In the heady days before cannabis legalization, the Canadian government cited cutting black market sales as one of the principal reasons for making adult-use marijuana legal nationwide. In the months since, a shortage of product supply, the high costs of legal marijuana and lack of local government support have undercut this aim to large degree.
Nowhere is this more apparent than in Ontario, the country’s most populous province, where no brick-and-mortar stores are yet open—retail outlets are due to open their doors this April. But after claiming it wouldn’t put any kind of cap on the number of cannabis stores, the provincial government announced it would only issue 25 licences—a drop in the bucket for the province.
Experts are warning that such foot dragging is helping the illicit cannabis market thrive rather than throttling it.
"Unfortunately, it's turned out to be just a comedy of errors," Anindya Sen, an economics professor at the University of Waterloo who specializes in the cannabis industry, told CTV news in an interview. "When you take [those things] together, it's possible that despite being legalized, Ontario might become one of the biggest black markets in the world"
The situation of the limited number of storefronts is made worse by a growing number of communities that are saying “not in my backyard” and aren’t allowing cannabis sales through physical stores (online sales are unaffected).
The province has said it would provide $40 million over the next two years to help municipalities with the costs of legalization, with each one receiving at least $10,000. After the first payment late last year, a second one was supposed to go out in January. But only communities that opt in to storefront cannabis sales will receive it.
Near the end of December, only about 30 of Ontario’s 444 municipalities had responded to the opt-in request, with a third of these just saying no to the government.
Who’s at Fault for the Cannabis Supply Shortages?
For its part, the Ontario government is blaming the federal government for ongoing cannabis supply shortages and a lack of retail stores that are making some people go to black market sources.
In a TV interview with BNN Bloomberg, Ontario's Attorney General Caroline Mulroney said: "It's a big step to get into this market, and we wanted for [retailers] to have some kind of commercial certainty over supply. It's up to the federal government, which is in charge of supply, to address these supply shortages. These don't just affect us in Ontario, they are affecting provinces across the country.”
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Critics have cited both Quebec and British Columbia for dragging their feet when it comes to store hours and openings.
Rising Cannabis Prices Are the Black Market’s Friend
With the lack of supply, the gap between the premium price of legal marijuana and the illegal supply has grown larger. Statistic Canada recently reported that the average price paid for dried cannabis from legal sellers is $9.70 a gram, which is 49% higher than the $6.51 average price for a gram of dried cannabis purchased from illegal suppliers.
But the high price of legal marijuana can also be due to the fact that it has no legal competition, so the government can treat it as a bottomless source of revenue.
Says Matei Olaru, CEO of Lift & Co., a cannabis-focused media and technology company: "You basically have pressure to increase revenue, an ability to increase prices to get there by virtue of this lack of competition, and essentially a new market that is taxed very heavily."
Despite the worrying trend of a black market strengthened by missteps by the legal industry, some government officials believe that it’s only a matter of time before the situation turns around. They point to the example of the U.S. where legal cannabis suppliers in some states have become more price competitive with the illicit market as supply has increased.
The Shaky Example of Legal California Cannabis
However, if you look at what’s going on in the U.S. market, there are also reasons for concern. In the year since California legalized recreational cannabis, sales of legal marijuana fell to an estimated US$2.5 billion, half a billion dollars less than the year before when only legal medical marijuana was available.
Critics blame restrictive regulations on the industry, heavy taxation and bans on cannabis stores in many of the state’s cities as reason for the poor competitiveness—conditions that echo Canada’s situation.
However, defenders of Canada’s approach claim there are important differences in the way we handle things.
“The Canadian system is tightly controlled, highly regulated and requires seed-to-sale tracking”. I think our system is the best in the world and it prevents the overcapacity that we see in California, where there are a little bit looser rules in terms of microbacterial testing and production controls,” says Allan Rewak, executive director of the Cannabis Council of Canada.
Positive thinkers look forward to the time the country will solve its cannabis supply and pricing issues, and finally give the black market cause to sing the blues.
Photo credit: Get Budding