Prof says low pot prices a sign illicit market is 'gearing up' for legalization

Statistics Canada data shows the cost of illicit cannabis has steadily fallen during the last two years. One professor says the illegal market is preparing for legal competitors to enter the playing field.

Cost of illegal cannabis has consistently fallen since 2016: StatsCan

Data from Statistics Canada shows more people are buying medicinal pot and the prices on the illegal front are dropping. (Rich Pedroncelli/Associated Press)

The price of illegal weed has steadily fallen since 2016, according to Statistics Canada. 

On average, the cost of both medical and illegal pot has fallen by 10.6 per cent since the first quarter of 2016, according to data released Friday. 

The report said the average cost of medical pot was higher than illegal, but combined the average cost was $6.74 per gram in the second quarter of 2018. 

"What we're seeing now is that black market gearing up in anticipation of the entry of the legal market," said University of Regina economist Jason Childs.

He said this isn't surprising, because the same thing happened in Colorado just prior to and after legalization. 

It will be difficult to curb the illegal sales if the legal price isn't right, he said. 

"None of the benefits that we claim that we want from legalization of cannabis are achievable without significant disruption and displacement of the illicit market," Childs said. 

Childs has authored a draft paper with a colleague and recently discussed it at the Cannabis Pracademic Summit in Quebec.

He said the paper demonstrates several scenarios that show legal weed must be cheaper than illegal weed to achieve "policy objectives," like stopping teens from accessing cannabis.

Sask. officials have said its price of pot will be comparable to what's on the street, but Childs said it's hard to see that happening considering taxation. 

Childs said one potentially uncomfortable avenue to consider is subsidization to successfully eradicate the illegal market.

"You may have governments losing money, in order to, (in the) short run, gain the advantage."

The storefront experience could provide retailers with an important a competitive edge, Childs said.

"It's got to be in an environment that people want to be in, so that storefront has to be nice, safe, comforting, welcoming." 

However, he said there are concerns about marketing options. 

"One of the complaints that some of the producers are having is the regulations prevent them from speaking to their customers and communicating effectively," he said.

"Some of the branding restrictions are necessary and appropriate, but it's possible that we've gone too far."

Canadians are indulging more 

The amount of pot purchased has also increased. 

Canadians spent $5.7 billion on pot, in the second quarter of 2018.

Within that, $4.8 billion or 84.8 per cent was spent on the illicit market. In 2014, 98 per cent of pot purchases in the second quarter were made in the illicit market.

The number of medicinal purchases has jumped significantly in the last few years, said Conrad Barber-Dueck, who is an economist with Statistics Canada.​

Barber-Dueck said it's challenging to collect data regarding illicit habits.

Statistics Canada has used online price quotes to see the cost of a gram in each region. In 2018, it began using a crowdsource method.

"People can come and go to the StatsCan site and actually say this is how much I've purchased, this is how much I've paid for my cannabis," Barber-Dueck said.

The organization plans to continue to monitor consumption and price so it can analyze what changes after legalization on Oct. 17, 2018.