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Will the Black Market Disappear Once Marijuana Is Legal?

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April 09, 2018 9:00 AM

Will-the-Black-Market-Disappear-Once-Marijuana-Is-Legal-compressor.jpgYou might be wondering whether legalizing marijuana will mean the end of the black market for cannabis. It’s highly unlikely. Here’s why the market will continue to operate, and how legalized marijuana will impact it.

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It’s Not Likely

People do not expect the black market to disappear. It’s just too big and too complex to vanish overnight.

Cities are confused about policing medical marijuana dispensaries. This grey area may not become clear even with legalization. The currently operating pot shops in place now, such as storefront dispensaries, make receiving marijuana without an authorization from a health professional both easy and discreet. The black market is a mature enterprise that can’t possibly be destroyed in an instant once the product becomes legal.

Why Not?

The issue is the length of time the black market has been in operation: It’s its own system derived from loyal customers who have been buying products at seemingly reasonable prices. The majority of current users don’t believe the market will be ready to sell come legalization day. Even after the legislation changes, it’s expected that regular users will be more likely to stick with their current sources. Customers know the products they currently use; they’ve established a working relationship; and they know exactly what strain of cannabis works for them. There are some, however, who are ready to purchase marijuana legally—for the sake of convenience. 

Displacing the existing infrastructure is the biggest challenge facing governments. In 2015, Stats Canada estimated the black-market cannabis industry to be at approximately $6.5 billion. Factors necessary to begin denting that industry include: price point, accessibility, and variety—essentially, doing what the black market does in a legal way. The price point is a hotly argued topic, where legal private retailers may be unable to compete with pricing, especially in bulk. Forecasted provincial and territorial plans still provide the black market with plenty of room to operate. To dent the market, cannabis sales will have to be open to effective competition from different types of retailers. 

Current dispensaries in Ontario, which will not be legally allowed to sell marijuana, won’t be able to benefit from the opportunity of private retail. Cannabis produced in Ontario will only be sold through Crown-regulated businesses and licensed producers for medical cannabis. This is predicted to impact fair pricing and variety, limiting users who weigh both of these factors before making a purchase. The black market, however, will be readily available on both fronts.

The Government Is Hopeful

Working with the proper cannabis companies and using private branding may be a major player for private retailers, acting as a legal alternative to the black market. In addition, the country needs to simultaneously address and promote public health concerns while building up this billion-dollar industry.

It’s unclear how much the market will shrink and how long it will take, noting that it really depends on the growth of the legal market and individual provincial regulations. Distribution and retail will vary by province and territory, as it’s thought that each one has the best understanding of its communities and demographics.

Both provincial and federal governments hope legalization will lead consumers to abandon the black market in favour of buying cannabis legally. The push across the provinces and territories will be to have small growers and related businesses obtain licensing in line with state-regulated requirements, instead of staying underground to continue selling it illegally. Provinces and territories want to convince frequent users to take the legal route for purchasing recreational cannabis.

There are arguments for why marijuana should be legalized. The government will have to meet the demand of cannabis users if it hopes to curb the current state of the black market.

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Topics: Medical Marijuana

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