How The Black Market Is Threatening The Legal Cannabis Market

The outbreak of deadly vape-related illnesses is shining a spotlight on the booming $52 billion illegal market. Why are shady dealers still stealing business from legitimate companies?
How The Black Market Is Threatening The Legal Cannabis Market
Image credit: Jane Khomi | Getty Images
Magazine Contributor
11 min read

This story appears in the December 2019 issue of Green Entrepreneur. Subscribe »

One morning last August, Jonathan Doneson woke up with a cough that shot straight through his rib cage. “It killed me,” says the 52-year-old, who runs a women’s apparel company with his wife. “It was like I’d taken a really big bong hit.” 

But Doneson didn’t have a bong. What he had was a discreet vape pen with marijuana cartridges he’d bought from a friend. For months, he’d been hitting it eight to 12 times a day, installing a new cartridge when the old one ran out and keeping a low-grade buzz to manage his stress. The habit felt so harmless that he didn’t even think to mention it to the doctor who X-rayed him following his bong-level cough. 

New York has yet to legalize recreational weed, and some of Doneson’s cartridges were part of an illegal market of products that skirt regulations. What’s shocking is that the same underground market is thriving even in states where cannabis is fully legal. In fact, it dominates all cannabis business in the U.S. And it’s a growing problem: Not only are its dealers able to undercut legal sellers on price, but the unregulated product seems to be a critical agent in the vape-illness outbreak, giving all of marijuana a bad reputation.

Related: Why The Cannabis Industry Is Urging For A Regulated Market

Doneson was diagnosed with bronchitis. A few days later, it was pneumonia. And a week after that, he was in the intensive care unit, quarantined in a pressurized room. He wasn’t responding to antibiotics, so officials from the Centers for Disease Control and Prevention filed in to hammer him with questions. Did he smoke cigarettes? Drink alcohol? Travel? “Yeah, I do all those things,” Doneson replied. Then they asked about recreational drugs, and for the first time, he mentioned the pen.

A roomful of doctors lifted their eyes from their clipboards. “We’ve been treating this all wrong,” he remembers one saying. “People have died from this.” 

As of early November, the number of deaths related to vaporizers stood at 39. And more than 2,050 people had fallen ill. One of the challenges healthcare professionals face in treating these people is that they don’t yet know what causes the condition. What they do know is that 86 percent of the patients were vaping THC, the psychoactive ingredient in marijuana. And according to the CDC, most of them were using illicit products bought from unregulated sellers, like friends or dealers -- which makes it harder than ever to pinpoint the illness’s culprit. For example, the agency points out that Dank Vapes, a brand cited often among those sickened, doesn’t originate with a single source. Dealers just purchase the empty packaging online, buy empty vape cartridges from Alibaba, and fill them with whatever they want. 

In October, Mayo Clinic researchers examined biopsy samples from 17 vaping patients, two of whom died. “The lining cells of the lung were either gone completely or responding to injury,” says Henry Tazelaar, M.D., a pathologist who worked on the study. It’s similar to what you’d see with a chemical burn. “Even if you know what’s in that little cassette, we don’t know what happens when you heat that stuff up and mix it all together.”

One hint comes from a 2017 study from Arizona’s Medical Marijuana Research Institute, which found that propylene glycol and polyethylene glycol -- two common cutting agents used in both legal and illegal vaporizers -- could convert into acetaldehyde (a carcinogen) and formaldehyde when exposed to the heat of a pen. (Many legal manufacturers have voluntarily stopped using cutting agents, and dispensaries have begun removing products with either of the glycols.) In a more recent analysis, the cannabis testing lab CannaSafe found detectable levels of pesticides in all 12 of the illegal vapes tested. Products with carefree names like Mario Carts, plus counterfeit versions of typically legal vapes like Heavy Hitters, contained myclobutanil, a chemical that can break down into cyanide under heat. 

The CannaSafe research also turned up something else: There was no trace of vitamin E acetate among the legal samples they tested, but the illegal products were awash with it. And the CDC has since identified vitamin E acetate as a strong culprit in the vaping illness outbreak. Dealers use the oil to thicken the liquid in vaporizer cartridges, and once heated and inhaled, it can clog air sacs called alveoli, which help the lungs take in oxygen. That may have been the offending ingredient in Doneson’s case. Some of the cartridges from a counterfeit of a vape called Kingpen consisted of 34 percent vitamin E acetate. Whether the problem comes from the oil or a chemical, the result is essentially the same, according to Tazelaar. “You end up with a lung that doesn’t breathe,” he says. “You can’t get oxygen in, and you can’t get carbon dioxide out.” 

Related: 3 Key Steps to Securing a Marijuana Manufacturing License

Doneson lost 20 pounds the month leading up to being hospitalized. Once he made it to the ICU, his organs started shutting down. And as his temperature spiked to 105.4°F, doctors began covering his body with ice bags. His wife sobbed while signing the do-not-resuscitate order, and the hospital began pumping an aggressive cocktail of intravenous antibiotics and steroids into his body. Doneson passed out. “For some people, this treatment has been helpful,” said the attending medic. “But others didn’t react at all, and they died.” 


