A recent study published within the Journal of Studies on Alcohol and Drugs found that although the recreational sale, purchase, and use of cannabis has become legal within Canadian provinces and territories and some states south of the border, an illegal market persists, eroding the revenue potential of the legitimate cannabis industry in North America.
Generating data from the 2019 and 2020 International Cannabis Policy Study—a survey conducted among 16- to 65-year-olds—researchers at the University of Waterloo developed the study seeking to understand the underlying reasons contributing to the continued existence of the underground cannabis market and the forcing functions leading people to purchase through illegal means.
Barriers to Legal Market
At the top of the list of drivers influencing the illegal purchase of cannabis, as stated by survey respondents, were higher retail prices and a perceived inconvenience associated with legal sources of cannabis. They are drivers that are of obvious concern for many operating within the fledgling industry, presenting barriers to their optimal profitability and success. And, overcoming these barriers, says David Hammond, Ph.D., co-author of the study and professor and university research chair at the University of Waterloo’s School of Public Health Sciences, may be the most important and immediate need for authorized purveyors of cannabis going forward.
“Cannabis legalization is one of the most notable substance use policies in several decades,” he says. “Transitioning consumers from illegal to legal retail sources is a primary goal of legalization. Indeed, many of the potential benefits of legalization—including product standards, revenue for legitimate businesses, reducing burden on the criminal justice system—depend upon shifting consumers to legal cannabis sources.”
Reasons Driving Illegal Purchases
In order to generate the primary data points needed to determine the strength of the illegal market in North America as well as the reasons people are sourcing their cannabis outside of legal means, participants were asked how much of the cannabis they consumed over the course of the past 12 months was purchased from legal or authorized sources. If a response registered less than 100%, they selected from a list of reasons as to why they made their decision to purchase through illegal channels.
In both 2019 and 2020, the number one reason given by Canadians to explain their illegal purchases is the fact that retail prices are too high (35.9% in 2019 and 34.6% in 2020). Those attitudes are mirrored in the US, with 27.3% citing higher prices in 2019 and 26.7% in 2020. Somewhere in between 10% and 20% of people suggest that legal sources of cannabis are less convenient, an attitude primarily driven by the fact that the distance of the nearest cannabis retail store in relation to their homes is too great.
The study also highlights other reasons provided by consumers, although far less frequently than those of price and convenience, that help explain their continued participation in the illegal cannabis market, including an assessment of lower quality, the desire to remain anonymous, inadequate speed of legal delivery services, and their desire to remain loyal to their street dealers.
An Evolving Market
It’s also suggested within the published study that any future research should include greater emphasis and focus paid toward the evolution of the cannabis market in North America and how perceptions may change with this evolution, removing barriers to the legitimate purchase of cannabis among the general public.
“As markets mature, the number of stores per capita tends to increase, and inconvenience is expected to become less of a hurdle,” the report reads. “Regulators will need to balance public health and criminal justice priorities in order to establish a competitive market for legal cannabis that encourages legal purchasing.”
In fact, this most recent study has already started to delve into some of these changes, however subtle they might be, in order to understand more holistically the cannabis landscape and the shifting attitudes and behaviours of today’s cannabis consumer.
“We also observed differences across jurisdictions and changes over time—many reasons decreased in later years, which reflects changes in the number of stores and the price of cannabis in Canada and US states that have legalized adult cannabis use,” Hammond points out.
Enhanced Offering and Service
It seems especially important to pay closer attention to public perception and use of cannabis as we slowly exit the pandemic period, given that more than 10% of respondents in both Canada and the US cited restrictions and store closures as impediments to their legal purchase of cannabis throughout 2020, possibly skewing the accuracy of the study. With the dust of COVID-19 finally settling, however, combined with the maturation of the cannabis industries in each country, which are consistently enhancing the offering and service provided, it’s expected that the dent caused by the illegal cannabis market in North America will lessen, lending toward an even stronger industry.