Four Years After Legal Weed, Seattle’s Black Market Still Thrives

web1_copy_160914-sea-cvrwebMeet the dealers, buyers, and patients ducking the 502 shops.

  •  Wed Sep 21st, 2016 1:30amWhen I first met Steven, it was in the wee hours at a downtown hotel. The small afterparty he was hosting was in celebration of a successful deal—a very successful one: He’d just connected an out-of-state buyer with 25 pounds of pot—for $35,000 or so—meaning he’d be seeing a significant finder’s fee, perhaps 10 percent. The next day he’d be waking at the crack of noon (or, if we’re honest, 2 p.m.) to head to Oregon in search of more product for his mystery buyer, but for the time being he and his boys were cracking Stellas and cavorting in the hot tub, reveling in the moment.Steven is what can best be described as a broker, someone who connects illicit growers with higher-level dealers looking to buy in quantity. “I’m like a concierge,” he told me. “I take [buyers] out to dinner, make sure they have a good time.” After food and some drinks, he hooks them up with local suppliers, lets them make their exchange, and waits for his fee.

    In Washington, getting rid of people like Steven and his clients was one of the major promises of I-502, the ballot measure that made the state the second in the nation to legalize marijuana. But nearly four years after the initiative passed, street dealers and interstate traffickers are still at it, leaving lawmakers and legal-cannabis-industry players alike scratching their heads (and blowing smoke out their ears).

    It’s difficult to determine just how much of the cannabis industry the black market commands. Some groups have tried, including BOTEC Analysis, the state’s go-to research contractor. In a 2015 report, entitled “Estimating the Size of the Medical Cannabis Market in Washington State,” BOTEC put the black market’s share of the total pot pie at about 30 percent, or $1.33 billion. To arrive at this figure, BOTEC started with an existing RAND Corporation study of the state’s overall cannabis market, then subtracted the state’s recreational and medical markets. The remainder, they concluded, was what was left to the illicit market.

    BOTEC itself noted in its report that the true figure could be far higher or lower than its estimate, given the very nature of the black market. That said, few researchers attempting to gauge the black market in Washington have bothered talking to dealers and buyers themselves. To be fair, it’s not as though there’s a stall at Pike Place Market. But it ain’t exactly hidden either. While I wasn’t able to get El Chapo on the phone, I have managed to chat with some of our city’s friendly local black marketeers. Here are their stories.

    STEVEN

    Steven’s business is built around a simple fact about legal cannabis grown in Washington and Oregon: Once it’s shipped to states where pot is still illegal, it fetches an exorbitant price—like $3,500 per pound, says Steven, compared to around $1,400 here in Washington.

    Indeed, he says, many of the black-market growers he deals with are actually involved in the 502 industry but, motivated by those jaw-dropping return rates, maintain “side houses” as an extra means of revenue. “A lot of 502 people have a secret house they grow at,” he says. “My guy, he got some contract with [a 502 retail shop]. I think he gets like $250,000 a year or something.” Still, he sells on the side, substantially padding his income.

That said, in considering the intractability of the black market, one cannot overlook local demand. Our state’s legal cannabis businesses would not be nearly as up-in-arms over the black market if it were only serving smokers in other states. But it’s not. “It’s still definitely cheaper,” Steven says. “I would say the price is still $20 an eighth street level if you have a good dealer. If you were going to Uncle Ike’s, it’s still going to be $30 on the low side, and I think the quality isn’t going to be that much different. They’re definitely going to have way more selection, but I think most people are like, ‘For the price, I’d rather just buy from a drug dealer.’ ”

He also notes that, price considerations aside, ease of access is also a big deal. “If you’ve got to drive 15 minutes to 20 minutes through traffic to go to a store, as opposed to your local neighborhood guy, you’re probably still gonna go to that guy,” he says. “More than anything, the competition from the black market would be these gray-area delivery services. It might only be $5 more, but it’s like ‘All right, I can get this shit now.’ That’s a huge part of why the black market will still exist: the convenience factor. It’s the on-demand generation.”

BART AND JARED

On that note, meet Bart, a local grower and dealer who uses his small basement grow to support his artistic ambitions. He grows about a pound of high-quality indoor pot a month, and sells it in small quantities to a close circle of trusted longtime buyers. Legalization, he says, hasn’t changed much for him, including prices.

