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Pot black market still thrives after Colorado legalization

September 20, 2014 at 4:00 PM EDT
Although recreational use of marijuana has been legal in the state of Colorado for nine months, some people are still choosing to buy it on the black market. Critics say legalization has created two systems: a legal market for those who can afford it and an underground market for people who can't. PBS NewsHour Special Correspondent Rick Karr reports from Denver.

RICK KARR: Marijuana grower and retailer Andy Williams can barely keep up with the demand for his product these days. He says he can’t imagine a more exciting and lucrative industry to be in right now. But the buzz is all coming from capitalism. He doesn’t even like cannabis.

ANDY WILLIAMS: I tried every few years just to prove to myself I still don’t like it. You know, it just affects me very poorly.

RICK KARR: When he started his business a few years ago, Williams could only sell medical marijuana. That put him in position to be one of the first to sell recreational cannabis when it became legal this year. Business has been so good that Williams is about to hire three dozen new employees and ramp up production in a new state-of-the art factory.

ANDY WILLIAMS: It’s manufacturing is what it is as far as I’m concerned. You are manufacturing marijuana. This is an industrial manufacturing plant that grows marijuana.

RICK KARR: Stores like these can now sell up to an ounce of marijuana to customers who are 21 and over. The products come in all kinds of forms: cannabis buds from a range of varieties bred to treat particular ailments, provide a mellow buzz, or deliver a powerful rush.

Pre-rolled joints, pot-laced brownies, hard candy, and chocolate bars, marijuana infused beverages and massage oil. Consumers spend tens of millions of dollars a month on those products, but Williams is sure there’s a lot more money to be made in his business.

ANDY WILLIAMS: You know I did this so that my family can be set up for their rest of their lives. Right now, I already know of some blue chip companies that are on the, on the start line. They’re gonna come and buy people up, and quite honestly, I wanna be one of those guys.

RICK KARR: One of the benefits attached to legalization was that it would eliminate the black market. But that market is still thriving, according to a 39 year old marijuana grower who asked us to call him John Doe and to conceal his identity because he sells on the underground market.

The illegal trade is doing especially well in black and Latino communities, and he says it works the same way it did when pot was illegal.

JOHN DOE: You have that one guy, that guy that shines, that’s the Robin Hood of the neighborhood. This man supplies a little ghetto area. Simple as that. Breaks his own pound into little ounces and helps everybody in his community. So they can afford it with him. That’s how it’s happened.

RICK KARR: Yeah. And that’s how it happened before, too.

JOHN DOE: Yeah. Yeah. Nothing’s changed.

RICK KARR: John Doe says low-income buyers turn to the black market because prices are higher at legal retail stores. There’s conflicting information, but an ounce of pot on the black market can cost as little as 180 dollars. At the store Andy Williams owns, you have to pay around 240 dollars for an ounce.

That’s partly because the price includes a 15 percent excise tax, a 10 percent marijuana tax, the state sales tax, and Denver’s marijuana sales tax.

LARISA BOLIVAR: The taxes are an overreach and excessive. And it’s a regressive tax and it impacts the poor most.

RICK KARR: Larisa Bolivar was involved in the fight to make marijuana legal for medical purposes. She uses it herself to treat stress. She campaigned for legalization but she doesn’t like how it’s working out. She believes all those taxes guarantee a black market. But taxes have been beneficial, according to Mason Tvert, who also campaigned for legalization and helped draft the state’s regulations.

In the first seven months, those taxes have generated 24 million dollars in revenue. A chunk of that is slated for public school construction. Besides he says the legal market offers some things that consumers find more important than the lowest price.

MASON TVERT: Variety, convenience, safety. That’s what drives every product in the entire world. You know, that’s what’s going to drive this market. If someone is lower income or a higher income, chances are they’re going to go to a store and purchase it because it’ll be safe. It’ll be convenient. There’ll be variety. These are what drive people’s decisions.

RICK KARR: How has that worked out so far? I mean, is the black market gone? Is the black market going away?

MASON TVERT: I think it’s absurd for anyone to assume that we can eliminate a black market that grew over 80 plus years within the course of eight, nine months. But we’ve seen this industry take a huge bite out of the underground market.

RICK KARR: To enter the legal marijuana industry, you have to be a Colorado resident in good legal standing. You also need the capital to get licensed, and that can cost tens of thousands of dollars.

LARISA BOLIVAR: It’s classist. The regulations support those that have access to wealth. And middle and lower classes don’t have access to wealth. I can’t just go and ask my dad, “Hey, can I have $20,000 for licensing and application fees?” You know? And then “Can I get a million dollars to get a property?”

RICK KARR: To start the legal recreational marijuana business, an entrepreneur needs a lot of capital: to fund an indoor grow facility, hire employees who’ll cultivate the product, install security systems – all while complying with state regulations. Tvert acknowledges the expenses limit the abilities of minorities to enter the industry.

MASON TVERT: This is a symptom of race relations and economic justice in our nation. This is not exclusive to marijuana. You know, right now people in lower income areas or communities of color are facing discrimination and bearing the brunt of social policies across the board, not just for marijuana.

RICK KARR: But Tvert says since legalization there have been fewer arrests of minorities for marijuana possession.

MASON TVERT: People of color were being disproportionately impacted when it came to marijuana possession, and now whether you’re white, whether you’re black, whether you’re a Latino, you are no longer going to be booked and convicted and treated like a criminal the rest of your life simply for possessing marijuana.

RICK KARR: But for anyone who was caught and convicted of a drug-related felony before legalization, state law makes it virtually impossible to join the industry now that marijuana is legal. John Doe says that keeps a lot of people working on the black market.

JOHN DOE: There’s a lot of people that have broken the law that are great entrepreneurs, work very hard, have good work ethics, family values, good communication skills. I mean, I definitely believe that they should be given a chance. The rules and regulations should allow a good grower that’s been in trouble to do this. They’re not hurting anybody. They’re not out there you know, stealing and robbing. Most of these people probably got caught up trying to make a living. Trying to make money.

RICK KARR: The counterargument, though, is it also shows that they are willing to break the law, because it was illegal. So maybe if we give them a license and they open up a grow facility, licensed, maybe they won’t pay the taxes.

JOHN DOE: Maybe they’re more prone to breaking laws. Well, you know, they say that about many people, but you have to see their track record.

RICK KARR: John Doe says his family has been growing marijuana for many generations in Latin America. He believes the legal industry should benefit from his experience and passion for the plant.

JOHN DOE: It’s the end result is this little flower that’s growing up and all full of joy. When this comes out, that’s when you say, “Okay, I am proud of my work.”

RICK KARR: Legalization in Colorado is still a work in progress. But the state is a pioneer and as other states consider legalization, they’ll be watching to see how Colorado does.