Canada’s Cannabis Act legalised the drug for recreational usage on October 17 2018. Deloitte believes this market might be worth more than $6bn. This exceeds the $4bn value of the wine market. It dwarfs the mere $51 million of the medical cannabis market. Many suppliers, however, prefer to remain illegal.

Canada legalised cannabis for recreational usage on October 17 2018. Photo: Global Marijuana March 2013 in Vancouver

Canada legalised cannabis for recreational usage on October 17 2018. Photo: Global Marijuana March 2013 in Vancouver

Who wants to forget about cultivation licences and sales permits?

Suppliers might prefer to forget about cultivation licences and sales permits. In May 2018, Marijuana Business Daily examined the issue. It discovered that Health Canada had a backlog of over 500 applications for the former. It took an average of 341 days for issuance of the latter.

Then there’s the packaging

There’s also the matter of packaging. Health Canada dictates that it must be tamper- and childproof and bear a yellow warning label. THC content has to be on prominent display.

Legal supply was restricted

Legal supply has been restricted. Justin Trudeau, the prime minister, had waffled about legalisation for years. Nobody wished to put forward $80 million or more when they were unsure that the Cannabis Act would become law. As a result, growers didn’t expand their capacity until December 2017. One dispensary (ie coffee shop) ran out of dope within hours of legal sales commencing and had to close its doors. Upon legalisation, the rotating strikes of Canada Post workers hampered postal orders. It looks like it will take another two years for the industry to be firing on all cylinders.

And there are other things, too

Legal growers are confined to 20 pesticides and subject to random tests of soil purity and cannabis quality.

People selling cannabis legally have to pay a 10 percent excise tax and income tax.

Black market dope costs less

So black market sellers have a product that costs less. From October 17 2018, the day of legalisation, to December 31, Statistics Canada ran an online survey that attracted over 19,000 responses. It ascertained that illegal cannabis cost 50 percent less than the legal variety. And, as Matei Olaru, CEO of cannabis-focused technology and media company Lift & Co, put it: “Price is definitely top of mind to consumers.”

The illegal market has been going for more than a century. Emma Baron, who founded Toronto-based cannabis accessories company Milkweed, remarked, “To be fair, they … haven’t been in the marijuana-dealing business before.” Hence the government still has to “work out the practicalities.” The black market features occasional violence, goes untaxed and is sometimes controlled by organised crime. The point of legalising the drug was to eliminate this black market and keep dope out of the hands of under 18s.

Scotiabank predicted that 71 percent of cannabis sales in 2019 would be on the black market. It expects this to fall to 37 percent in 2020 when supply, packaging and red tape are less of an issue. Legal sellers are preferable as there will be less issues with quality, service and payment. Part of the trick is to not tax things too heavily. By way of example, when the United States repealed the prohibition of alcohol in 1933, most people went back to legal sources unless taxes were excessive.

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