It’s no surprise that bootleg vapes are proving to be dangerous. But it’s beyond frustrating that they’re now being associated with highly regulated, well-tested legal cannabis products. Not only that, they’re hurting one of the biggest avenues of legitimate growth. Vape sales make up about 19 percent of legal cannabis sales, according to BDS Analytics, and that number had been expected to climb for at least the next five years. But with the recent spate of illnesses and deaths, vape sales have fallen. In the span of a few weeks, they dropped by 11 percent in California, 16 percent in Nevada, and 25 percent in Oregon.

What’s perhaps most disturbing is that the underground cannabis world seems unstoppable. BDS data shows that the illegal market for weed brings in more than $52 billion a year. And the problem is the worst in California, where the legalization of medical marijuana more than 20 years ago helped create a gray area of growing and distribution that fell somewhere between legal and illegal. “We were cultivating for the entire United States,” says Jerred Kiloh, board president of the United Cannabis Business Association (UCBA). “So we had a very mature supply chain with relationships, vendors, and distributors.” 

The California Bureau of Cannabis Control (BCC), which has received almost 10,000 complaints in the past two years, tries to go after offenders, but the punishments the agency has to dole out are often too lax to matter. “Our investigators can make arrests and confiscate product and cash,” says spokesperson Alex Traverso. “Then the next day, or week, the place is back in operation.”

That leaves law-abiding dealers to fight for the smallest piece of the cannabis pie. “I think it’s becoming more contentious when it comes to the relationship between legal and illegal,” says Kiloh, who also owns The Higher Path dispensary. “For 20 years, it was ‘Everyone close your mouth! Nobody tells on anyone, and nobody brings in the police.’” But now there are multistate operators and shareholders who expect to see returns. And right now, they’re not happy. 

Related: There's No Connection Between Marijuana And Violence, Experts Say

California’s legal market has been roughly flat for three years. “There’s not a lot of incentive to be in the regulated market,” says Kiloh. “We’re trying to compete with illicit dealers who have half-price everything.” After compiling state and local taxes, a report from Fitch Ratings finds that the upcharge for legal weed in Colorado is 36 percent, in Washington it’s 50 percent, and in California it’s 35 to 45 percent. But Kiloh estimates the number is actually much higher when you factor in compliance costs and a lack of tax deductions. Since cannabis is a Schedule 1 drug, federal law forbids companies that sell it to receive the tax breaks other industries rely on to grow. 

“The only way to survive in the legal market is by burning through cash,” says an illegal dealer who agreed to speak on the condition of anonymity. “Either that, or they’re dealing out the back door. The reality is that a lot of cultivators are selling on the black market to support the legal side.” To his point, in a recent raid on a legal, licensed warehouse facility in Los Angeles, the BCC seized 7,200 illegal vape cartridges and $21 million of illegal cannabis.

But raids and the bad press on illegal vapes haven’t slowed the street market for cannabis. On the contrary, profits are looking good. “Over the past six months, the prices have been going up, so now the black market is strong again,” says the dealer. “I think it would be great if it were regulated and people knew it didn’t have any shit in it. I just don’t see that as being a full reality.”


In late 2018, John Mueller decided to fight back. The CEO of Acres Cannabis in Nevada began selling a product he called Black Market Killer, or BMK -- low-price, low-potency cannabis in the 17-to-20 percent THC range. But the marketing was bold: Mueller put up five billboards around Las Vegas, at a total cost of $12,500 a month, imploring drivers: “Ditch your dealer, stop into a dispensary.” 

The goal was not only to promote BMK but to draw consumers to legal sellers in general. “Part of the reason the black market still exists is that people are used to it,” says Mueller. “It’s just easy when you’ve been buying from the same guy for the past decade.” 

To bring more legit cannabis companies into the battle, Mueller works polls and volunteers with advocacy groups, such as the National Organization for the Reform of Marijuana Laws. “It’s about educating the public,” says Mueller.  

And that’s why, in a twisted way that nobody is fully comfortable discussing, the outbreak of vape illnesses might actually prove to be a positive turning point for the legal industry. “Now is the moment in history,” says UCBA’s Kiloh, “where I think consumers are asking, ‘Is the cost increase worth the reassurance that I have something safe and healthy?’ I’m not trying to say we needed some catastrophe for the cannabis industry to see some growth, but with every catastrophe comes a new lens to look at things.”


The morning after Doneson passed out, he woke up at 5:40 a.m. The room was dark, save for the monitors behind him. Am I in heaven? he asked himself. Or maybe hell? 

Once he’d decided that neither was true, he realized that he felt, well, fine. He felt like he was back to normal, even. Only later would he understand how lucky he was and decide to quit smoking vapes, legal or otherwise. But at the moment, he just broke out laughing. “And then I started taking everything off -- all the monitor stuff, the tubes and oxygen, just ripping things off my body.” Alarms went off, nurses rushed in, and Doneson announced: “I haven’t eaten in a month. I’d like scrambled eggs, French toast, and cranberry juice.”

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