With interstate commerce banned in cannabis, many brands rely on illicit operators to market their products across the country.



In early June, inside <a href="https://www.forbes.com/sites/willyakowicz/2022/02/20/cannabis-grey-market-new-york-city-wild-west-of-weed-empire-cannabis-club-uncle-budd/?sh=134049a84e4f">Empire Cannabis Club</a>, an unlicensed dispensary on Eighth Avenue in Manhattan, the shelves are filled with cannabis products made by popular brands like AbsoluteXtracts, Jeeter, Stiiizy, and Kiva. These products were made legally in states like California, Colorado and Massachusetts, but without federal legalization, there is no legal avenue for these goods to cross state lines.



Jonathan Elfand, the founder of Empire and a legacy cannabis entrepreneur who served 10 years in prison after getting nabbed in 1998 for operating one of the city’s largest cannabis grows in Brooklyn, says the products are legally made and lab-tested elsewhere. When asked how they wind up in New York, a state that legalized recreational marijuana but hasn’t launched state-approved sales yet, he’s coy. “Hey, magic happens,” Elfand says in a July interview at a hotel bar near the San Francisco airport.&nbsp;



In the $72 billion cannabis industry, which is composed of a $25 billion legal sector and a $47 billion illegal economy, market forces often rule over federal law. Elfand’s unlicensed dispensary, which operates as a private club, has been&nbsp;<a href="https://www.forbes.com/sites/willyakowicz/2022/04/29/new-york-lawmakers-take-on-the-cannabis-grey-market-to-protect-the-states-42-billion-industry/?sh=778052f3399d">a thorn in the side of New York regulators</a>, but he believes he’s operating legally thanks to a loophole in the state law that legislators accidentally created. But more than anything, Empire acts as a marketing tool for some of California’s biggest brands that hope to become household names.&nbsp;



“Everybody is participating in the [legal and illicit market],” says Elfand. “There is no ability to market yourself without it or make enough money without it.”<a href="https://www.forbes.com/sites/willyakowicz/2022/08/02/how-america-botched-legalizing-cannabis-berner-cookies-kim-rivers-trulieve-steve-deangelo/" target="_blank" rel="noreferrer noopener">MORE FROM FORBESWeed vs. Greed: How America Botched Legalizing PotBy&nbsp;Will Yakowicz</a>



Scott Palmer, who founded San Francisco edibles brand Kiva with his wife Kristi, says he doesn’t know how his legally produced products wind up in states illegally, but he says it’s a symptom of the cannabis industry being broken into two distinct industries by regulators—a legal one and an illicit one—but that distinction really doesn’t exist in the market. “I don’t think it’s any secret that there’s one market with two faces,” says Palmer, who says he has too much to lose to divert product into the illicit market. “If demand is there, the market will find a way. Until we have unified, national regulations, this will continue.”



When it comes to compliance, Palmer says he doesn’t want to see his products made in California leaving California. (Kiva has expanded legally into other states like Massachusetts, but product must be manufactured and sold in the same state.) But if he has ambitions of building Kiva into one of the country’s best-known THC edibles companies, he’s smart enough to know that seeing his products on the gray and illicit markets will only help. “We have plans to [expand legally] to New York, but of course, it’s good brand exposure, and it’s a good sign that the brand has carried itself across the country,” he says.



For most cannabis industry insiders, the fact that the legal and illicit economies work together is an open secret. Jonathan Rubin, CEO of New Leaf Data Services, an institutional-grade wholesale price tracker, says it’s important to understand that the illicit and legal markets are “bi-directionally porous.”&nbsp;



“There’s illicit-market cannabis that makes its way into legal chains and there’s legal cannabis that makes it into illegal channels,” says Rubin. 



There are many opportunities for the two markets to do business. First, with&nbsp;<a href="https://www.forbes.com/sites/willyakowicz/2022/08/02/how-america-botched-legalizing-cannabis-berner-cookies-kim-rivers-trulieve-steve-deangelo/?sh=bb0f70044894">ultrahigh taxes and onerous regulations</a>, legal operators have a difficult time turning a profit, so diverting into the black market is financially attractive. Second, there’s plenty of “wiggle room,” Rubin says, to divert from the legal market to the illegal market thanks to loopholes in the industry’s seed-to-sale tracking system and a lack of enforcement and auditing in the testing, distribution and delivery sections of the supply chain.&nbsp;