“Prices were kind of going down before legalization,” he says. “Ounces were around $200, and now they’re around the $150 range, depending on quality. I charge $160 because I think I deserve it. But that price was pretty much established before legalization. It wasn’t like [legalization] changed it or brought it down.” Reminded that Uncle Ike’s sells ounces for $99, he points out that you can’t unlink the price from the product itself, suggesting that those $99 ounces are nowhere near his product in quality. “If the price meets the quality in the shops,” he notes, “it’ll be hard to compete with that.”

For now, he has no trouble getting rid of his monthly pound. He even occasionally takes on new clients, though he doesn’t need to to sell out his supply. “If I had my ultimate grow, hypothetically, I’m sure I could start doing, like, pounds a week easy,” he says. “I would just have to be more proactive about it, y’know? Like I kind of stopped doing deliveries. I would have to go back into delivering. I’d probably start talking to other wholesale dealers.” Bart’s experience with delivery neatly illustrates Steven’s point about the power of access. “When I’m not delivering,” Bart says,” I probably lose like 40 percent of my customers.”

Indeed, Jared, a former black-market grower turned regular old black-market customer, says delivery was a big part of why he’s continued to buy from the black market. Price is a factor—the “homie hook-up” prices Jared quotes are, quite frankly, insane: $70 an ounce and $30 for a gram of concentrate—but he’s quick to point out that convenience is a major factor. “My first choice is always gonna be my dude,” he says, “because I know it’s gonna be a little cheaper and he will deliver to me. I could be at work, at my door post [he does club security], and he’ll deliver it to me.” He notes that one of the few reasons he’s had to visit a recreational store was when his dealer was over an hour out and he needed weed in a hurry.

MARIA

Along with price and convenience, another factor pushing people into the black market is Washington’s recent medical-marijuana law, the Cannabis Patient Protection Act (SB 5052).
SB 5052 folded the state’s loosely regulated medical-marijuana system into the recreational one, mandating that the state’s medical dispensaries obtain I-502 licenses or close. Based on that BOTEC report, the state decided to license 222 new retail outlets, theoretically offering those licenses to established players from the medical-marijuana industry to ensure that they continue to meet the needs of their patients.

However, many contend that those 222 licenses represent a small fraction of the total medical-marijuana market, and that many recipients weren’t as interested in serving patients as in taking their money. In July, as the new system went into place, patients cried bloody murder, saying that their trusted suppliers had been ripped away and suggesting that the move would eliminate affordable medicine, forcing sick people to get their green on the black market—and by extension incentivizing those suppliers who didn’t obtain recreational licenses to go back underground.

Suppliers like Maria. She operated a dispensary in western Washington prior to the implementation of SB 5052. After her attempts to get a license failed, Maria gave up on pot, at least publicly. However, I recently attended an “Ice Cream Social” at her former storefront, now converted to something of a hangout for her patients.

As a bunch of friendly suburbanites—some of whom brought their kids—passed around infused brownies a la mode, Maria stepped frequently into her office for what she called “the other party”: providing the rest of her inventory to patients desperately seeking cheap medicine. One older gentleman, arriving early, made small talk with Maria, then got right to the point. He didn’t need any ice cream.

“So when should I come back?” he asked. Another, upon arriving, cupped a hand over his mouth and asked, “Where’s the product?” Though the scene was aggressively tame, this was technically a black-market deal. One patient picked up what in a retail store would have been $380 worth of flowers, kief, and edibles. Maria hooked him up for $180.
Trent said he bought all his weed on the black market since the new law passed. “What are we to do?” he asked. “It’s inhumane for anyone to deny us anything that medically benefits us.” He’d tried the rec store, he said, but they didn’t have the right strains and the prices were way too high. Maria, however, still had some of the particular high-THC indica that worked to calm his PTSD without putting him to sleep.

And that, more than money, was what drove Maria to host her polite little party. “There’s nothing out there for patients, there’s nothing on the shelves [at the recreational stores],” she complains. “There’s a lot of risk right now, but I’m willing to take that risk because patients need their medicine.”

THE ECONOMIST

So if eradicating the black market—at least locally—is a desired outcome of legal cannabis, how does one untangle this ball of Christmas lights? According to Beau Whitney, who runs the cannabis-industry consulting firm Whitney Economics, the answer is reducing regulation. Doing so, he contends, will allow cannabis businesses the necessary flexibility to fill the slots the black market is currently filling.

