In our long, national conversation on the merits of cannabis legalization, a key argument in its favour has always been the likelihood of a reduction in the scale of the black market.
From protecting minors against unscrupulous drug dealers, to giving government its tax share of a multi-billion dollar industry, to decriminalizing the behaviour of millions of Canadian adults, the suppression of the black market for cannabis has been a politically effective way to argue for the creation of a legal and regulated market for cannabis.
From the logic of fighting the black market also flow other widely held hopes like reducing burdens on the criminal courts, freeing up law enforcement dollars for more pressing priorities (think Fentanyl), and starving organized crime of easy revenue. The question is, with seven months of legal recreational cannabis in our rear-view mirror, has the black market share of Canadian consumption been reduced? Recent Stats Canada figures indicate that it has, but it may not be that simple.
Stats Cannabis figure comparisons hail a reduction in the percentage of cannabis purchased by Canadian consumers from illegal sources, stating that black market cannabis fell from 51% to 38% as a share of total cannabis purchased. The flip-side of this figure shows that legal sources gained ground, rising from 23% to 47% of the total. It should be noted that this comparison is being made between the first quarter of 2018 and the first quarter of 2019, and legalization did not come into effect until October 2018.
Other figures also support this conclusion, such as the increase in average price paid, estimated as +17.4%, given that legal prices continue to be significantly higher than that of the black or grey market. To their credit, Stats Canada gave respondents the option to choose from a selection of possible sources, not merely a binary choice between legal and illegal.
One figure that should be of particular concern to government, beyond the price gap, is the difference between average purchase size in the legal market versus that in the illegal market. Figures from 2018 indicate that the average legal purchase was for 8.3 grams (4.7 retail, 9.1 online) while the average quantity purchased illegally was 17.2 grams. This might indicate that people who consume heavily, and are responsible for a large share of total cannabis consumed nationally, are not adopting the new system. This could be due to price, selection, or perceived quality concerns.
Jams in the supply chain, lack of access to brick and mortar stores in many communities, exclusion of edibles and concentrates, as well as general confusion among consumers about what sources are legal versus illegal, have all conspired to slow the uptake of legal cannabis. As these impediments are removed, and as prices hopefully come down, we should expect to see the legal share of the market continue to rise. Convenience is king, as long as the legal market can offer a comparable product at a comparable price, black market sellers should be increasingly concerned for their livelihood.
Things to watch going forward:
- Will legal prices go down as greater supply capacity comes on line, increasing the appeal of legal sources to heavier users?
- As more legal retailers gain licences, will increased pressure to close competing grey market shops steer more people toward legal sources? This will be especially relevant in BC.
- What other developments beyond price reductions might entice long-time consumers and ‘canna-sseurs‘ to opt for a legal source? The much-anticipated large-scale entry of craft cannabis into the market from newly licensed small producers could be an example of this.
- What will the impact be this fall when edibles and concentrates are added to legal offerings? Convenience products like pre-filled vapourizers are likely to make an impact.