Nicole Elliott, the director of the California Department of Cannabis Control, is well aware of how the two sectors of the cannabis industry interact. “We consume something like a fifth of what we produce historically,” says Elliott. “California has historically fed the rest of the nation when it comes to cannabis, and I don&#8217;t think that a few years is going to change that. I do think it’s a longer process.”&nbsp;



The DCC is trying to curtail California’s illicit market. In the last year, it has seized more than half a million pounds of cannabis, eradicated 1.2 million plants and arrested nearly 200 individuals. But Elliott says California alone cannot fix the problem. It’s thought that for every pound of pot produced in the state, three pounds are shipped to other states. In October 2021, California Governor Gavin Newsom appealed to Senate Majority Leader Chuck Schumer and Senators Cory Booker and Ron Wyden, who <a href="https://www.forbes.com/sites/irisdorbian/2022/07/21/senate-majority-leader-schumer-and-two-others-introduce-new-cannabis-reform-bill/?sh=11a452ad7ce3">introduced a bill last month</a> that would <a href="https://www.forbes.com/sites/willyakowicz/2021/07/14/senator-schumers-bill-to-end-federal-cannabis-prohibition-would-regulate-pot-like-alcohol-and-tobacco/?sh=15c4f6cf18e9">regulate cannabis like alcohol and tobacco</a>, outlining the importance of allowing interstate commerce. 



For the time being, the two markets need one another.&nbsp;<a href="https://www.forbes.com/profile/berner/?list=cannabis420&amp;sh=246538613105">Berner</a>, the hip-hop artist and cannabis entrepreneur who’s the co-founder and CEO of designer&nbsp;<a href="https://www.forbes.com/sites/willyakowicz/2022/08/02/how-america-botched-legalizing-cannabis-berner-cookies-kim-rivers-trulieve-steve-deangelo/?sh=784702df4489">cannabis company Cookies</a>, says his trapping days are over but he still relies on practices he honed during his illicit days to market legal products. During a recent trip to New York, he brought two ounces of a new “fire strain” and handed out a gram to everyone he met.&nbsp;



“Let the streets taste it first—create that hype, create that buzz before it hits the white market,” says Berner. “I want the dope boys selling herb to come buy my shit in the store. That’s how you really twist the game. That’s how you keep it going.”



The interplay between the two markets is unlikely to stop without tax breaks and federal legalization. Steve DeAngelo, a longtime cannabis activist and entrepreneur who opened one of the country’s first licensed dispensaries, says basic economics, not laws, is the only way to regulate an industry, especially one that has been operating unregulated for decades.&nbsp;



“You cannot set up a system that the human mind cannot figure out how to evade,” DeAngelo told&nbsp;Forbes&nbsp;in an interview at his home in Oakland, California. “If there’s one lesson that prohibition has taught us, it’s that you cannot rule the market with brute force. The only way that you can rule the market is by using market forces.”&nbsp;



In the cannabis industry, like any other industry, supply and demand reign supreme. “The law of supply and demand is a law that you cannot break–sooner or later, it will catch up with you,” says DeAngelo.



No matter what happens in Washington, the nation’s cannabis consumers will buy California cannabis legally or illegally. Laws have not stopped the industry until now, and it likely never will. 



By <a href="https://www.forbes.com/sites/willyakowicz/"></a>Will Yakowicz, Forbes Staff

Shopping Photo Illustrations

Why The Legal Cannabis Industry Needs The Black Market

There’s no longer a reasonable doubt that&nbsp;<a href="https://www.forbes.com/sites/zackomalleygreenburg/2020/04/09/jay-z-net-worth-1-billion-in-2020/?sh=29f4c20439de">Jay-Z</a>&nbsp;is now a player in the cannabis industry.



Shawn “Jay-Z” Carter’s high-end cannabis brand, Monogram, launches its first products in California on Thursday with a four-strain line of craft, indoor-grown cannabis flower and joints.



The company’s flagship product is the “OG Handroll,” a 1.5-gram joint rolled by “highly trained artisans,” the company says, that use a technique Monogram developed over a year. The joint is made with small-batch flower and is supposed to burn like a premium cigar. And it retails for nearly twice as much at $50.



Monogram’s cannabis strains—named No. 88, No. 96, No. 70 and No. 01 and developed by veteran grower DeAndre “De” Watson —come in three strengths: “light,” “medium” and “heavy.”



