Cannabis has been legal all throughout Canada for more than a year now, but the black market is still thriving. This can be attributed to a variety of factors – for example, many argue that black market cannabis is often higher quality that the legal stuff, and there is undoubtedly more variety. However, the main factor is price. The cost of legal weed steadily increased after legalization until it reached prices 80% higher than comparable product on the black market. Prices have tapered off slightly, but the difference is still significant, and more and more Canadians – around 60%, now – are turning to illicit avenues to buy their cannabis. What causes these huge price differences in the first place?
The legal market isn’t growing fast enough.
Canada’s legal cannabis market has only been around for a little more than a year at this point. Meanwhile, the black market has a head start of almost a hundred years. Combine that with all the legal hoops that new licensed growers and dispensaries have to jump through, and it’s not at all surprising that legal cannabis just can’t grow fast enough to become a real competitor. It’s not all on the business vs. business side, either – experienced users are likely to have trusted black market suppliers already, and since the prices are so much cheaper, why not stick with what’s already working?
Supply and demand.
The supply of black-market cannabis is far larger than that legal market’s supply, which means that black market suppliers can sell larger volumes of cannabis at a lower price and still turn a profit. Meanwhile, legal cannabis retailers have experienced supply problems ever since legalization. Due to all the barriers to entry for legal growers, there have been numerous cannabis shortages all across Canada.
Legal businesses are more expensive to run.
This goes without saying, but it’s definitely a factor. Due to taxes and the cost of getting the appropriate licenses, it is significantly more expensive to run a legitimate, above-board cannabis business than it is to operate without licenses. In order for legal businesses to continue making a profit, they have to pass the cost of taxes and operating costs on to the consumer. It is likely that whether or not other factors change, this discrepancy in operating cost will mean that legal cannabis will, unfortunately, always be more expensive.
It’s possible that the price difference between legal and illegal weed will go away on its own – at least to some extent. After all, Canada’s fledgling legal cannabis industry is young. As it continues to grow, supply problems will be sorted out, and competition will drive prices down. However, due to the increased costs associated with keeping businesses legal, above-board dispensaries will still be more expensive than the black market. They will also offer less variety, but what is offered will be safe and tested, and it’ll be exactly what the label says.
The most serious consequences of the current price discrepancy are felt by medical cannabis users. As there are more recreational users than medical users, the market tends to value high-THC, low-CBD strains – strains that are a lot of fun, but don’t provide the relief that medical patients need. This leads to a lower supply of high-CBD strains, which makes them more expensive. As a result, more medical users are essentially being forced to source their cannabis from the black market. Of course, this black-market cannabis is not subject to the same testing that legal cannabis is, so patients may end up with products that are unsuitable for their condition.
The legal framework around cannabis is complicated, but improvements can be made. For example, allowing more growers and retailers to get their licenses would increase supply. Reducing taxes on cannabis would allow legal suppliers to compete more effectively with illegal ones, which would weaken the black market. Allowing health insurance to cover medical cannabis would help medical users to avoid the black market, if financial reasons were what drove them there.