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In many countries drugs like marijuana are being increasingly legalized or at least decriminalized. In such circumstances, you would expect the previously illegal or bootleg marijuana producers to disappear. Yet, even under legalization, a black market remains. Is this a transitory phenomenon or are there reasons to expect the black market to remain in some form?

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  • $\begingroup$ John Stossel did a recent report covering this topic youtube.com/watch?v=tP3fs_AuJHc&t=55s Basically as long as the government screws up while trying to overregulate a market black market will persist $\endgroup$
    – Rubus
    Aug 21 at 8:03
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My syllogism is the following:

  • Going from a paperless, tax-exempted, although illegal business, to a taxed, legal business saturated with paperwork must be a bad bargain for at least a percentage of existing dealers. This means that there are costs to initiating and maintaining a legal business that are not present when this business is run in secrecy.

This is especially true for well-connected and established suppliers who are efficient in their price setting and production volumes. It also is a more permanent reason for a black market to persist, and it seems that only legal dealing marijuana was subsidised by the government, would it compete with the advantages of running it in secret.

  • Because owning and dealing marijuana is legal in one country, it does not mean that all marijuana used is produced locally - most is imported from places where it is still illegal (and highly profitable). Suppliers might be getting a cheaper product if they import it illegally than they would if they bought it from within their borders.

This would mean that no matter the legalisation of marijuana in one country, barriers still exist for the market to become fully legal.

  • Costumers might not be willing to transact in a transparent fashion when it comes to a stigmatised substance such as marijuana.

Thus, even if the supply side of the market becomes completely normalised in the passage of time, there might still be demand-side barriers for it to run in compliance with the law.

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