March 3, 2014

Black Market Threat to Rec Sales Lower Than Expected: Exclusive Data

rechandbookblackmarketchart2014288
By Anne Holland

The economic threat the black market poses to legalized recreational cannabis sales may have been vastly overstated.

According to a new consumer market research study from the editors of Marijuana Business Daily, more than 60% of cannabis users said their biggest concern when purchasing marijuana is buying it from legal sources.

A large percentage also prefer to buy tested, labeled cannabis products or purchase from those offering a large selection of strains – two areas in which state-legal dispensaries have a huge edge over the black market.

Legal retailers and growers have been concerned because black market producers have two major market advantages. Firstly, their cost of goods is far lower, as they generally do not pay taxes, lab testing fees, licensing fees, etc. Secondly, most black market producers have longstanding customer relations that might present a barrier to competition.

These concerns were underscored when Washington State research, conducted by BOTEC Analysis Corp in 2013, revealed that legal retail might only be able to gain 15-25% of total recreational market share.

However, new consumer data indicates the exact opposite may be true.

rechandbookblackmarketchart2014 Black Market Threat to Rec Sales Lower Than Expected: Exclusive Data

Source: ‘Profiting in the CannaBusiness Recreational Marketplace’ https://mmjbusinessdaily.com/recreational-handbook/

In fact, the only two categories in which the black market has a distinct advantage to consumers – pricing and relationships – may be the least important market drivers with just 17% and 5% of responses respectively.

The study was conducted by the editors of Marijuana Business Daily via an online survey in January 2014 to self-identified cannabis consumers in the US who use marijuana for recreational versus medical purposes. Respondents could check multiple answer options to the question asking what factors would be behind their decision to buy legally or on the black market.

“I prefer to buy legally” was the overwhelmingly popular answer with 61% of respondents selecting this option.

“I’m not surprised by this data,” noted Cassandra Farrington, Publisher CannaBusiness Media (the firm behind both Marijuana Business Daily and the Recreational Handbook which contains the data.) “For the past three years, our consumer marketplace surveys have shown that pricing is not as significant a factor as quality, strain selection and safety testing. In addition, this year’s legal retail sales boom in Colorado is solid evidence that many more consumers are willing to purchase cannabis from legal retailers than had been projected.”

Consumer preferences aside, the black market still poses a significant threat to legal growers and retailers. With tens of billions of dollars in annual sales at stake, criminal elements who control large market shares of the current black market could be mounting a fight to retain market share, particularly in unregulated states.

Additionally, while the majority of consumers said finding the cheapest cannabis is not the most important consideration, a significant difference in prices between retail shops and the black market could push more customers underground.

Note: Copies of “Profiting in the CannaBusiness Recreational Marketplace,” the new handbook this study data comes from, are available for instant download here: https://mmjbusinessdaily.com/recreational-handbook/


5 Comments:

  1. I’m not to inspired to believe these conclusions with a sample size of 304. It’s possible the findings are spot-on, but 304 respondents doesn’t seem like a valid sample. Is it?

  2. Generally, stats folks want to see at least 50 respondents per answer option – so this question with 5 options needed 250 respondents to be considered data worth looking at. As the article notes, the resulting data also fit the trends we’ve seen in other surveys we’ve run to the cannabis consumer marketplace for the past three years.

    This data is also born out by early sales results from the Colorado marketplace.

    So, although it is surprising in the light of industry fears and the BOTEC research, it’s not terribly surprising to our editors who’ve followed this closely day in day out for years.

  3. Thanks for the explanation amneh… IMHO, I believe that as time goes by, the numbers of those “remaining loyal to their black market source”, as well as “whoever has the best price gets my business” will dwindle. The longer it’s legal, the more normal it will be to purchase their cannabis from a “legal source”. Therefore reducing the black market even further. You’ll ALWAYS have those that continue to sell on the black market, but once it becomes unprofitable for them, those numbers will dwindle even further.

  4. The Black Market will exist, up until its no longer needed.
    Dispensary Prices of an eighth of Marijuana in Washington DC are between 75-100 bucks. Street Prices are between 45-60.
    Patients usually can’t afford this price gauge, for substandard weed.
    Until this fixes DC Patients will continue to buy off Street.

  5. Let us see what the legal stuff costs. In Washington the only way growers producers and retailers will be able to break even 1oz will at least double in price. 502 was voted in buy ignorance of the law most people did not read it. We will have to see how things shake out. After all, white lighting is still illegal and the black market for it is fine in the blue ridge.

Post Your Comment:


Please note:
Comments are moderated by our editors who do their best to approve comments ASAP. As MMJ Business Daily is focused on business, we approve comments that are specifically relevant to industry professionals. General opinions and questions about cannabis may not be posted.

Debt Fund Launched for Illinois MMJ Startups

Entrepreneurs looking to enter Illinois’ medical marijuana industry could get help with one of the [click to continue...]

FL Company Nabs $500K Funding Commitment

FloridaMedicalMarijuana

A Florida company has secured up to $500,000 in investments to fuel its business interests [click to continue...]

$38.5M Potential Tax Haul From Legalized Cannabis in Oregon

Cannabis legalization in Oregon could generate $38.5 million in taxes for the state during the [click to continue...]

Seattle Dispensaries, MMJ Growers Could Get Reprieve

seattle

Medical marijuana businesses in Seattle could get until 2016 to obtain licenses with the state. [click to continue...]

63 License Applications in Las Vegas

Las Vegas received 63 applications for medical cannabis business licenses by Wednesday’s deadline, according to [click to continue...]

PTSD Study Could Move Forward, With Lead Researcher

Dr. Suzanne Sisley

A federally approved project to research the use of marijuana for treating post-traumatic stress disorder [click to continue...]

Minnesota Names Medical Cannabis Czar

Minnesota’s medical marijuana program now has a leader. Michelle Larson, who held various executive roles [click to continue...]

Moody’s: WA Rec Sales Could Fall Short of Projections

Initial recreational cannabis sales in Washington State could fall “well short” of expectations due to [click to continue...]

Oregon Recreational Marijuana Bill Approved for Ballot

Oregonballotmeasure

Oregon voters will get another shot at legalizing recreational marijuana. The state announced Tuesday that [click to continue...]

Infused Products, Extracts Guidelines Released

The American Herbal Products Association (AHPA) released business guidelines today tied to the manufacturing, packaging, [click to continue...]

IL Hospital Voices Interest in Dispensing Marijuana

SwedishHospital

A hospital in Chicago has gone public with its desire to dispense medical cannabis. Executives [click to continue...]

Bid to Overturn San Jose MMJ Regs Falls Short

A last-ditch effort to block restrictive regulations on medical cannabis businesses in San Jose, California, [click to continue...]

Poll Shows Views on CO’s Rec Program Evolving

Colorado residents still favor the state’s recreational marijuana law, however their support has dropped slightly [click to continue...]

VT Moves Forward With Marijuana Legalization Study

Image for marijuana studies

Rand Corp. is set to begin a study on the possible impacts of marijuana legislation [click to continue...]