Why Canada’s Illegal Online Cannabis Stores Won’t Die

Recreational cannabis may be legal in Canada, but you can’t sell it without a cannabis license. In reality, illegal online cannabis stores operate with seeming impunity. A quick Google search of “mail order marijuana” reveals tens, perhaps hundreds of illegal online cannabis sellers (we stopped counting after 10 pages of search results).

Until authorities crack down on illegal online cannabis stores and/or consumers stop buying from them, they’ll continue to drain market share away from legitimate, safe, licensed cannabis stores. Licensed operators have invested time and significant dollars, contribute to their communities, and employ workers, all to find themselves competing in what is a “wild west” market.

There are many reasons the grey market continues to flourish. At illegal stores, shoppers have a wider choice of cannabis products, illegal weed is cheaper, licensed sellers can’t easily compete, and Canadians are more than willing to buy it.

The price gap between legal and illegal cannabis is widening. Legal cannabis is becoming more expensive while illegal cannabis has become cheaper. According to Statistics Canada most recent statistics on cannabis pricing (released on January 23, 2020), “The average price of legal cannabis increased to $10.30 per gram in the fourth quarter of 2019 from $9.69 per gram a year earlier, while the average price of illegal cannabis decreased to $5.73 per gram in the fourth quarter of 2019 from $6.44 per gram in the fourth quarter of 2018.” There are several reasons for the price discrepancy: non-licensed retailers can use adulterated product (mixed with other ingredients), have no safety protocols to follow and can obtain their products from any source. Because of this, consumers should be wary of purchasing cannabis products from illegal sources. When buying through a trusted source, you have the peace of mind knowing that the products being purchased are of consistent quality, regulated and safe.

Because illegal online cannabis stores have no rent to pay, far fewer administrative costs, and pay no taxes, they can easily undercut licensed cannabis stores and continue to profit.

If you shop at a legal retail cannabis store, you’ll notice that product selection is limited when compared to an illegal online store. Canada’s legal cannabis retailers have only one supplier, the government, whereas illegal websites can offer products from a variety of producers. Not only do many illegal online stores have a better selection, they can also shop the cheapest producers, some of whom may not be licensed. Licensed cannabis stores, therefore, struggle to compete on both price and variety of product.

Marketing restrictions make it difficult for legal cannabis retailers to lure customers away from illegal online cannabis stores. Licensed retail cannabis stores must have blacked out windows so the interior of the store cannot be seen from the street. Retail cannabis license holders cannot sell their products online in any capacity, including participating in third-party Internet discount promotions. Licensees are also forbidden from operating drive-through stores or operating or participating in delivery services.

Marketing is Restricted for Legal Retail Cannabis Stores

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National Cannabis Survey data released in February 2020 by Statistics Canada revealed that during 2019 40.1% of cannabis users reported purchasing cannabis from an illegal supplier. In 2018, prior to legalization, about 50% of users reported obtaining cannabis illegally. While the number of consumers who reported purchasing legal cannabis has increased from 22.7% in 2018 to 52% in 2019, it’s clear that licensed retail cannabis stores aren’t displacing the grey market, at least not until the authorities come down hard on illegal online stores and shut them down through heavy fines and/or criminal charges.

While the data doesn’t reveal what percentage of illegal cannabis purchases were made online, it’s a safe bet that many purchases were made at illegal online cannabis retailers.

If you are considering applying for a cannabis license or currently own a licensed retail cannabis store, receive a free consultation from Rebecca Hardin. Rebecca is a seasoned retail liquor and cannabis licensing advisor with decades of experience in BC’s competitive hospitality industry. Whether you need help with a retail cannabis license application, store set up or optimization, inventory optimization or compliance training, Rebecca and her team can help.

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