Michigan is about to become the 12th U.S. state to fully legalize cannabis, starting December 1st. MJBizDaily has estimated Michigan to be a potential legal cannabis market of $1.4 to $1.7 billion.
However, before cannabis investors start to factor in that additional demand, a cautionary note. MJBizDaily also acknowledged that “nearly eight in 10 municipalities in the state” have initially opted-out of recreational cannabis sales. This includes the key metro hub of Detroit.
The Seed Investor has addressed this subject before. When states legalize cannabis, local governments must be required to allow legal cannabis sales within their jurisdiction. It’s elementary logic.
The cannabis black market is huge. It dominates sales, even in most fully legal U.S. states. The black market operates everywhere, since it doesn’t ask for permission.
The choice for local governments is not “cannabis or no cannabis” (the decision they think they are making). It’s a choice between supporting the legal cannabis industry or supporting the black market – by banning legal sales.
Banning legal cannabis sales supports the cannabis black market. Strike one.
It’s now established that minors obtain their cannabis from the black market. Legal cannabis stores reduce teenage usage by decreasing the size of the black market.
This means that when local governments choose to support the black market (by banning legal sales) they are also encouraging under-age consumption of cannabis. Strike two.
Then there are the economics. Local governments can waste tax dollars policing “illegal marijuana”. Or, they can collect tax dollars from legal cannabis businesses. Few local governments have such strong finances that they can afford the continued costs of enforcing Prohibition. Strike three.
There is no rational argument in favor of banning legal cannabis businesses.
There is now abundant empirical evidence that they do not have any negative impact on property values. If anything, cannabis stores cause property values to rise. Indeed, legal cannabis is viewed as “an amenity” by Americans.
“Legalizing” cannabis at the state level, but then not allowing legal sales everywhere is not really legalization. It’s only partial decriminalization. It makes no sense.
The state itself is also a big loser through lost tax revenues. In Canada, the province of Ontario is estimated to have cost the legal cannabis industry CAD$325 million in revenues, in just Year 1 of legalization in Canada.
This was through its failure to open a reasonable number of cannabis stores. It cost the province $10’s of millions in lost tax revenues.
California’s cannabis black market has actually grown larger since full legalization. Michigan now also appears to be poised for failure.
In addition to banning recreational cannabis sales in the city of Detroit, Michigan residents are already experiencing reduced access to medicinal cannabis. This is “cannabis legalization”?
If individual state governments want to continue Prohibition (and risk the wrath of voters), fine, do so. At least that’s a path for Americans to getting dinosaur governments voted out of office.
However, if a state chooses to legalize cannabis, half measures don’t work.
Government created the massive cannabis black market through nearly a century of (corrupt) cannabis Prohibition. The onus is on government to phase-out the black market. And that can only be done with an industry-friendly regulatory structure.
Banning legal cannabis sales in roughly 80% of Michigan counties (including its largest city) is not “industry-friendly”.
Michigan’s “legalized cannabis” hasn’t yet taken effect. But it looks like the state has already struck out.
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