Why Is Legally Grown Pot Getting Sold on the Black Market?

It's safe to say that America is shifting its attitude toward marijuana use. Ballot measures to legalize cannabis were passed by voters last year in Alaska, Oregon, and DC, legalization initiatives are underway in additional states, and over half of the country approved of legalization in recent polls. At the same time, cannabis vendors continue to expand their presence on "dark net" online marketplaces where buyers and sellers alike are anonymous so long as they take the correct technical precautions like installing specialized software, using encryption, and learning to discern phishing attempts.

For those wishing to use pot outside of states that permit the stuff medicinally or recreationally, the anonymous markets of the deep web are effectively serving as an internet marijuana dispensary that ships nationwide—on these places you can find color photographs, florid descriptions detailing the properties of available strains, and many of the same value-added products, like edibles and lotions, available in the most aboveboard of West Coast dispensaries.

In fact, many of these sellers market their goods as "medical marijuana," with some listings claiming that their crop comes from farms growing cannabis for legal dispensaries. Given that diversion of cannabis products across state lines is still banned, is there any truth to this marketing, and if so, why are legitimate medical marijuana enterprises choosing to double-dip and sell their product on both the white and black markets? Don't they have enough business in-state to avoid potentially jeopardizing the legality of their operations?

To find out, I perused these markets myself and reached out to dark net cannabis vendors to hear their take on the cannabis industry and legalization. I had these conversations in October, during the lead-up to the FBI's highly publicized November 6 bust of Silk Road 2 and several other markets. I corresponded with four vendors: EverGreenTea, who has been selling since the days of the original Silk Road with thousands of completed orders and is based in California; BestNThaWest, a long-time participant in the medical marijuana industry, located in an unidentified state; GotDank, a seller who openly advertises his product as California-grown medical marijuana; and PacificNorthWest; a cautious but opinionated seller who would not confirm their exact location.

VICE: Do you grow cannabis yourself, or sell on behalf of other growers?
EverGreenTea (EGT): I source from growers and producers… I was involved before this like so many others, trying not to get busted for having less than 100 plants in the backyard/garage. I can say that in the past growing or selling medical cannabis has never been a sustainable thing. I took a loss; spent money on supplies, electricity; time spent going to patients who lowball you or people who try to rip you off, the local cities and counties not authorizing your business. But with the dark net I'm actually able to run a sustainable business.

BestNThaWest (BNTW): Both. I grow myself and work with local growers that have supply issues as well. I have been growing for the MMJ [medical marijuana] sector for roughly a decade.

GotDank (GD): I used to grow, but I no longer do so. Growing is like having a small child. It's really a full-time job with strings attached. Being in the industry, I've made a lot of contacts with larger co-ops that supply higher volumes of medicinal cannabis. I got rid of my own product… enabling me to ditch the growing pains and move into higher volume distribution. I do not think I could do both, or at least not without bringing more people into the business and spreading out job duties. I could make a lot more money that way, but the risk and labor needed to do that is not really worth it to me.

Since the growers you work with have the opportunity to legally grow and sell cannabis, do you know why they choose to sell via a dark net vendor? Is it because they've found limited local opportunities to sell legally?
EGT: Yes, there are growers who cannot get the price they want in dispensaries or do not have the relationship there already. If you are a grower, you can walk into a dispensary and they will either turn you away or lowball you. Seems like the cities and counties allowing you to have a store suddenly gives you more control of the market. People will walk into your business and you can lowball them, then charge customers even more, but then again it's business and the cities and counties have artificially affected the market by not allowing such businesses, and so people are either lucky to be one of the few [who are] licensed, or [dispensary operators] simply open a store without a permit.

GD: The competition is really high in the California medicinal dispensary market, and you are always dealing with someone who is trying to maximize their profits for their business, so they are always looking to lowball you on top of the already competitive environment that have made prices drop over 200 percent in the past few years. Pounds used to sell for $4,000 to $5,000 to a dispensary until about 2012. Then things started dropping fast, and now you are lucky to get $3,000 for a very high-quality product, $2,000 for a decent product, and you probably cannot move anything that falls below those two categories for above your cost.

PacificNorthwest (PNW): I became interested in vending here as soon as I saw the dark markets since I knew many growers were unable to afford their electricity and other growing expenses due to falling prices. Prices have fallen in many areas due to oversupply. The harsh economy is not helping either. So now to make a living you need to get big or export out of the flooded areas. Legalization will most likely make that situation worse. So it is a good thing for buyers and middlemen and corporate farmers.

