Colorado and Nevada Have Been Battling the Illicit Market for a Decade. New Research Confirms They’re Winning.

States: CO, NV, AZ, OK, NM

A new peer-reviewed study — summarized last week by NORML — adds meaningful data to an argument Colorado dispensary owners have been making since 2014: legal cannabis doesn’t feed the illicit market. It shrinks it.

The findings, drawn from an analysis of states that have enacted adult-use legalization laws, found that regulated cannabis markets are associated with significant disruptions to unregulated supply chains. “Taken together, findings support the possibility that recreational cannabis laws may help to reduce the size of the illegal cannabis market,” the study authors concluded.

For states like Colorado and Nevada, this isn’t theoretical. Colorado has been tracking illicit activity and comparing it against licensed retail volume for over a decade. Nevada — which launched adult-use sales in 2017 — has consistently seen its regulated market grow even as enforcement against illegal operators increased. The data pattern is the same: as legal access expands and prices normalize, the black market contracts.

The Southwest context makes this particularly relevant. Oklahoma, with its unusually dense network of licensed dispensaries, presents an interesting test case: with nearly one dispensary per 2,100 residents, the state has among the best legal access per capita in the country. Illicit sales still exist, but the access argument — that people buy illegally because there’s no legal option nearby — is harder to make there than almost anywhere.

Arizona’s adult-use launch in 2021 added another data point. The state’s DPS and licensed operators have both reported steady declines in known illicit market activity as the legal market matures and prices have come down.

The study’s significance isn’t just backward-looking validation. It feeds directly into ongoing federal policy debates — DEA rescheduling, congressional hearings on the SAFE Banking Act, and the arguments made by states still weighing legalization. Opponents of legalization have long argued that a regulated market doesn’t meaningfully address illegal sales. The empirical record in states like Colorado and Nevada increasingly says otherwise.

For operators in these markets, this research matters for a different reason: it strengthens the case for continued investment in licensed channels over enforcement-heavy approaches. When regulators can point to evidence that access reduces illegal market share, it builds the political foundation for license expansion, reduced excise taxes, and operational regulations that let legal businesses compete on price.

River Nash covers the Southwest cannabis market for CannabisInquirer.com.