Real cities provide real examples of this. In Denver, where medical cannabis became legal in 2000 and adult use in 2012, city leaders licensed one cannabis retail establishment per 3,091 residents. The illegal market rate quickly fell to 30 percent. But in Seattle — which legalized medical cannabis in 1998 and adult use in 2012, and had a state-imposed cap of just 21 retail licenses and a resulting density of one dispensary per 30,373 residents — the illegal market rate was an astounding 70 percent. Subsequent declines in city’s illegal market rate came about only by doubling the number of licensed retail outlets, but they are still elevated.
Reasonable tax rates, availability of delivery services and social consumption lounges, as well as rational advertising standards that allow licensed businesses to differentiate themselves from illicit operators also play a role in the strength of the legal cannabis market. But bottom line: if the legal market is less accessible to the average consumer than unlicensed businesses, the regulated industry will struggle and likely fail.
State and local officials in California and Massachusetts, which are in the throes of launching their respective adult-use cannabis systems, would benefit from the experiences of other states with adult-use policy frameworks. To date, lawmakers in California have grappled to shift unlicensed operations into the legal market in the wake of opening its legal market in January 2018. Local governments have severely thwarted the ascendance of a regulated industry that is reasonably accessible to consumers. Almost 85 percent of local jurisdictions have placed bans on cannabis retail operations. Not surprising, as a result California is missing its cannabis tax revenue projections and many potential licensed operators have been forced to freeze operations and lay off staff.
Our own independent research of licensed jurisdictions indicates that the optimal density ratio is roughly one legal cannabis retail storefront or delivery service license per 7,500 residents. Once density falls below this level, the illegal market maintains a strong presence, and the legal market struggles to establish itself — to the point where traditional law enforcement efforts remain ineffective at containing unlicensed operators and the failed outcomes of the decades-old war on cannabis continue.