It takes some doing for a market to develop a supply problem and a demand problem at the same time. But here we are.
As Canada hits the four-month anniversary of legal cannabis, news reports and official statistics alike suggest that licensed retailers have neither enough pot, nor enough customers.
It’s a strange problem to have. Usually, you run out of product because so many customers want it, or you run out of customers because they don’t. The fact the massive market is having problems of both demand and supply suggests that the legal system isn’t working properly yet.
Let’s look at how we got here.
The federal government legalized cannabis as of Oct. 17, 2018, and sanctioned new provincial regimes for selling the drug. These created markets but, unusually, the markets had goals beyond attracting buyers and sellers: that is, stamping out illegal sales and encouraging responsible drug use.
Unfortunately, reconciling all of this has not been easy. Encouraging “responsible” pot use with anything stronger than public service announcements tends to feed the black market. Try your pious best – as Ottawa and the provinces have done with inflated prices, bans on edibles, heavy regulation of cultivators and limits on private retailing – and consumers will continue dialling up their friendly neighbourhood dealer to avoid all that.
It’s still early days, of course – four months is the blink of an eye for such a dramatic policy change. But there are worrying signs.
First, the supply side. The national supply of legal pot is so low that at times retailers in Quebec have had to close for three days a week. In New Brunswick, the cannabis authority has laid off 60 workers. Some legal pot sellers are so short of product, they complain of being laughed at by black market competitors. Some predict it will take five years to sort out the supply shortage.
Clumsy regulation is part of the reason why. The federal government is squeezing growers with a fee worth 2.3 per cent of their revenues to cover the cost of regulating those same growers. That double-whammy (pay us to regulate you) seems to be curbing the growth of existing cultivators and discouraging new players from entering the sector.
There are signs of problems on the demand side, too, though they are harder to prove. According to data from Statistics Canada, government pot is still about 50-per-cent more expensive than the black-market stuff. That’s in part because the federal government has imposed a $1 excise tax on every gram of legal cannabis, whether recreational or medicinal.
Users may be willing to pay a premium for legality, but perhaps not as many of them as Ottawa hoped. After surveying the experience of Washington and Colorado, two states that have tried legalization, one American think tank recommended going slow on weed taxes, and phasing them in gradually to help the market’s legal players find their footing.
After all, Canadian cannabis retailers hardly offer convenience as a selling point. The retail rollout has been slow; in many provinces, it’s still difficult to find legal pot. On legalization day, there was just one licensed store in all of British Columbia. In Ontario, there will be no bricks-and-mortar retail outlets until April 1, when the province’s first 25 licensed private-sector pot stores will open.
And so, a short-sighted hunger for government revenue and a misguided effort to coddle consumers has put the legal cannabis market in the strange position of being low on product and customers alike.
Again, it’s still early in the game. Canada is the first large country to attempt national legalization. (Tiny Uruguay beat us to it.) In an experiment of this size, growing pains are to be expected. The missteps so far have been more or less well intended, as cannabis is not harmless and governments are right to worry about its health effects.
But with legal pot, there is such a thing as an excess of caution. The delay in setting up a legal market has real costs for society. Remember, there is a parallel black market in cannabis that is robust and efficient, where the dealers do not care about your health and sometimes carry guns. And, unlike their legal counterparts, Canada’s black-market dealers have plenty of supply and – for now, at any rate – plenty of demand.