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

Introduction: dealing with legality

One of the main objectives of cannabis regulation in Uruguay, among others related to public health and consumers’ rights, was to undermine the economic foundation of drug trafficking by promoting a legal market for cannabis acquisition (Queirolo et al., 2019). To achieve this, the 2013 Uruguayan reform established three access mechanisms for people who use cannabis: home growing, cannabis social clubs, and sales at pharmacies. Any other type of retail activity is prohibited. Home growing and cannabis social clubs were introduced in 2014, while the third mechanism began in 2017 after some controversies among pharmacy owners. These three methods of accessing cannabis are mutually exclusive, meaning that once a consumer chooses one, they cannot access the other two simultaneously. Consumers must complete a registration process to obtain cannabis through the legal supply mechanisms. To do this, they must be over 18 years old, register as a user, and provide their ID and proof of residence (Queirolo, 2020). The legal framework also imposes additional restrictions, particularly regarding the quantities that people who use cannabis can legally produce or acquire (Queirolo et al., 2024). The mandatory registration may be the most significant challenge of the regulatory framework for expanding the legal market, as it has limited coverage in departments and neighborhoods far from the capital city and in low to middle-income areas (Queirolo et al., 2024). Legality not only introduced a legal market to compete with the traditional illegal market but also created a new grey market.

Grey markets are difficult to define because they encompass a variety of situations.¹ For some, grey markets are parallel markets; for others, grey markets are shadow markets or informal markets, commonly emerging alongside activities linked to crime or those that are morally contested (Romi et al., 2017). Grey markets are shaped by government’s regulations (Stoa, 2017, 2024; Kinney 2022, 2025). The common factor in different definitions is that there is an “in between” two poles area (legal and illegal) in which it is difficult to judge because the law, ethics or social norms do not provide precise criteria to do so (Beckert & Dewey, 2017; Mackenzie & Yates, 2017; Mucha, 2022).

Regardless of the multiple definitions of what constitutes a grey cannabis market (Heidt, 2021), the cannabis grey market is a complex phenomenon that encompasses a wide range of actors and activities related to the production and distribution of cannabis (Hammersvirk et al., 2012). We argue that a grey cannabis market can only emerge where legalization or some form of regulation exists, as it operates precisely at the intersection of legality and illegality. In these contexts, legally produced cannabis is distributed or commercialized illegally, often as a consequence of regulatory frameworks that impose barriers to access for certain segments of the population (Queirolo et al., 2024; Miller & Miller, 2021; Galain, 2017).

As a consequence, describing the grey market as a monolithic phenomenon is insufficient. Rather, it should be understood as a continuum between the illegal and legal markets, ranging from activities that closely resemble traditional illicit trade to those involving actors who operate largely within the legal framework but engage in practices that are not fully lawful or ethical. Evidence from Uruguay highlights the complexity and fluidity of cannabis market activities. Many people who use cannabis alternate between legal, illegal, and grey channels of access, while others may consistently choose a single channel over time. Grey market interactions occur specifically when cannabis legally produced is diverted into commercialization channels that are not allowed by the law. In this paper, we identify and define this type of behavior within the broader cannabis market and show that there are different tones of grey markets. Understanding these dynamics is essential for policymakers aiming to design targeted strategies that curb illegal practices, promote public health and safety, and enhance the benefits of having a regulated cannabis market.

In this vein, this paper proposes a conceptualization of cannabis grey markets, addressing the existing gaps and inconsistencies in the literature. While Uruguay has a legal framework for regulation with distinct features, we propose a typology of cannabis grey markets that can be applied to various instances of cannabis legalization globally. In other words, aside from the specifics of the Uruguayan case, this typology can adapt to other contexts. Regardless of whether regulatory frameworks lean more heavily on state control or on market mechanisms, it allows for the measurement of what is brought “inside” any regulatory system. As cannabis legalization expands globally, achieving conceptual clarity on what constitutes a grey market is essential for understanding its dynamics and potential impacts.

Our results show that it is insufficient to speak of a single grey market; instead, multiple grey markets exist, varying in their degree of illegality. We distinguish among them based on two attributes: whether transactions are conducted for profit or not, and the destination of the transaction: whether the distribution of the cannabis goes towards the illegal market or to users. Combining these attributes, we propose a radial typology of three forms: dark grey, standard grey, and light grey markets.

The main contribution of our work is to move beyond the idea of a single, homogeneous grey market and to identify distinct types of “greys.” This approach captures different kinds of interactions within the cannabis market, each with specific implications for public policy and potentially requiring tailored responses from policymakers. Beyond recognizing these nuances, our framework can be especially valuable for jurisdictions considering regulation in the future, as it helps identify factors that encourage the persistence of grey markets as well as barriers that hinder the expansion of the legal market.

The article is structured as follows: the next section reviews existing literature on cannabis grey markets and the theoretical framework; section three presents the methodology and data; the radial typology is introduced in section four; and section five provides empirical evidence for each category. The article concludes with a discussion of the broader implications.

Legal turn and grey markets

With an increasing number of jurisdictions developing models of cannabis legalization, studies on grey markets have become particularly relevant. Grey markets combine legal and illegal activities, emerging due to regulatory loopholes, ambiguities, or barriers (Mackenzie & Yates, 2017; Miller & Miller, 2021; Kinney, 2023; Queirolo et al., 2024). Understanding the characteristics and drivers of grey markets is crucial for comprehending the implications of having different access mechanisms outside the regulatory framework on different user profiles.

One key aspect of grey markets is the deviation or diversion of goods from legal channels to unregulated or illegal ones. Factors contributing to market deviation include supply-demand imbalances, pricing differentials, and regulatory barriers (Miller & Miller, 2021; Aguiar & Musto, 2022). Exploring the reasons behind market deviation can provide insights into the motivations and behaviors of actors involved in grey market activities.

Sean Hocking

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