Conceptualizing cannabis grey markets: A typology based on the Uruguayan case

The legalization of prohibited activities involves the creation of new (legal) markets that, in general, coexist with illegal markets. Legalization of cannabis in Uruguay was not the exception: it has generated a legal market but also promoted the emergence of new "grey" markets that operate in the intersection of legal and illegal markets. The purpose of this article is to conceptualize the grey markets accounting for its different subtypes, moving beyond a monolithic understanding.

This paper introduces a radial conceptualization for understanding cannabis grey markets, drawing on interviews with key informants including policymakers, academics, and stakeholders (n = 20), and interviews with people who frequently use cannabis (n = 50).

Our findings suggest that in Uruguay there are at least three types of grey markets, which we categorize as light, standard, and dark grey. This classification stems from the illegal distribution of legally produced cannabis, which allows us to develop a typology based on two attributes: profitability and destination of the transaction. According to this typology, the light grey market involves non-profit sharing of legally grown cannabis within personal networks, primarily to cover production costs. The standard grey market includes small-scale, profit-oriented sales to a broader network of people who use cannabis. The dark grey market, on the other hand, refers to legally produced cannabis entering traditional illegal distribution channels to maximize profits.

Understanding the grey market's characteristics is essential for policymakers and regulators aiming to effectively legalize cannabis. Dark grey activities involve contact with the illegal market and contradict regulatory goals, prompting potential law enforcement actions. Conversely, the light grey resembles an informal market where cannabis is exchanged for goods or shared, likely acceptable to the government. Forbearance could apply to the standard grey market, although it may compete with legal markets. Assessing subtypes of grey markets contributes to a better understanding of the diverse interactions that occur within them and might enable policymakers to address each with tailored policy tools.