Washington D.C. cannabis gray market transition, crackdown continuing

An ongoing expansion of the Washington, D.C. medical marijuana market that’s intended to legitimize many of the district’s longstanding “gifting” operators is still very much underway, along with a parallel crackdown on gray market marijuana shops that have not made any attempt to obtain city business licenses.

The crackdown began after the D.C. City Council in January approved new civil enforcement powers for regulators, in an attempt to shutter the cannabis retailers that aren’t complying with local laws, DCist reported.

The city’s Alcohol Beverage and Cannabis Administration (ABCA) was given authority to issue cease-and-desist letters and fines to marijuana sellers that have not formally applied for a city medical cannabis business permit, but as of May 14, the agency had issued just 38 warnings to unlicensed cannabis sellers, despite estimates of “hundreds” of unlicensed shops, according to The Outlaw Report, which estimated the ABCA had only warned about 19% of the city’s thriving gray market.

An ABCA official said during a recent city budget hearing that the agency has not yet begun issuing fines to unlicensed marijuana shops, and The Outlaw Report found that at least two unlicensed shops that had been targeted by ABCA previously were still operational as of mid-May.

Industry insiders previously estimated to Green Market Report that there may have been as many as 1,500 gray market shops operating in Washington, D.C., alongside the city’s longstanding seven licensed medical marijuana dispensaries and nine growers.

In 2022, the city council approved a broad expansion of the licensed medical market in order to get around a decade-long stalemate with Congress over the district’s voter-approved recreational marijuana law, which passed easily in 2014 but was thwarted by conservatives in Congress who stepped in to block the launch of an adult-use industry in the capital. A federal budget rider prohibiting the city from authorizing recreational marijuana sales was just renewed in March.

But the 2014 ballot measure legalized adult-use possession and consumption of cannabis, along with the practice of “gifting” marijuana to other adults, which years ago gave rise to the gray market, wherein retailers sell common items such as t-shirts for a significant markup, and the customer receives a “gift” of marijuana along with their purchase.

The city’s crackdown on the gray market has also apparently accidentally ensnared some hemp shops that also contend they’re fully legal under federal and district law, but which are facing civil penalties nonetheless, FOX 5 DC reported.

Shops including the hemp retailer Flowerz told the news outlet they’d been wrongly targeted by the ABCA for closure, given that all the store’s products are sourced from federally legal hemp, not marijuana.

“For them to come into our shop and tell us we were doing something wrong when one we’re 100% federally legal and two we take these standards really to heart to make sure people trust what they’re consume, it was really disappointing, really frustrating, really scary of an experience,” Flowerz owner Kaitlin Murphy said to FOX 5.

But FOX 5 reported that the new enforcement mechanism approved by the city in January doesn’t exempt hemp stores from the requirement that cannabis retailers obtain municipal medical marijuana business licenses, so the next steps for hemp shops in D.C. are unclear. The mayor’s office and a key city council member didn’t respond to requests for comment from FOX 5.