Canadian Cannabis Vs. The Large Illicit Market

“Two-thirds of Canadian consumers buy only legal cannabis, survey shows” MJBizDaily October 25, 2023

I won’t delve into the Pollara Strategic Insights survey results; Matt Lamers does an excellent job of summarizing them in his recent article of yesterday.

Sadly, some government officials, LPs and commentators will be quick to say that legalization has been a success [sic] in terms of combatting the illicit market (IM). 

In particular, Liberal politicians will take a victory lap while other parties will ignore the issue out of stigma or inertia. Some LPs and industry groups may be hesitant to call out the government when they are lobbying for tax and regulatory relief.  Quasi prohibitionists and nanny state enthusiasts instinctually see cannabis through a lens devoid of commercial considerations.     

I have another take.

The survey findings and recent estimates around the large size of the IM (30-50% of total consumption) 5 years into legalization point to multi-jurisdictional regulatory failure and, especially, weak policy implementation. 

Here’s why:   

1) There remains significant cannabis ‘retail deserts’ across the country, both in large and small municipalities reducing easy cannabis access for millions of Canadians

2) The IM is abandoned revenue.  For common sense and fairness reasons, this revenue should be flowing to LPs.   After all, they are the ones playing by the rules, deploying the capital and assuming the risk. 

3) IM consumption is an ongoing health and safety concern. Protecting the health of Canadians including children was an objective of the Cannabis Act.   

4) A large IM exacerbates an already heavy LP tax burden.  Current excise tax rates could be lower if the tax base covered a wider base of sales and operators (i.e. the IM was much smaller)

5) Governments are also worse off. The CRA doesn’t collect any tax revenue or regulatory fees from 30-50% of the market.

6) Tolerates unfair competition. With its lower cost, tax and regulatory burden, the IM is gifted with a structural competitive advantage. The IM did spur LPs to deliver high quality cannabis at lower prices. However, the gap between legal and illegal operators has shrunk considerably. Lower IM pricing today drives badly needed profits out of the sector putting jobs and companies at risk.  

All levels of government need to immediately address the IM problem, out of self-interest and as originally promised.  Many Canadians also need to accept the consumer and LP reality where the economic stakes are high and there is a responsibility to ensure fair competition.

#LPs #canada #regulation #illicitmarket #blackmarket