A new report by Whitney Economics highlights how the illegal cannabinoids industry, brings in more money than legal weed markets.
New report by Whitney Economics
The cannabinoids market came into being following the 2018 US Farm Bill, which legalized industrial hemp cultivation and production. It didn’t legalize the use of products for any kind of nutritional supplementation or food, or permit synthetic processing. Though federal congress has proposed laws for the former, nothing has gone through, and the FDA claims it cannot update this on its own. As such, its legal to produce hemp; but all hemp-derived cannabinoids (products that use hemp as a base material) are unregulated for internal use, and not part of legal markets.
Whitney Economics is a data and consulting operation in the weed and hemp space, which is based out of Portland, Oregon. It works with both government agencies and private enterprises, at both the state and federal levels; to help create workable economic strategies and policy, for related businesses and projects.
Earlier this year, Whitney made clear for the public, just how much the federal government takes indirectly in cannabis taxes, via Section 280E of the federal tax code. At that time, the company estimated that cannabis businesses had overpaid $1.8 billion in 2022 alone; with an expected increase to $2.1 billion for 2023. The company also said that in a survey of businesses from 2022, that only 24.4% of legal operators made a profit that year. Now, Whitney has some new news, and it might not be what regulators really want to hear.
According to Whitney’s 2023 U.S. National Cannabinoid Report, which analyzed the impact of the hemp-derived cannabinoids industry on legal markets; hemp-derived weed sales outpaced every legal state market, in 2022. The report put sales for cannabinoids at about the level of craft beer sales in the country.
How much revenue did the cannabinoids market make, in 2022? Whitney estimates that CBD and other cannabinoids like delta-8 THC, brought in around $28.4 billion. Per the report, “For context, hemp-derived cannabinoid sales nationally were greater than total legal sales of medical and adult-use cannabis in 2022.”
It continues, “Currently, the total demand for hemp-derived cannabinoids is valued in excess of $28 billion and supports the employment of 328,000 workers, who earn $13 billion in wages. Overall, the total economic impact of the hemp-derived cannabinoid industry on the U.S. economy is in excess of $79 billion.” It also said that “While they may seem large, these estimates are actually conservative, because they do not account for demand and employment from gas stations, grocery stores and convenience stores.”
Why are we only hearing this now?
The report didn’t make a big deal about the term ‘black market,’ referring to it instead as ‘illicit.’ But the terms mean the same thing. The hemp-derived cannabinoids market is a black market, and no products in it are approved. While some products collect sales tax for governments, others are not scanned at all, or only for show. This means, no government has direct statistics of how large this (or any) black market is.
It’s not that we’re not being told the sales comparison, its because there isn’t one in hard numbers. And the unfortunate truth of gray areas in information, means that anything can be said. Think of all those headlines about how much money cannabis taxes bring in. Well, those amounts are far less than expected and hoped for, regardless of their hype. And we know this because of the sheer size of the black market; which indicates only a percentage of people use legal dispensaries.
To give a quick example on this one, consider that New York has had an operational market for the better part of a year. Yet it was reported in the spring (and then repeated in September) that the state only gave out about 60 licenses for legal establishments. And this while approximately 1,400 illicit stores exist. Just taking those numbers into account, (which is conservative given that the 60 licenses might not all be operational dispensaries yet); it becomes clear that the black market is way bigger, and therefore likely makes way more money.
Since governments don’t technically tax black markets, all we have are estimates. It should be noted that sales tax is applied to some products; but sin (excise) taxes uniformly are not, nor are THC taxes, cultivation taxes, or any other industry-specific taxes. Beyond this, no sales information is collected on most of these purchases.
The weed black market isn’t that different from the growing vape market; most of which functions outside of regulation. This applies to both disposable vapes, as well as other non-disposable products. While we once gain don’t have direct numbers to compare sales, we can consider the following: Grand View Research estimated just the disposable market brought in close to $6 billion in 2021, with an expected yearly growth rate of over 11% until 2030.
It was also estimated that 9,000+ vape products are on the market in the US, and nearly 40% are disposables. As no disposables are legal, this indicates automatically at least 40% of the market is illegal. Seeing as how governments apparently approved less than 1% of vape product applications, the illicit number could be closer to 90%+. We’re never told about this in terms of a lack of government revenue; instead, the public hears about it as fear campaigns meant to dissuade it from buying certain products.
What Whitney report tells us about cannabinoids and legal markets?
The report helps put into perspective, the actual situation at hand. It pops the balloon of reporting that seeks to claim the legal markets are sky-rocketing in success. Realistically, we know this can’t be true due to all the issues with broke cultivators, overproduction, layoffs, and lowered product prices despite high taxes and regulatory fees. We can know it logically by these discrepancies; but a report like this shines a light on the issue.
The report makes clear that lawmakers should consider the size of this hemp-derived market when making regulatory decisions. Report author Beau Whitney explained to Marijuana Moment that legal market regulators “do not have the data on how large the market is and the large number of consumers that prefer this over adult-use and medical. The result is large labor displacement and increased business failures.”
Whitney continued that regulators should look to embrace this market, rather than try to destroy it, saying “It was unfortunate that ‘big cannabis’ is villainizing the hemp industry, when they are making hundreds of million of dollars in revenue from the sale of these very same hemp-derived products.”
He goes on that “We at Whitney Economics feel that the adult-use and medical markets should support the hemp distribution model as it allows for widespread distribution for cannabinoids. If adult-use and medical would follow this path, there would be massive opportunities for growers, processors and manufacturers and would make a significant dent into illicit sales (through greater access and greater legal consumer participation).”
As in, if the legal markets really want to fight the black market, and divert more sales to legal vendors; they must be competitive with it. He’s saying, the popularity of hemp-derived products shouldn’t be ignored, as this can inform future sales. According to the report’s Executive Summary:
“Federal regulation was not able to keep pace with the rapid deployment of hemp products on the market. While mostly self-regulated (with the exception of the cultivation of hemp), concerns arose over the potential intoxicating effect of some cannabinoid products, and the potential public safety risks associated with intoxication. State legislatures attempted to intervene and provide regulatory structure to the industry, but those efforts have generated several unintended consequences on the industry.”
It then explains, “In order to address these issues, policy makers at all levels require data. Up to this point, there has not been a comprehensive, national assessment of the hemp-derived cannabinoid industry. Whitney Economics has taken a conservative approach to data gathering and projections. The intention of this report is to provide a baseline of data in order to help hemp industry stakeholders understand the level of economic activity associated with hemp cannabinoids, and the impact that policy changes will have on the future.”
Conclusion
Weed black markets – including the cannabinoids industry, are a huge source of competition for legal markets. I expect these figures relate to black market sales in general, and include non-hemp-derived products sold by black market pharmacies; although I cannot confirm this. It shouldn’t be shocking that governments will likely ignore all of it, though. Let’s be honest, they already know the situation; and that hasn’t led to legislation that makes sense. Given this repeated history across states, it’s genuinely hard to believe this report will change anything.
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