David Clement is the North American affairs manager for the Consumer Choice Center and a former research assistant to the Canada Research Chair on Human Rights
Curbing the black market for cannabis is something that everyone should endorse, regardless of their view on legalization.
It is far better to have consumers purchasing cannabis legally, as opposed to having them buy the product illegally, from sources possibly tied to organized crime. Unfortunately, new data from Statistics Canada shows that the price gap between the illegal market and the legal market is getting worse.
In the past three months, the price of a gram of cannabis purchased illegally has fallen from $6.23 to $5.93. Over that same time period, the average price of a gram of legally purchased cannabis rose from $10.21 to $10.65. A price difference of $4.72 is a huge problem, especially for those of us that want legalization to succeed, and the black market stamped out.
More Canadians buying cannabis illegally: StatsCan
As such, there are largely two factors that determine whether or not the legal market will outshine the black market. The first, and most obvious, is the price, while the second is consumer access.
In order for consumers to be encouraged to buy cannabis legally, especially if they were buying cannabis prior to legalization, pricing in the legal market needs to be competitive with black market prices. Excise taxes, sales taxes, additional regional taxes, and onerous production regulations and fees quickly drive up the price of legal cannabis.
The illegal market, not having to comply with these taxes, fees, and regulations, gets the upper hand, but it doesn’t mean that the legal market won’t ever be able to compete.
There are some simple changes that can be made to drive down legal prices. In regards to excise taxes, the federal government could amend the tax formula to eliminate the minimum tax amount and simply tax cannabis on its wholesale value. Getting rid of the $1/gram minimum (combined federal and provincial) would immediately allow for discount products to hit the shelves, which could attract price-sensitive consumers.
The Federal government could also change the production regulations for licensed producers. Pivoting the industry to a food-grade, as opposed to pharmaceutical grade, regulatory regime would immediately help lower costs, which would be passed on to consumers via lower prices.
The second major factor is access.
The legal market needs to be as accessible, or more accessible, than the black market. This is increasingly true for cannabis consumers who were buying the product illegally prior to legalization. In order to break the purchasing pattern of those consumers, the legal market has to have something to offer that the black market doesn’t.
Changes to access largely falls on provincial governments, as they are the government bodies that handle online availability, storefront licensing, and consumption rules.
Provinces could expand consumer access by increasing and uncapping the number of storefronts, and utilize the private sector where possible. Provinces like Ontario should immediately uncap their licensing process so that the amount of storefronts available to consumers reflects what the market can bare.
As supply increases domestically and catches up to demand, it will be important for consumers to have access to that new supply through readily available storefronts. Uncapped licensing, with private stores where possible, allows for that change to be as dynamic and consumer-centric as possible, which is a big win in regards to access.
In addition to increasing storefronts, provinces across Canada should follow the lead of Manitoba and allow for private cannabis e-commerce and delivery. Consumers in Winnipeg can actually get same-day delivery from licensed dispensaries, something that is illegal in Ontario. Allowing for dispensaries to deliver, or for regulated third parties to deliver, significantly increases consumer access to the point where it can be as accessible as black market dealers.
The last, and arguably most impactful change to consumer access would be to make commercial consumption legal. By the end of the year, new non-smokable cannabis products will hit the market, including beverages and edibles. Consumers should be able to consume those products in commercial settings like bars, restaurants, lounges, and clubs.
Provinces should amend their current liquor licensing procedures to include cannabis products, and consumers should be able to purchase those products like they do beer, wine, or spirits. Expanding cannabis access to commercial settings would quickly provide consumers with something that the illegal market never could: a controlled and permitted space to consume. Treating these new cannabis products like alcohol and allowing commercial sale and consumption would considerably increase consumer access by creating regulated access points in every community.
Smart cannabis policy is a policy that puts the consumer first when creating rules and regulations. If the government fails to draft policies with consumers in mind, the black market will continue to thrive. Addressing how our current regulatory regime inflates prices, and dampers access would go a long way towards actually making legalization a success.
The entire world is watching how we regulate cannabis. Let’s do it right for Canada’s sake.
David Clement: Are excise taxes killing Canada’s cannabis market?