Critics Say Sticker Shock at Cannabis Prices Will Push Customers Back to the Black Market

Statistics Canada says legal buyers paid $9.70 for cannabis compared to $6.51 on the black market

Cannabis has long been a source of income for organized crime in Canada, explained Couto, so police are concerned they’ll take advantage of the early stages of legalization to turn a profit.

“If we’re going to eliminate cannabis as a potential source to fuel criminal activities … obviously ensuring the product is accessible and is priced right is really important.”

Daisley said up his experience at The Niagara Herbalist was largely positive until he went up to the counter and found out how much he would be charged.

He said he’d prefer to purchase cannabis legally, but believes that, like him, the buying decisions for most cannabis consumers will be dollar-driven and the price tags raise questions about markup that will keep people out of legal stores.

Like comparing a ‘fine wine’ to moonshine

Hamilton-based cannabis consultant, Olivia Brown, disagrees. She says the quality legal outlets offer is worth paying for.

“I wouldn’t compare a $180 bottle of fine wine to moonshine just because it’s cheaper.”

Brown said the prices charged by private legal retailers are generally similar to those posted on the OCS online store, but added that, like gas stations, consumers could see a slight difference of $1-3 depending on which shop they’re in. 

Still, Brown said she hears people complaining about the price of legal pot every day.

She agreed black market prices are lower than their legal counterparts, but pointed out government regulated cannabis is a big business that has to pay many employees and meet all sorts of standards.

“It’s very highly regulated, it’s very expensive to maintain and has huge operating costs.” 

Brown also said cannabis is a product where you get what you pay for — there’s a reason the black market is so much more affordable.

“It’s probably grown outside by someone who may not know what they’re doing, they could be using pesticides or have all kinds of bugs or whatever,” she explained. “These people aren’t understanding the difference between really fantastic, lab-tested quality-grown, labeled, packaged  beautiful products.”

Offering more options for purchasing those high-quality, legal products is the only way to make sure black market usage is really curbed, according to Hamilton Mayor Fred Eisenberger.

The mayor’s comments came in response to recent criticism leveled at police and officials in Hamilton by Premier Doug Ford who said failure to shut down illegal dispensaries in the city was his “biggest frustration” when it came to cannabis legalization in Ontario.

OCS says legal cannabis is ‘competitively priced’

In a statement to CBC News a spokesperson explained the OCS buys its cannabis from producers licensed by Health Canada then sets a retail price, which can go up or down based on factors including market conditions, supply and the purchase price from producers.

Absolutely the black market enjoys a big price advantage.- Michael Armstong , Brock University

Legal products are tested and “competitively priced” with the illegal market in mind, the statement read.

The spokesperson added the pricing structure for retailers allows them to set their own prices that “reflect their individual business models.”

On the OCS website MK Ultra, the same strain Daisley said he was trying to buy is listed from $12.85 / gram or $39.95 for 3.5 grams — though it does not appear to be currently available.

Customers need a discount option like ‘No Name’ weed

In the short term the limited number of stores in Ontario mean each location should be able to draw plenty of customers, but an associate professor at Brock University said big changes have to happen if government wants to compete for the long haul.

Michael Armstrong teaches at the Goodman School of Business and has been watching Canada’s foray into legalization closely.

“Absolutely the black market enjoys a big price advantage,” he said, pointing to a Statistics Canada report for the last quarter of 2018 showing the average price paid for legal, dried cannabis was $9.70, compared to $6.51 its illegal counterpart.

Brock professor Michael Armstrong says the black market for cannabis enjoys a big price advantage. (Brock University)

At some point, the pool of customers willing to pay up to 50 per cent more for a legal product will dry up and the stores will have to start appealing to people who are only willing to cough up something in the range of 25 cents more per gram.

Armstrong said the government has to be ready and offered a few suggestions for how to cut costs.

The first is lowering the overall production cost by going large scale, automating the process or moving growing operations outdoors. When those saving lead to a drop in price, the professor said provinces should lower their wholesale process so retailers can also sell for less.

Another obstacle is the federal government’s excise tax structure. Armstrong said excise tax currently varies by province, but the default is about $1 per gram minimum, which makes it tough to keep up with the black market.

“Even if a producer can make it really cheaply and a retailer is willing to sell it for a low price, that dollar is a big chunk.”

He argues the government should drop that minimum and just set the tax at 10 per cent.

Under that model a premium product could pay around $2 a gram in tax and an average products could pay around $1, but retailers could offer a discount brand.

“Eventually the retail stores need to be able to sell something like a No Name cannabis, pre-rolled joints for maybe $5 a gram, maybe $3 bucks a half gram,” said Armstrong.

“To compete with the black market in the longer term absolutely we need some of the products priced low.”

Read more at CBC News

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