How the Grey Market Cannabis Industry Operates

Last time on the KCG Content Green Rush Series, we finished our study of the medical cannabis vertical. In this installment, we look at grey market cannabis and its influence on our misconceptions of the green rush. 

The grey-market in cannabis represents a convoluted mash-up of legal and illegal activity, where progressions in legalization efforts are destabilized by individuals manipulating a changing system for profit. To this end, grey-market dealings denote a combination of both medical and black-market systems in varying locales. Grey-markets are born hand-in-hand with novel legislation in medical marijuana, as the volatility of new programs provides ample loopholes for illegal activity.

The grey-market can operate in States that allow for the home cultivation of cannabis in their regulatory schematic. In regions like these, home growers acquire medical recommendations from doctors that allow them to grow a large number of plants at home. However, instead of using their cannabis for a legitimate medical need, these growers sell their products illegally on the black market. It should be noted that medical programs without an allowance for home cultivation, such as Ohio, run into far fewer issues with grey market production.grey market cannabis

For many people living in Western States like California, Oregon, and Colorado, grey-market activity has really come to encapsulate the green rush myth, as the mid to late 2000s saw droves of people migrating west for opportunities in the semi-legal trade. Similarly, the gold rush undertones are undeniable in this sequence of events, as the dream of quick cash and adventure literally motivated tens of thousands of people to head west and set up shop in the grey-market. Nonetheless, while money did come fast and easy for a time in the grey-market, this facet of the industry has come to run its course in most of the western States. As seen with the black-market, rapid evolutions in the industry are quickly rendering certain elements of the cannabis space obsolete. For the grey-market, inflated operating costs, diminishing value of product, and pressure from the State are causing an all-out market collapse.

Grey-market activities in cannabis represent an extremely peculiar phenomenon of a new industry, as it simultaneously stimulated market growth while causing regressions in mainstream acceptance of the industry. As seen with the medical industry, the grey-market did help bring cannabis into the limelight by widely popularizing commercial cultivation. Yet, many feel it has also held the industry back by keeping it overtly stigmatized with illegal business. The consequences of the grey-market are extremely difficult to understand, yet they are tremendously influential in critiquing conceptions of the green rush myth.

Home-Based Cannabis Cultivation

The allowance of home-based cannabis cultivation by State regulatory committees creates an environment in which the grey-market can thrive. In States with medical marijuana programs, patients are required to get a doctor’s recommendation or verification in order to cultivate cannabis legally. There is no strict protocol regarding qualifying medical conditions for cultivation across the United States. To this end, the grow scene is a patchwork of independent entities that often misinterpret the law to their own ends. Also, quite importantly, a doctor’s approval for cannabis cultivation does not give growers the ability to legally sell their flowers. This is a fact in any medical program.

The grey-market has continued to thrive in many of the Western States due to legal loopholes surrounding home-based cultivation – these loopholes primarily have to do with “plant counts.” These plant counts represent the number of cannabis plants a medical patient can legally grow under State law. In popular outdoor growing States like California and Oregon, the misinterpretation of plant count regulations has given rise to a multi-billion-dollar grey-market industry. Cultivators in these regions have devised clever ways to manipulate their plant counts into appearing “legal” or “compliant,” and consequently plant massive outdoor crops right out in the open air.grey market cannabis

When the medical industries began in places like California and Colorado, growers could cultivate up to 99 plants at a time. When growing these many gigantic outdoor plants, the 99-count allowed grey-market producers to grow hundreds of pounds of cannabis each summer and make exorbitant profits in an extremely short amount of time. As State and county regulatory committees grew wise to this loophole, they began putting stricter regulations on plant counts.

Grey-market growers found a way around these smaller plant counts by “stacking” prescriptions – meaning they used several patient’s medical verifications on a single property to continue commercial production. As such, even if a certain county in California only allowed for the cultivation of 24 plants under a single doctor’s recommendation, growers would combine four recommendations on a single property to legally grow 96 plants. These clever manipulations of the law gave rise to the massive influx of outdoor gardens seen in Northern California and Southern Oregon today, which have come to support entire families and communities. Yet, as the cannabis industry continues to evolve and grow increasingly regulated, these grey-market economies are being slowly squeezed out by lawmakers, due primarily to the exorbitant profits at stake in the cannabis industry.

The Grey Market Cannabis Industry in Oregon

The Oregon cannabis industry offers an excellent sampling for understanding how a grey-market operates in relation to the changing controls of government regulation. Again, these evolutions in legislation allow for “gaps in time” where grey-market producers can greatly capitalize on legal loopholes created with poor foresight on the parts of government agencies. Yet, once exploited, these loopholes become quickly closed by lawmakers, causing dramatic shifts in subsistence patterns by those who have come to depend on the grey-market for income.

In the early years of its medical marijuana program, the State of Oregon allowed for 6 plants to be grown per patient, with a grower being able to grow for four patients, allowing for 24 total plants per grower. Yet, grey-market producers quickly found a loophole in this regulation, as there was no established limit on how many growers could be present in a single household or property, as well as no way to prove what residents were actually growing cannabis. To this end, the grey-market in Oregon exploded with the practice of prescription stacking, where four people living on a property could grow 96 plants without fear of arrest.grey market cannabis

As happens anywhere in the cannabis space where cash comes quick and easy, the Oregon government got wise to the money pouring into the State’s grey-market. Also, as is a recurring theme in the modernized cannabis industry, the State of Oregon saw huge potential tax revenues in regulating the industry further. As such, regulatory committees in Oregon changed their plant count allowances to curb the grey-market activity. As of 2017, the State allows for 12 mature plants, 24 immature plants (over 24 inches tall), and an unlimited number of immature plants (under 24 inches tall) per property in residential areas. Looking outside of residential areas, the State allows for 48 mature plants, 96 immature plants (over 24 inches tall), and an unlimited number of immature plants (under 24 inches tall).

It should be noted that these are still liberal numbers for home-based growers in Oregon, as the State genuinely wants to honor the prescription needs of their real medical patients. Nonetheless, putting a cap of 48 on mature plants anywhere in the State destabilizes the grey-market by removing some of its legal clout. This notion is particularly poignant with outdoor production, as dwindling price points on pounds force cultivators to grow more plants to make the same profits they did with half the plants 10 years ago.

The Green Rush Series on the KCG Content Blog

Next time on the Green Rush series, we will more carefully study the grey market to better understand how it influences local communities.

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