Marijuana is legal in Nevada, but illegal market is still huge, officials say

Southern Nevada law enforcement announced in April that they’d made their largest indoor marijuana grow operation bust ever: 5,700 individual plants, weighing more than 860 pounds and valued at nearly $9 million.

“We estimated that they were producing close to $20 million a year tax-free just based on that warehouse and the volumes they were producing,” said Josh Garber, a detective for the Las Vegas Metro Police Department (LVMPD).

Despite legalizing the sale and possession of marijuana for recreational use, Nevada continues to maintain a large number of unlicensed retailers, competing against legal dispensaries and denying the state and local government of tax dollars, said regulatory and law enforcement officials at the first annual NV Cannabis and Vaping Summit on Tuesday.

“Once you legalize cannabis in a state, in most cases, most of the illegal market share transitions to a legal market naturally,” said Tyler Klimas, executive director of the Nevada Cannabis Compliance Board, who spoke at the summit. “However not all of it transitions and in fact some new illegal market activity comes into existence, the kind that uses the legal market as a shield.”

State-licensed recreational cannabis dispensaries began opening across Nevada three years ago, but government officials admit the black market is here to stay. 

“The illegal market will remain. It’s inevitable no matter how much attention you give to tax rates,” said Klimas.

The Nevada Cannabis Compliance Board, an agency that governs the state’s cannabis industry, does not have data on the size and scope of the illegal market, said board member Riana Durrett. Most of what the board does know is information shared by law enforcement.

However, data collected by other states can bring some insight into the scope of the illegal market here in Nevada. In California, for example, as much as 80 percent of the cannabis sold comes from the black market. In Massachusetts illegal cannabis sales make up nearly 70 percent of the market. More than half of marijuana sales in Oregon and Washington were illegal last year.

“It’s easy to infer from those numbers that Nevada is losing a large part of its sales to the illegal market,” Durrett said.

So why is there still such a large illegal market persisting in states that have legalized cannabis?

“There are a lot of reasons for that,” Durrett said. “One issue we have are gaps in enforcement.”

No agency is solely focused on regulating the illegal market, said Durrett, adding that while law enforcement is responsible for policing the black market, prosecuting most marijuana cases takes low priority.

“We may not have a state agency dedicated to doing enforcement on the illegal market and we certainly don’t want to have another war on drugs where low-level offenders are going to prison. But when this state looks at what to do about it, we need to make sure the legal market isn’t losing customers to the illegal market,” Durrett said.

Illegal cannabis operators have been bold in advertising in plain sight. In one example an unlicensed seller was advertising transportation services on a billboard along the I-15 near the Cosmopolitan Hotel and Casino. Online and social media advertising is an even bigger issue. 

“I’ve seen many illegal market advertisements where they are not concerned about enforcement,” Durrett said. 

“Our illegal market is thriving under the umbrella of the legal market,” said Garber, a detective for the LVMPD, at the summit.

Black market logistics

Last year, 17 illegal home growers were busted compared to 111 in 2013. The reduction is mostly due to the elimination of a full-time team who were solely focused on marijuana enforcement rather than a reduction in illegal home growers, said Garber. While 4,859 pounds of cannabis were seized in 2020, that number is only a slight reduction from the 4,945 pounds seized in 2013, despite the large reduction of busts.

“That was without actively having a team to investigate growers. Just detectives investigating complaints we received,” Garber said, adding there wasn’t an appetite for cannabis convictions.

Still, in 2020 the department made a total of 617 marijuana arrests, most falling under the category of possession with intent to sell. The bulk of growth in the illegal market has come from illegal delivery, said Gaber.

The U.S. mail system remains a popular method to traffic cannabis across the country. And, despite voters in Nevada legalizing recreational marijuana in 2017, it is a method that remains just as illegal.

LVMPD intercepted 314 parcels containing cannabis in 2020, a large increase from 72 parcels in 2016. Seventy of those parcels contained cannabis that had been purchased from a licensed dispensary and then resold.

“It’s a huge huge profit to purchase marijuana here legally and ship it back East or to a state that doesn’t have legal marijuana,” Garber said.

A robust delivery market that can compete against illegal delivery would strengthen the legal cannabis industry, according to Durrett.

“Illegal delivery is actually where most of the illegal market exists,” said Durrett “When it’s online it’s really hard to capture and really hard to track down.”

Poor public knowledge of cannabis laws in the state also contributes to the illegal market, especially when adding in the high volumes of tourists who would visit Las Vegas every month before the pandemic.

“A lot of consumers don’t know what’s legal and what’s illegal,” Durrett said. 

A big issue for law enforcement is that tourists are not typically familiar with rules and regulations of the legal cannabis market and often violate it or become victims of crime, like falling for illegal sales and delivery services. Cannabis consumers also fall into a legal grey area where they are able to buy cannabis, however there are few places in town, other than private homes, where someone can legally consume it.

Public service announcements, like those in Colorado, would be a good first step in addressing misinformation, Durrett said.

“Most retail stores will say they aren’t competing against other dispensaries, they are competing against the illegal market,” Durrett said.

In fiscal year 2019 state sales tax on cannabis products in Nevada amounted to about $53 million, an increase from the $43 million collected in the prior fiscal year. Durrett warned that with the majority of sales likely still occurring on the black market the state is missing out on tax revenue.

“A large incentive to legalize cannabis is that if people are going to consume anyway you might as well collect taxes and put it towards education,” Durrett said.

The black market is also a health risk, Durrett said. Black market cannabis is not tested for pesticides or harmful microbes. Unlicensed sellers often market to minors and do not have safety measures to keep minors from obtaining the product.

Garber said the business also invites money laundering, including through hard-to-track cryptocurrency.

Nevada cannabis businesses operate on a cash-only basis. Citing federal restrictions, banks and credit card companies have refused to do business with them, complicating law enforcement’s work and creating additional issues.

“There’s a large sum of cash that goes into these marijuana businesses. They are a high attraction for robberies,” Garber said.

How legalized recreational cannabis has affected crime trends is not well understood in Nevada. Currently, LVMPD is standardizing data collection to more accurately monitor the effect of cannabis use on crime. Arrest data might only say “narcotics-related” without listing what drug.

“We are trying to do a better job of trying to trace the exact drug,” Garber said.