong. It makes sense to me that if retail pot was legal in Roanoke but illegal in Russell County, then someone who wishes to partake probably isn’t going to make the trip to the Star City to go shopping. That suggests to me the most aggressive future enforcement might come in Southwest Virginia. If that happens, Surovell has given us a name for what some people are already growing and selling.