Four years after legalization, illegal cannabis market still thriving in Canada

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While Canada marks four years of legal cannabis on Monday, industry observers are wondering why it’s taken so long for a legal, government-regulated weed marketplace to overtake the illicit market.

During the 2015 federal election campaign, cannabis legalization for the Trudeau Liberals was framed as a means to protect young people from an entrenched and dangerous criminal black market.

McMaster University’s Mike DeVillaer told the National Post eliminating Canada’s century-old illegal cannabis trade was never going to be fast or easy.

“The illegal trade, for the most part, was not comprised of the ‘gun runners’ and ‘street gangs’ we were told it was,” he said.

“We were also told that our children were buying their cannabis from dangerous organized crime figures who would introduce them to more dangerous drugs and other forms of crime.”

DeVillaer, an assistant professor in McMaster’s department of psychiatry and behavioural neuroscience and author specializing in drug policy, said academic research and even the government’s own intelligence indicated otherwise.

“Most growers and sellers did not break any laws other than producing and selling cannabis,” he explained.

“Thus, many cannabis consumers did not see a great moral, ethical or safety advantage to switching from their benign, long-term providers to the new legal system.”

DeVillaer said the Liberals’ overly enthusiastic messaging helped foster unrealistic expectations in the minds of everyday Canadians.

“Four years into legalization, the problems that have kept the unlicensed system in business are largely preventable,” he said.

Indeed, many “legacy” growers see little benefit to switching, and don’t want to endure the time, expense and red tape of going legit.

In September, the National Post spoke British Columbia’s legacy craft growers — many spending decades honing their skills in the province’s long and storied cannabis culture — who said Canada’s legal system has no place for them.

“As legalization was rolling through, we obviously started to understand that these legacy farmers were finding it impossible to transition to the legal market,” David Hurford of B.C. Craft Farmer’s Co-op said at the time. 

The co-op was established to help bring BC’s growers into the legal marketplace.

Tara Kirkpatrick, who operates Backwoods BC Bud near Prince George, described transitioning to the legal marketplace as the hardest challenge of her career, and said few peers feel moving is worth the hassle. 

“If you don’t have over $100,000 to build out your facility, you”re never getting to market,” she said, adding that Health Canada won’t even consider licensure without built-out and complete facilities — and even that’s no guarantee of acceptance.

And with Canadian banks wanting nothing to do with even licensed cannabis businesses, going legit is a venture only for those with enough time and resources.

Adam Ladha, who for over a decade was involved with the legacy cannabis space and currently advises clients how to be competitive in the legal market, described the current market as “inhospitable” to those seeking to go legit.

Sam Gerges, who owns Mary Jane’s Cannabis — a string of three successful independent cannabis shops in Toronto — said taxes and prices are keeping longtime smokers away.

“You can get a premium ounce for $100 on the streets, whereas in a retail store, it would cost over $250 for comparable quality,” he said.

“If the Canadian government’s goal is to stifle the black market, they have failed by their own hand by overtaxing the product in legal stores.”

Allowing retailers to offer their product for lower prices, he said, would go a long way to increasing legal market share.

“The government is telling us through their actions that they are okay with the black market dying at a slower pace as long as they can wet their beaks and be profitable,” he said.

Marijuana connoisseurs also point to a lack of quality and consistency in legal ounces.

“Mass production factories that have dominated the licensed cannabis trade have not always produced a level of product integrity that has impressed cannabis users,” DeVillaer said.

“Health Canada inspections of licensed production facilities have documented close to two thousand regulatory infractions, which Health Canada euphemistically calls ‘observations.’ ”

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Aside from complaints of contamination, lax security and intentionally misleading inspectors, DeVillaer said some licensed producers found themselves facing charges — accused of securities fraud, financial crimes or even diverting legally grown product to the black market.

Last year, the Ontario Securities Commission (OSC) charged three former directors of CannTrust after a whistleblower tipped off cops to unlicensed grow rooms, reported Matt Lamers of MJBizDaily.

Opening arguments in that case begin Monday in Toronto.

Increasing THC limits for edibles, Ladha said, would also take a significant bite out of the illicit edibles market.

“They’re limited to 10mg, below the threshold for a psychoactive dose,” he said, adding illicit edibles often average around 50 to 100mg of THC.

“Licensed producers are far better equipped to make edibles and maintain food standards than legacy producers.”

All agree Canada’s overtaking of the illicit market has been a decidedly slow burn.

In Ontario, Canada’s largest recreational cannabis market, legal trade only outpaced illicit sellers in the second quarter of 2021, according to the Ontario Cannabis Store (OCS) — the crown agency acting as Ontario’s wholesale distributor for licensed sellers, and the province’s only legal mail-order cannabis provider.

Their latest report lists Ontario as responsible for 40 per cent of Canada’s legal market share, ahead of Alberta (18 per cent,) B.C. (15 per cent) and Quebec (13 per cent.)

According to Statistics Canada, Canada’s legal market currently sits at 57 per cent, with 43 per cent of cannabis users opting to source their weed from illicit and grey market sellers.

• Email: bpassifiume@postmedia.com | Twitter: bryanpassifiume