<div class="wp-block-image is-style-default"><figure class="aligncenter size-large is-resized"><img loading="lazy" decoding="async" src="https://www.forbesafrica.com/wp-content/uploads/2020/12/1.jpeg" alt="" class="wp-image-49294" width="502" height="334" srcset="https://cms.forbesafrica.com/wp-content/uploads/2020/12/1.jpeg 950w, https://cms.forbesafrica.com/wp-content/uploads/2020/12/1-300x200.jpeg 300w, https://cms.forbesafrica.com/wp-content/uploads/2020/12/1-768x512.jpeg 768w, https://cms.forbesafrica.com/wp-content/uploads/2020/12/1-600x400.jpeg 600w" sizes="auto, (max-width: 502px) 100vw, 502px" /><figcaption>(Photo: PRNewFoto/Monogram)</figcaption></figure></div>



Michael Auerbach, the founder and chairman of Subversive Capital Acquisition Corp., a special purpose acquisition company that announced a deal to acquire Jay-Z’s Monogram and California cannabis company Caliva last month, says Jay-Z is not just a front man for the brand.



“He’s a real executive, he’s not some ancillary ambassador who says something nice about us once a year,” says Auerbach. “He’s the tip of our spear who’s building out our house of brands, like he has done with Aces of Spades and D’Ussé.”



In 2019, Jay joined Caliva as its chief brand strategist, where he&nbsp;<a href="https://www.forbes.com/sites/lindseybartlett/2020/10/23/rapper-jay-z-launches-his-own-cannabis-brand-monogram/?sh=2f58d626180e">developed Monogram</a>. In November 2020, Auerbach’s SPAC announced a deal to acquire Caliva and Monogram, which was a joint venture between Jay-Z and Caliva, and Left Coast Ventures, which owns musician cannabis brands like Marley Natural and&nbsp;<a href="https://www.forbes.com/sites/javierhasse/2020/10/22/carlos-santana-talks-cannabis-its-all-about-consciousness-man/?sh=535b8f4f7b64">Carlos Santana’s Mirayo</a>. The new name for Auerbach’s company is “The Parent Co.” It raised $575 million when it went public on Canada’s microcap stock exchange NEO last summer. &nbsp;



The name “The Parent Co.,” which Jay came up with, might sound like a joke, but Auerbach says its serious.



“We are looking at building the first 100-year company in cannabis, and he was looking at it in the same way,” says Auerbach. “What does the first 100-year company in this industry look like? How do we create a generational company that will dominate the industry globally? And ‘The Parent Co.’ is a meta name that represents what we’re trying to do.”



The all-stock deal to acquire Jay-Z’s 50% of Monogram has not closed yet, but he is supposed to receive 5 million shares in The Parent Co. and the right to 1 million more. The Parent Co. also struck an exclusive agreement with Jay’s Roc Nation to become its cannabis brand partner. The deal, which will pay Roc Nation $25 million in stock after the transaction closes and $7.5 million each year, gives The Parent Co. access and rights to Roc Nation’s roster of artists and athletes.



Auerbach says the “pipeline of artists and athletes” under Roc Nation, including Rihanna, will play a crucial role in the development of future brands. &nbsp;&nbsp;



In addition to developing brands and business strategy, Jay will also lead the company’s social justice program. The venture fund has been seeded $10 million and the company will give 2% of its net income each year in order to invest in Black and other minority-owned cannabis business.



To be sure, this is only Jay-Z’s latest business venture. In 2019, he became the first&nbsp;<a href="https://www.forbes.com/sites/zackomalleygreenburg/2019/06/03/jay-z-billionaire-worth/#c7e93173a5f0">hip-hop artist turned billionaire</a>. Jay-Z, who grew up in the Marcy housing projects in Bedford-Stuyvesant, Brooklyn, built a fortune thanks to his music catalog—he’s amassed 14 No. 1 albums and&nbsp;<a href="https://www.grammy.com/grammys/artists/jay-z" target="_blank" rel="noreferrer noopener">22 Grammy awards</a>—and also owns Armand de Brignac champagne and part of D’Ussé cognac, not to mention his music streaming platform Tidal, Roc Nation and sizable stakes in companies like Uber and Robinhood.



Warren Buffett once&nbsp;<a href="https://www.forbes.com/forbes/2010/1011/rich-list-10-omaha-warren-buffett-jay-z-steve-forbes-summit-interview.html#254450666480">said</a>&nbsp;about Jay: “For a young person growing up, he’s the guy to learn from.”



Auerbach describes Jay succinctly: “He’s a hands-on creative genius.”



