Why The Black Market Is Still Thriving In Canada One Year After Legalization

With the one year anniversary of legal cannabis in Canada on the horizon, it’s become very apparent that, rather than dwindling and disappearing like many experts predicted, the black market is still going strong.

The fact that illegal sales have continued – and thrived! – could potentially dissuade lawmakers in other jurisdictions from adopting similar legislation. This poses a major problem for cannabis advocates.

All of this begs the question – what’s really going on?  Is the legalization argument flawed?  Or are there other factors at play that we’re ignoring?

Supply Issues

The most important question that needs to be answered is why users are turning to the black market to begin with.  There are a number of reasons that have been cited, but one of the big ones is simple – there’s not enough of the legal stuff to go around.

While the issue has improved in many regions in recent months, cannabis shortages have plagued provinces throughout the country, particularly in the early days of legalization.  Many retailers in Alberta, for example, found themselves unable to stock product for days at a time.

A number of provinces have gotten into a finger pointing contest with Ottawa, and  there’s no doubt that a lot of these supply problems come down to a nationwide shortage.  Health Canada is showing high levels of inventory, but critics have rightly pointed out that a huge amount of that product is unfinished and not ready to sell.


Money doesn’t grow on trees

Much like the supply problem, another major culprit behind the persistence of the black market is a simple case of basic economics.  While many are attracted to the idea of purchasing cannabis from a regulated source, at the end of the day there will always be those who simply aren’t going to buy legal when the “unregulated” product is cheaper (this is especially true for users who were accustomed to buying underground product during prohibition).

How much cheaper?  To put it in perspective, as of this past April the average price for a gram sold legally in Canada was $9.99, verses $6.40 for a gram of “street weed” – a whopping 36 percent less expensive.

Unfortunately, the problem seems to be getting worse, not better – according to Statistics Canada, the legal stuff has since shot up in price to an average of $10.21 per gram, whereas black market cannabis has fallen to an average of $5.93 per gram.

Quality Problems

Much has been made of pesky pricing and supply problems, but one of the hurdles facing the legal market that hasn’t been well addressed are issues surrounding quality.

While it’s definitely a more difficult variable to quantify, a number of surveys and reviews have shown that many consumers are dissatisfied with the quality on offer (the words “dry” and “harsh” have come up multiple times to describe Canada’s legal pot).

Many of these quality control issues ultimately tie into supply.  Canada already had some of the highest rates of consumption in the world, and that number has only increased since legalization.  Put simply, the supply of cannabis is still being outstripped by the incredible demand.  Most of the licensed producers are struggling to simply get enough product out the door, meaning that a lot of inferior pot is being shipped out in the process.

To offset the issue – similarly to pricing – it’s the experienced users who routinely hit up their black market dealer during prohibition that are least likely to tolerate these problems.

Excessive Regulations

Suppliers are bound by red tape

Given that the eradication of the black market was one of Ottawa’s main goals, it’s ironic that one of the factors feeding it is the regulatory framework which have been put in place.

Not only are government restrictions on licensed producers strict, but so are many of the provincial application processes for retailers.  Toronto currently has less than 10 active locations that sell recreational marijuana.  Compare that with a US city like Denver, which has almost 200 recreational shops in place.

In addition, many of the laws that have been put forth (both federally and by the provinces) surrounding the distribution, sale and advertising are incredibly strict, and in many cases downright bizarre.

You only need to walk into one of Toronto or Calgary’s new pot shops in order to get a sense of how heavy-handed everything is – the windows are blacked out, the labels and logos on the packages have been stripped to the bare essentials, and the product is hidden away behind thick glass (a factor that’s been frequently cited as a reason for buying illegally).

All of this is the result of the federal government’s aim to legalize cannabis without “normalizing” its use.

What About The US?

One of the best ways to get a more realistic perspective of what’s going on is to compare Canada to some of the more established cannabis markets in the United States.

Two of the pioneering states to offer legal pot, Colorado and Washington, haven’t totally eradicated the black market, but the problem is gradually shrinking – and has been since the states first legalized.

In Colorado, black market sales have dropped alongside the opening of new stores and falling prices, and lawmakers have also worked with industry to keep legal prices below illegal prices.  As of 2010, most of the illegal activity happening involves growing pot and shipping it out to states still under prohibition (a problem that Canada doesn’t have to worry about).

As for Washington, a similar trend has emerged.  One very unique study involving wastewater samples in the state found that residents were both consuming more cannabis (unsurprising), but also that they were getting it from legal sources.

Obviously there are differences in how cannabis is handled and regulated south of the border, and any comprehensive comparison between Canada and its neighboring markets needs to take those differences into account.  However, at a very basic level, the fact that there’s been a steady shift away from the underground trade in two of the most well-established US markets is a good sign that legalization can indeed curb illegal markets.

Predictions And Solutions Going Forward

Possible Solutions

Despite all of these problems (and they are legitimate problems), it’s important to put things in perspective.

First and foremost, one fact that’s been pointed out constantly is that legalization is still in its early days.  The hope is that as the Canadian government and cannabis industry continue to evolve, we’ll start to see these problems work themselves out.

The second thing that’s worth pointing out is that, despite what many anti-cannabis proponents are claiming, the situation isn’t actually that bad.  A number of reports have indicated that black market sales are indeed declining.  One study by Statistics Canada found that illegal sales deceased by 13% over the last year.  So while it may not be happening as quickly as the government hoped, it is clear that things are trending in the right direction.

Regardless of what’s happened over the last year, the bottom line is this – if Ottawa is serious about tackling the illegal cannabis trade, they’re going to have to step up their game.  That means getting the supply problems under control, working with industry on quality issues, and rethinking certain aspects of its regulatory framework to make cannabis less expensive and more accessible to Canadians.