Do you have any interest in starting a legal canna-business should the opportunity arise?
EGT: I would be happy to become "licensed" to run a cannabis business in California… For 18 years there's never been such a thing at the state level, only tolerance of "nonprofit patient collectives" which somehow also means for-profit dispensaries, growers, and producers of cannabis products. Now we are beginning to see the more commercial products, but without true legal recognition. It seems like the large companies may either set up as a "nonprofit" or have two companies, one for profit and the other one as the "nonprofit collective."

I think back a few years ago, the law was more unclear. Everyone thought it was funny that all the perfectly healthy young people growing cannabis were medical cannabis patients. You were supposed to wait until someone had cancer, and then they could grow on their own and wait five months to harvest or have a "caregiver" grow for them. Or just go to the dispensaries which carried your medicine already, but how did they get it? The California laws were meant to let you get away with breaking federal law, as long as you didn't break it too much, but, again, it's kind of a catch-22 problem—always a question of a person wanting to do enough business to make it worth their time to even do it, and not getting busted.

BNTW: Do I plan to still vend via the dark net if it is legalized? Most likely for some time, especially during the early transition. "Legalization" and a true free market are very different things, and the dark net offers a much freer market than a state-controlled and -regulated industry ever could. In many places you have to put up an enormous amount of cash up front to even apply for a license, and then face extremely heavy taxation on any profits. This alone will make the dark net continue to be a viable alternative.

PNW: We have not tried to sell weed within any legal process to do so, we don't know if that would be profitable on the small scale we operate on. If I was king, I would make sure the laws encouraged the smaller independents like microbreweries, microgroweries, and direct farmer-to-buyer marketplaces. I doubt the future will profitable for the little grow-ops of the future. That's a sad thing to me… I just see a great loss of culture ahead if things go the way they usually do and farmers end up unable to make a living without growing so big they lose touch with the love and the art. It will probably be good for migrant laborers, at least. I expect taxes and paperwork to help keep the price up at the retail level (partly by making the biz somewhat miserable for the producers). If they make it really harsh, that will keep a strong black market going.

GD: I've pondered getting into the industry, but with the trials I have seen people face, it gives me extreme caution. I know many business owners who have operated legally under state law who are now serving jail time because the feds decided to bring the hammer down. I've seen entire families split apart, massive debts incurred due to legal costs and fines, civil forfeitures, etc. I feel much safer knowing that there is no brick and mortar store linking me or my identity to my sales.

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A close look at state of cannabis regulation across several states backs up these vendors' assertions. California legalized medical marijuana in 1996 but has since failed to enact regulation which would license medical cannabis growers or define parameters for legal cannabis enterprises. This has created an ambiguous legal environment where medical cannabis users are decriminalized but growers themselves have no official guidelines except for limits legislated at local levels, allowing counties and cities to pick the cannabis vendors they allow to operate, and routinely leaving growers without any way to prove they are raising plants for the "legal" medical industry.

Recreational markets pose problems for growers as well. In Washington State, they're prohibited from selling directly to consumers, and instead must vend to state-licensed processors and retailers. Blocking growers from vertically integrating with retailers, or conducting direct sales themselves, unnecessarily lengthens the supply chain, raising prices for consumers while decreasing revenue for cultivators.

Another looming regulatory complication for cannabis growers are taxes and fees. In Colorado, retail cannabis is taxed at more than 27 percent, driving both consumers and growers to the black market where they can both get better deals. In Washington State, the effective tax rate is 44 percent. Other states are making their programs even more restrictive: Maryland is going to charge $125,000 for a medical marijuana business license alone; in New York State, a total of just five cultivation licenses will be fiercely fought over, and the victors will only be able to sell cannabis-infused products—no buds or joints.

As civic anxiety over cannabis begins to dissipate and examples of responsible canna-businesses increase, will regulation ease and pave the way for more small-market vendors? Or will the rules remain biased towards those who can afford the government-imposed costs of business? Given how long marijuana prohibition itself has lasted—and increasingly affirmative scientific research—the public has reason to be skeptical of marijuana regulation regimes that harshly restrict growers, because those restrictions will ultimately affect customers as well. A pot brownie may soon be legal for you to buy and eat, but how much will it cost, and what will be in it? Unless state regulation of cannabis can accommodate the marijuana economy we already have—legal or not—the dark net will continue to be one of many spaces where black market demand for cannabis meets white market supply.

Bill Kilby is a freelance writer based in Los Angeles.