For The Parent Co., Monogram is just the first brand out of Jay-Z’s head and there’s more to come. In the world of celebrity-built brands, Auerbach says the strategy around Monogram is more Casamigos—George Clooney’s tequila company that&nbsp;<a href="https://www.forbes.com/sites/natalierobehmed/2017/06/21/george-clooney-is-expected-to-make-up-to-233-million-from-casamigos-tequila-sale/?sh=1ead73943ff8">Diageo bought for $1 billion</a>—and less&nbsp;<a href="https://www.forbes.com/sites/katieshapiro/2020/12/09/martha-stewart-cbd-goes-coast-to-coast-with-first-national-retail-expansion/?sh=42ac0a6841cb">Martha Stewart CBD</a>.



“My preference is for celebrities to associate with brands instead of name brands after themselves. There’s no way I’d drink it if it were called ‘Casa Clooney’—people would think it’s crap, people would think it’s a gimmick,” says Auerbach. “Many people don’t know Ace of Spades is Jay-Z’s champagne company, but it’s the fastest-growing champagne company.”



As for what Jay-Z thinks about it all, in a statement, he said Monogram is here to celebrate craft cannabis.



“Cannabis has been around for thousands of years, yet it is still an industry whose legacy of skilled craftmanship is often overlooked,” said Jay. “I created Monogram to give cannabis the respect it deserves by showcasing the tremendous hard work, time and care that go into crafting a superior smoke. . . . We’re just getting started.”



-By Will Yakowicz, Forbes Staff

SOMETHING IN THE WATER – Day 2

Jay-Z’s Cannabis Brand, Monogram, Launches With $50 Hand-Rolled Joints

Andre Kruger’s stand at Africa’s first ever cannabis exposition displayed an indoor growing tent, complete with state-of-the-art lighting imported from the United States and fittings for a high-tech hydroponic irrigation system.



What it didn’t have, however, was a cannabis plant.



The four-day expo, which opened in South Africa’s capital Pretoria on Thursday, was a stark illustration of the legal grey area the nascent industry occupies in the continent’s most developed economy.



In September, the Constitutional Court decriminalized the use and cultivation of cannabis in private space. But the decision did not legalize its trade or distribution. Even displaying cannabis in public remains legally dubious.



So exhibitors at the expo got creative. Kruger, whose company Sombrero Hydroponics has seen a spike in customer inquiries since September, used two artificial poinsettias as stand-ins.







<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"> “People just feel more comfortable now, because they don’t have this added thought in the back of their mind thinking, ‘What if the cops stop at my house?” he said.</blockquote>



 “They’re coming out of the closet, in this case the tent.”



Hundreds of expo-goers bought tickets and were already queuing before the event opened, but not everyone agreed with the ground rules.



Cannabis activist Steven Thapelo Khundu handed out cannabis buds from a plastic bag at the expo entrance, encouraging attendees to bring them inside.



“Free Ganga Free! Free Ganga Free!” he shouted as security forcibly removed him.



Under the court decision, lawmakers have two years to amend the country’s cannabis laws, but the industry isn’t waiting.



South Africa recently established a legal framework for licensing growers. The local unit of Canada’s Canopy Growth, which in August received a $4 billion investment pledge from Corona beer maker Constellation Brands, is among the early applicants.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I don’t think most people realize just how big the cannabis industry is in Africa already, in South Africa already,” said the Cannabis Expo’s co-founder Silas Howarth.</blockquote>



International companies are, for now at least, seeking licenses to produce cannabis for export. But Gerhard Naude, the founder of healthcare company Go Life International, believes a fully legal domestic industry is now only a matter of time.



“I think there will be a few licenses awarded, and very closely regulated. I think in two years we’ll definitely have a license, for the use of medicinal cannabis in any case,” he said.



Itumeleng Tau, who said he’s been growing marijuana for around 20 years, is among a wave of underground cannabis entrepreneurs who are hoping the pending legal changes will allow them to bring their businesses out of the shadows.



The expo was an important first step, he said. But the absence of any actual cannabis was strange.



“It’s something very, very wrong &#8230; It’s like we came to a party but there’s no music.” &#8211; Reuters



<ul class="wp-block-list"><li>Joe Bavier</li></ul>



READ MORE  | <a href="https://www.forbesafrica.com/uncategorized/2018/11/20/beyond-the-plumes-of-smoke-the-weed-economy-on-a-high/﻿">Beyond the plumes of smoke the weed economy on a high</a>

Tag: Cannabis

FORBES AFRICA SOCIAL MEDIA

Why The Legal Cannabis Industry Needs The Black Market

Jay-Z’s Cannabis Brand, Monogram, Launches With $50 Hand-Rolled Joints

In an African First, a Cannabis Expo…without Cannabis

Beyond the plumes of smoke the weed economy on a high