Washington, D.C.’s failure to tackle the flourishing illicit cannabis market is killing the state’s legitimate operators, who are increasingly struggling with rising crime rates and threats from criminal operators.
In 2017, voters in D.C. (officially known as the District of Columbia) approved the legalization of cannabis for adult use.
However, because D.C. is a ‘federal district’, rather than an actual state, it is directly governed by the federal government rather than having full self-governance like the 50 states.
As cannabis remains federally illegal, Congress soon stepped in to block the implementation of the adult-use program.
This led to the rise of a gray market, where people exploited a provision allowing the gifting of up to two ounces to a friend without payment. Over time, this loophole has been stretched, with entire brick-and-mortar stores now operating under the guise of gifting.
Many of these stores now also sell mushrooms, DMT, and other substances. Meanwhile, the legal medical market has remained small, with fewer than 20 licensed operators until recently.
Grace Hyde, Director of Commercial and Production Operations at District Cannabis, a cannabis cultivator in Maryland and the District of Columbia, told Business of Cannabis that the crime associated with this rapidly expanding gray market is becoming a major issue for legal operators.
“Illegal stores in D.C. have long been associated with criminal activity—unregistered firearms, drugs, large sums of cash, and other typical signs of illicit operations have been well-documented.
“However (earlier this month), for the first time, a legal cannabis store was approached, seemingly by a supplier for the illegal market.
“This particular store was one of the first to transition to the legal market, and its location is right in the middle of a dense area of gifting stores that are still operating illegally.
“The message was delivered under no uncertain terms: the store was told to resume purchasing from the illegal market, with guns being mentioned as a potential consequence if they didn’t comply. This situation is obviously alarming and frightening for the store’s staff, and it raises concerns for the safety of employees at other legal stores as well.”
In 2022, a major bill was passed to expand the number of licenses and provide a pathway for gifting stores to enter the legal market, while also shifting enforcement from criminal to civil penalties.
The plan was to start real enforcement and grow the legal market. However, while more licenses have been issued, enforcement has yet to happen. As a result, the legal market is shrinking, despite the addition of new stores and cultivators, while the illegal market continues to grow.
This disparity impacts tax revenue and allows a massive amount of illegally trafficked product to flood the city. Although the city’s leadership has been aware of this issue for years, action has been lacking.
A task force involving eight agencies was set to launch in 2022 but was abruptly shut down, reportedly due to lobbying efforts connected to the mayor’s office. Meanwhile, crime in D.C. continues to rise, in contrast to national trends.
Since the end of January 2024, the D.C. Alcohol Beverage and Cannabis Board (ABCA) has issued 62 warnings and 20 cease-and-desist orders to businesses selling cannabis illegally. However, none of these businesses have been padlocked or shut down
Currently, the illegal cannabis market in D.C. is estimated to be worth around $600 million annually, compared to just $30 million for the legal market.
“A couple of years ago, we estimated there were about 150 illegal stores. Earlier this year, our regulatory agency updated that estimate to somewhere between 200 and 300 stores,” Hyde continued.
“We’re even hearing from people connected to these operations that some are planning to open additional shops this summer. The lack of fear around enforcement is so pronounced that they’re expanding their businesses.
Despite being in conversation with the mayor’s office for around six years, Hyde says her concerns have regularly been brushed aside.
“The mayor has been notably hesitant to address the ongoing issue with illegal cannabis shops. We’ve been discussing this with her for six years, and for much of that time, she was reluctant to engage with the problem.”
D.C.’s cannabis industry is hoping that the increasingly concerning levels of crime associated with the illicit market, particularly in relation to those operating legally, will pile enough pressure on the mayor’s office to take action and use its newly granted powers to begin shutting down these stores.
“Enforcement must come first. While a legal adult-use program without the need for registration would be ideal, it won’t succeed unless we address the illegal market. It’s impossible to compete with unregulated businesses.”
