The promise that legalizing marijuana would eliminate the black market has not materialized in California. Despite the state’s efforts to regulate and tax cannabis, illegal dealers remain active, and the legal industry is struggling.
Declining Legal Sales
California’s legal cannabis sales have been on a downward trend, with a cumulative decline of about 11% from 2023 to 2025. In contrast, national surveys indicate that marijuana use is on the rise, with more than 44 million Americans using cannabis in 2024, according to the Substance Abuse and Mental Health Services Administration (SAMHSA).
This discrepancy suggests that many consumers are turning to the black market, where prices are often lower due to the absence of regulatory costs and taxes. Illegal dealers can undercut legal sellers, benefiting from the increased demand that legalization has inadvertently helped create.
Impact on the Legal Industry
The legal marijuana industry in California has become a marketing arm for the broader marijuana economy. Licensed dealers advertise and promote cannabis use, expanding public acceptance and demand. However, this has not translated into sustained success for the legal market.
California now has more than 10,000 inactive or surrendered cannabis licenses, surpassing the number of active licenses. Tax revenues from cannabis have declined, impacting city and state budgets. In San Diego, cannabis tax collections have significantly decreased from their post-legalization highs.
Investor Concerns
Investors are increasingly wary of the legal marijuana market’s viability. Cannabis-related stocks have lost substantial value, with a major cannabis-sector fund reporting a -67.40% return for the fiscal year ending June 30, 2025, while the S&P 500 rose by 15.16% during the same period.
The industry’s defenders argue that legalization has reduced criminal activity and increased consumer safety. However, the black market remains robust, with estimates suggesting that over 60% of marijuana consumed in California is still obtained outside the legal system.
Unintended Consequences
Rather than replacing illegal drug dealers, legalization has created a second class of dealers—licensed, regulated, and taxed—who now compete with the original ones. The irony is that the legal industry has helped normalize marijuana use, expanding demand that continues to benefit the underground market.
As the black market thrives and the legal market shrinks, taxpayers and policymakers are left questioning whether the promises of marijuana legalization were ever realistic.
Original reporting: Fox News (HLL/CB) — read the source article.