Essentially, if the legal industry meets the needs of the black market’s varied clientele—the ones who want good, cheap weed; the cancer patients seeking affordable medicine; the guy too lazy to get off his couch and go to the store—there’s no need for a black market. Of all those needs, says Whitney, price is key. “If you bring the price of retail cannabis more in line with the street price, it’ll make a huge dent into the black-market activities,” he says. Whitney has a stake in an Oregon cannabis producer and retailer, and says that at one point they offered a loss-leader special to win over new customers.

“We heard from black marketeers that they were pissed off at our pricing because we were competing directly with them,” he says. “Word on the street was that we had made a big dent. Because of the price sensitivity, we saw a surge in demand at our dispensary.”

Whitney notes that a larger black market means more cannabis arrests and a statistically larger impact on communities of color, as they tend to be arrested for cannabis crimes at a disproportionate rate (though said crimes are committed with the same frequency by white people). “This is not something that can just be ignored by the legislature, this is a public-safety issue,” he says. “There’s all sorts of social costs that are incurred as a result. Increased law-enforcement costs, increased incarceration. It’s typically skewed more towards minorities. There’s a huge social cost to this; it’s hard to quantify, but it’s significant.”

THE COP

That said, in Seattle there hasn’t exactly been a harsh crackdown on the black market. You can still buy a dime bag in the Jack in the Box parking lot on The Ave, and no one has kicked down Bart’s basement door just yet. Sgt. Sean Whitcomb, the Seattle Police Department’s spokesperson, says that is likely because the department’s primary focus is elsewhere. “There’s three areas where we’re not going to compromise [on pot]: selling to kids, for one; big-profit growing, for two; and driving under the influence,” he says. “If you’re engaged in that activity, don’t think that just because the laws have changed that we’re going to prioritize those any less. We’re very motivated to ensure that those laws aren’t broken.”

However, your average street dealer, provided he or she supplies only grown-ups, has little to fear. To wit, Whitcomb was walking to a bus stop one night when he himself was propositioned with pot. “I said ‘No, thanks,’ ” he tells me. “He was like, ‘No, man, listen, it’s a great price.’ I said, ‘Listen, I’m a police officer, and you’re not allowed to be selling marijuana, that’s a fact.’ He says to me, ‘Well, it’s legal here, man!’ ”

Statistics show an overall reduction in cannabis arrests in legal states, though the racial disparities among those arrests are still stark. However, that doesn’t mean there’s not still risk for black marketeers. For one, homegrows are still an action item in certain circumstances, according to Whitcomb. For example, a break-in at a children’s bookstore in North Seattle led police through a hole in the wall to a large indoor marijuana grow.

“The one that we’re truly interested in is the large-scale illegal-grow operations,” says Whitcomb. “Those are still prevalent in Seattle, and we do come across those with a degree of frequency.”

THE LAWMAKERS

In the last legislative session, State Rep. Christopher Hurst (D-Enumclaw) proposed a bill to lower the excise tax for cannabis to 25 percent. An economic model he assembled in support of his bill estimated that the state would stand to gain a whopping $1.085 billion by lowering the tax. Hurst wasn’t proposing that the state issue new retail licenses, but his plan did call on the state to override any cannabusiness bans and moratoriums implemented by local municipalities, ensuring that no area of the state would provide a legal-cannabis dead zone for black marketeers to flourish in. (Steven did indeed mention that though the black market has no trouble competing here in Seattle, many black-market actors have migrated to areas with no legal pot businesses to profit off the captive audience.)

As Whitney, the economist, noted, lowering taxes during a budget deficit is always a hard sell, and indeed Hurst’s bill ultimately failed. While Hurst’s own analysis suggested lowering taxes would increase state revenue, an independent state analysis suggested otherwise. Hurst’s info sheet for the bill included a plea for fellow legislators to think past the fiscal note, which showed a $43 million loss in tax revenue, but the bill failed.

Defeat aside, though, Whitney says Hurst was on to something. “Once you bring in more people, reduce the taxes, and reduce the regulatory burdens, then you can drive down costs and do massive production,” he concludes. “Then you can drive out the black market because their onesie, twosie production can’t compete on price.”

Steven puts it more directly. There will always be a black market, he says, “until it’s like a pack of cigarettes and you can just walk into the corner store and get it. That’s when drug dealers will finally be gone.”

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