Canadian pot consumers are finally seeing lower prices almost a year after the country legalized the drug for recreational use. But the price for illicit cannabis remains significantly cheaper, which is helping the black market continue its domination over the legal sector, according to reports.
Statistics Canada released its latest crowdsourced data last week, which shows a gram of weed from licensed retailers cost $10.23 in the third quarter, a 3.9 per cent drop from the prior three-month period. Meanwhile, a gram of pot bought from the shadow industry in the third quarter dropped 5.9 per cent to $5.59 — almost half the price as legal cannabis.
The federal agency has been collecting self-submitted price quotes through its online application StatsCannabis since legalization began last October and illegal prices have fallen 12 per cent and legal prices have gained 4.9 per cent.
In the fourth quarter last year, a gram of cannabis from an illegal drug dealer came in at $6.51, compared to $9.70 from a legal source, representing a 33 per cent black market discount. The gap widened to 45 per cent in the last quarter even with legal marijuana prices declining for the first time.
Statistics Canada, however, urged caution when interpreting the latest data, as the prices are crowdsourced and the number of responses deemed plausible were limited to 125, which was half as many as in prior quarters.
Since May 2018, the country’s statistics office also been collecting weed prices from the websites of illegal online retailers to support research and validate the price information collected using the StatsCannabis application, the agency said. More than 570,000 prices were collected, with more than 413,000 responses passing the validation process.
The data shows that black market prices have actually gone up each quarter, But StatsCan noted the pricing figures comes from illegal online sources only which is not fully comparable with the StatsCannabis data which include both online and other purchases of illegal cannabis.
Also, the prices on the black market varied depending on the amount of cannabis being purchased.
“This data source also shows a strong inverse relationship in which prices decline as the quantity of cannabis purchased increases,” Statistics Canada said.
The web-scraped data showed that cannabis purchases in quantities of less than 1.5 grams averaged $10.23 per gram, whereas purchases of 28 grams or more averaged $5.86 per gram, it said.
Black market still reigns supreme one year into cannabis legalization
October 17 marks the one-year anniversary of legal recreational weed in Canada and it appears the majority of sales still takes place in the underground market.
Legal pot shops raked in more than $100 million in July, according to StatsCan. And using the agency’s latest sales figures and current growth rates, the legal sector should reach $1 billion in the first full year of sales.
Cannabis Benchmarks, which is owned by New Leaf Data Services, validates that estimate as it projects Canadian licensed producers will haul in $1.1 billion worth of legal pot sales in the first full year of legalization, according to a BNN Bloomberg report.
If those projections hold up, it means only 17 per cent of marijuana purchases are made from legal sellers based on the $6 billion Canadians spend on pot each year.
RBC Capital Markets calculated last week only 12 per cent of adult-use cannabis sales in the second quarter of 2019 came from legal pot shops in Canada, according to a Globe and Mail report. The investment bank blames the high prices in the legal market as the main driver for lower-than-expected sales.
But RBC analysts Douglas Miehm and Savneet Uppal also noted a supply surplus of unwanted legal cannabis, the vaping health crisis in the U.S., and a lack of licensed weed stores throughout Canada as other reasons why the legal market isn’t flourishing.
There are 561 cannabis retail stores operating across Canada as of the beginning of October, according to Cannabis Benchmark. But Alberta accounts for around half of those stores opens, as the province issued its 301st store licence last week.
Conversely, the country’s most populated province in Ontario has 24 stores currently open, with plans to have 75 operating by the end of the year. In Quebec, 20 new stores are expected to open in the next six months bringing the total in that province up to 42.
“Today, both Ontario and Quebec – Canada’s two most populous provinces – have one store for every 595,000 and 495,000 people, respectively, versus a saturation rate in Colorado, for example, of 10,000,” noted Canopy Growth (TSX:WEED) in a press release.
The RBC analysts believe the store rollout in those two provinces will help, but the number will still remain too low over 2020 “to drive meaningful conversion of the illicit market.”
Meanwhile, StatsCan reports there is currently almost 300,000 kilograms of unfinished cannabis inventory built up at the LP level in July, versus only 11,400 kilograms sold, leading to concerns of an oversupply on the horizon and writedowns.
“We believe there is a growing amount of cannabis that consumers do not want, setting the stage for oversupply,” RBC said.
As for the vaping health concerns, Canadian pot producers stand by their tested, regulated vape pens ahead of the cannabis derivative product launch at the end of this year.