One of the biggest impediments for cannabis companies has been the success of the black market. While legalization may offer users safer choices, it hasn't often been the most competitively priced or readily available option for customers. A lack of taxes and red tape has allowed the black market to continue to flourish, even in California, where sales from the legal market have been very strong.
Another problem has been the role that Weedmaps, a website that helps connect cannabis customers to nearby dispensaries, has played. Weedmaps has been allowing unlicensed pot shops on its site, effectively allowing them to advertise to customers. It's something that has frustrated legal pot shops, and in California, the courts have recently looked at efforts to limit the black market, including forcing Weedmaps to take down illegal stores from its website.
Weedmaps has until the end of the year to remove all unlicensed stores.
This could be a big win for California-based operators
One company that could stand to benefit from this is Curaleaf Holdings (CURLF +7.05%), which earlier this year entered into a deal to acquire Cura Partners, which owns Select, a key brand that has a strong presence on the west coast, including California.
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However, in order for Curaleaf to be able to take advantage of all that growth, it's going to need consumers to not go to illegal pot shops. Getting Weedmaps to remove unlicensed retailers will be a good step and should help drive traffic to Select stores instead. And given how big the black market is in California, it could have a significant impact on the company's sales.
It's welcome news for other cannabis operators, as well. Ryan Kunkel of cannabis dispensary chain Have a Heart sees it as a big win for his company: "Our biggest competitor in every jurisdiction in California is black-market Weedmaps. It's not the tax rates, it's not the regulations -- it's Weedmaps' efforts to prop up unlicensed operators."
A big reason for Weedmaps' popularity is that consumers can access it from their phones, making it very easy for customers to find a pot shop on the go. Weedmaps had about 8 million visitors to its site over the past six months, so getting delisted could be extremely damaging. And that could be music to the ears of licensed providers that are finding themselves in competition with a black market that doesn't have to play by the same rules.
Key takeaways
This is great news for any pot company based in California, as well as their investors, as it could result in a much stronger performance by companies like Curaleaf that have some of their operations in the state. While there are still hurdles for the legal pot market, this eliminates a significant one.
Ultimately, the success of the legal cannabis market depends heavily on being able to keep consumers from going to the black market, and this is a big step forward in making that a reality. It also gives the California market a big advantage over other states where customers will still see black-market suppliers listed on Weedmaps.
