Excessive state regulations may be the reason illegal marijuana markets continue to exist after legalization, a new exploratory study found after looking at data from the first two U.S. states to end cannabis prohibition.

“The qualitative analysis of news reports reveals that regulation is one of the main reasons that people stay in the illicit market,” the paper states. “The comparison of marijuana crime trends in Colorado and Washington shows mixed findings. While marijuana offense rates in Colorado largely remained steady over the years, those in Washington increased dramatically after the implementation of more intensive regulations.”

Published in July, the research is the master’s thesis of Sikang Song, a graduate student of the criminology and criminal justice department at Portland State University.

Song writes that he was interested in understanding why the unregulated marijuana market persists in states where cannabis is legal. Since growers, sellers and consumers have “legitimate channels” to produce, trade and obtain cannabis, these illegal avenues should presumably diminish.

Yet research shows they haven’t disappeared altogether: Last year, one report found that 18 percent of cannabis consumers in California said they purchased marijuana products from an unlicensed seller.

For his analysis, Song investigated whether there’s an association between how intense state cannabis-related regulations are and the extent of the remaining illegal market. First, he reviewed news articles published between late 2013 to April 2019 featuring interviews with cultivators, sellers and consumers who shared the various reasons why they remain in the unregulated market. He then looked into whether marijuana arrest rates changed in the first two legal states after new sets of regulations were installed.

In Washington, he used June 2016 as the intervention point, and in Colorado, he used November 2015 and January 2017 as intervention points. (In 2017, for example, Colorado state lawmakers passed new rules regarding labeling and packaging of all containers holding marijuana flower and trim, concentrates and other products.)

According to the study, the reasons most people said they grew or sold marijuana illegally were “strict regulations and the high cost associated with the compliance.”

“Over two thirds of recording units (68%; n = 115) contain interviews and quotations from black market participants stating this reason,” the paper states. “Terms such as ‘overregulation,’ ‘cost of compliance,’ ‘high taxes’ are frequently used in the headlines and texts to describe ‘barriers’ for ‘small producers’ to enter the legal market or ‘drive’ them to the black market.”

Other reasons for staying in the illegal marijuana market included high taxes, market fluctuations and organized crime.

Using an interrupted-time series analysis, Song also found that Washington’s crime rate increased after the state introduced more regulations. “In 2014 and 2015, the marijuana crime rates per 100,000 residents were both at around 26,” he writes. “This number was increased to more than 28 incidents per 100,000 residents in 2016. In 2017, a total of 2,628 marijuana crimes were reported by law enforcement agencies in Washington, making the annual crime rates 35.96 per capita.”

Colorado, on the other hand, did not see any significant short- or long-term changes to its cannabis-related crime rates after the state implemented new marijuana regulations.

“Although the findings are not conclusive, the results of Washington data show that regulation intensity may be one of the main factors that influences or explains the persistence of illegal cannabis transactions after the legalization,” the study states. “The fact that Washington’s marijuana black market kept growing after the implementation of more complex and sophisticated regulations at least indicates a correlation between regulation intensity and the increase of the black market in the case of Washington.”

The fact that similar findings were not reported in Colorado, the study continues, suggests “the magnitude of illicit marijuana activities may be affected by regulation intensity in some states.”

Ultimately, the author points out, these results raise questions about “the possible adverse effect of intensive regulations to researchers and policy makers.”

If one of the goals in marijuana legalization is to eliminate the unregulated market, Song writes, it’s important for lawmakers to consider the implications of unnecessarily strict state rules. Instead, they should focus on creating an “equitable and accessible market that allows the coexistence of both large and small businesses.”

“The cost of compliance to regulations should be reduced to remove the barriers of establishing a legal marijuana business,” Song concludes, adding that “future policies should also pay more attention to cracking down [on] persistent illegal growers and sellers and organized crime groups who are unwilling to participate the legal market.”

Photo courtesy of Brian Shamblen.