Illegal Cannabis market still flourishing despite years of licenced competition

Illegal Cannabis market still flourishing despite years of licenced competition

The most notable finding — and a common lament among legal retailers — are the persistent price gaps between legal and illicit weed.

Despite over five years of legal weed in Canada, the illicit cannabis market is still thriving, says a recent report.

In partnership with cannabis sales analytics firm Neobi, the report — authored by Deloitte — says that despite being hailed as a huge economic opportunity, legalization has largely fallen flat in Canada, with a lack of legal variety and wide pricing chasms among the biggest culprits.

“What we’re working on with Neobi is to develop a platform that provides analytics into the illicit market,” said Deloitte’s Christopher McGrath.

The report’s findings are based on cannabis product data gathered from the websites of 624 legal cannabis stores — and 57 illicit online sellers — between May and June 2023.

Data from government-run stores and brick-and-mortar shops weren’t included.

The report found that illicit stores routinely stock a wider array of items than licenced retailers — with an emphasis on flower (buds of dried, ready-to-smoke cannabis) and extracts, and less on more complicated products like vape cartridges and beverages.

“It’s mostly the strain variety, but also just the sizes,” McGrath said.

“You can buy kilograms from these online websites, whereas legal sites cap you at 30 grams.”

The report noted how brazen illicit sites were in their offerings, in many cases offering blatantly illegal drugs for sale, including LSD and magic mushrooms.

“It didn’t seem like they had any fear of enforcement,” McGrath said. “There’s a lot of confidence in the illicit market that there will be no enforcement.”

The most notable finding — and a common lament among legal retailers — are the persistent price gaps between legal and illicit weed.

Pricing, the report says, continues to be a strain on the legal market, and cited as the largest hindrance to the legal market.

Average prices in the illicit market sat around $6.24 per gram, while those on licenced sites were closer to $7.96 per gram.

The report pointed out that gap has narrowed greatly since Statistics Canada last surveyed cannabis prices in 2019 when the illicit flower was priced around 55 per cent lower than current prices — but the study concluded that even the mere perception of lower prices still drives customers to steer clear of legal sellers, particularly for those impacted by Canada’s ongoing affordability crisis.

The biggest price differences are found in the 3.5 gram (1/8th ounce) size, where illicit prices are typically 67.8 per cent of average legal prices.

The study also discovered that illicit websites examined by the study added tax for purchases at checkout.

“It’s uncertain whether these taxes are remitted to the appropriate authorities,” the report mused.

Michael DeVillaer, an assistant professor with McMaster University’s department of psychiatry and behavioural neuroscience, said that what may seem like draconian regulations are justifiable in the name of protecting public health.

“Each year, in Ontario alone, there are approximately 20,000 people admitted to addiction treatment programs who identify cannabis as one of their problem drugs,” he said, explaining that only alcohol ranks higher.

“We must think of the implications of that as cannabis makes its historic journey from an illegal to a legal consumer product.”

DeVillaer said the consequences of the federal government ignoring expert advice by allowing candy cannabis edibles are an increase in children hospitalized for accidental cannabis ingestions.

“Governments should avoid making similar mistakes for the sake of market expansion, such as more permissive advertising regulations,” he said.

Samuel Gerges, owner of Toronto’s MaryJane’s Cannabis and one of the industry’s more outspoken critics of the state of legalization, said that Canada needs to work on correcting its early missteps.

“There’s not two licenced producers or retailers that are happy with the state of legalization, even the ones that are doing well,” he told the National Post.

“(Prime Minister) Justin (Trudeau) wanted to race to be the first to legalize as a country, now we’re also going to be the example of what not to do.”

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Region: Canada

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