Legalizing cannabis was supposed to spark a revolution — a bold new era of progress, opportunity and transformation. Instead, it began a complicated journey marked by significant achievements but also frustrating setbacks. Canada’s legalization has shifted both the culture and the industry, paving the way for innovative products, strict quality standards and a burgeoning community of consumers. But several remaining hurdles make it hard for the legal industry to realize its full potential and, as legalization was supposed to do, eliminate the illegal cannabis industry.
High excise duties, restrictive limits on edibles, curbs on consumer education, strict rules on packaging and labelling, limited opportunities to build brands that would support conversion from the illegal market, complex provincial distribution systems, high compliance costs and cumbersome excise stamp requirements that add to complexity and costs have prevented legal businesses from succeeding. As a result, the unregulated market remains a formidable competitor, still accounting for around 30 per cent of sales, according to a 2023 Stats Can survey.
Illegal operators undercut licensed producers by offering cheaper products unrestricted by regulations. These products are easily accessible through illegal storefronts or even online, with delivery directly to consumers’ doorsteps. In fact, many illicit operators are often mistaken for legitimate ones, which makes them even harder to compete with. The proliferation of illegal operators not only hurts the legal industry and compromises public health and safety, it also deprives the government of tax revenue.
The Ontario Cannabis Store’s recent “Buzzkill” pop-up event in Toronto highlighted the risks of unregulated cannabis in a creative, immersive way. Buzzkill was designed to resemble an illegal cannabis dispensary, complete with satirical product displays that educated consumers on the potential dangers of unregulated cannabis — like contaminants, inaccurate dosing and the lack of traceability.
Such events help raise awareness about the significant public health risks posed by the unregulated market. Unlike legal cannabis, with its child-safe packaging, accurate labeling, and health warnings, unregulated products may mimic legal brands or provide misleading information about potency and ingredients. Illegal operators can bypass age restrictions and safety standards, undermining the Cannabis Act’s goal of protecting Canadians and encouraging responsible consumption.
The strict 10-milligram limit of THC per package for cannabis edibles is pushing many consumers toward the unregulated market, which is the only place they can access more potent products — and at significantly lower tax-free prices. In other mature cannabis markets, like Colorado, for example, where the limit on edibles is 100 mg of THC per package, with each serving capped at 10 mg, edibles account for close to 15 per cent of total sales. In this country, by contrast, they are only five per cent, a big difference. Combined with lower prices and less control on potency and safety, Canada’s low limit gives illegal operators a big advantage.
To compete effectively with the unregulated market, the industry needs higher potency limits and prices that are more competitive — which is only possible with lower excise taxes. These adjustments will help bridge the gap between consumer expectations and what the regulated market can deliver, thus levelling the playing field for legal producers.
H/T: financialpost.com
