Why the Government's Approach to the Illicit Cannabis Market Isn't Working

In recent years, Canada has witnessed a surge in licensed cannabis stores and products, yet the illicit cannabis market at brick and mortar locations and on online websites continues to thrive. Despite ongoing government enforcement actions, unlicensed dispensaries persist, catering to millions of Canadians who prefer the unregulated, underground cannabis industry. The approach the government has taken to combat this shadow market appears futile, as these stores reopen soon after being shut down, with seized products quickly replaced. Enforcement alone has proven ineffective, and without systemic changes, the legal market will continue struggling to capture a significant share of the consumer base.

This article explores the government’s current approach to the illicit cannabis market, why it fails, and, more importantly, what can be done to address the underlying issues that drive consumers to unlicensed sources. We’ll also draw insights from my previous interview with "Jack," a long-time participant in the black market, who shared invaluable perspectives on why illicit sales remain a popular choice for so many Canadians.

A Revolving Door of Enforcement

The phrase "The definition of insanity is doing the same thing over and over and expecting different results" encapsulates the current government approach to dealing with illegal cannabis dispensaries. Provincial authorities routinely conduct raids, shutting down unlicensed stores and seizing their goods. However, within days, many of these dispensaries reopen, restocked and ready to serve their loyal clientele. Even law enforcement officials appear to have lost faith in this cycle, as penalties remain limited, and few severe consequences are applied to store operators or owners. The lack of punitive measures has created a revolving door where illegal dispensaries continue operating almost undeterred.

Why the Illicit Market Persists

To effectively address the issue, we must first understand why the illicit cannabis market remains so appealing to consumers. There are three primary drivers behind this preference: price, product quality, and potency.

1. Competitive Pricing

Cannabis taxes and regulatory costs make legal products significantly more expensive than their illicit counterparts. In a previous interview, Jack highlighted this point, noting that legal dispensaries have limited options for reducing prices due to high taxes and supply chain costs. Meanwhile, illicit operators bypass these regulatory fees, allowing them to offer cannabis at a fraction of the price. For many consumers, the cost differential makes the illegal market far more attractive, especially for regular users on a budget.

2. Product Quality and Selection

The illicit market offers a wider variety of cannabis strains, products, and forms that are often unavailable through licensed dispensaries. Jack emphasized that black-market sellers cater to diverse consumer preferences, often stocking higher-quality flower and specialized products such as concentrates and high-potency edibles. Legal dispensaries, by contrast, face product restrictions that limit their ability to match the range and potency of offerings available on the illicit market.

3. High-Dose Edibles

One of the most significant challenges for legal cannabis retailers is the regulation on THC content in edibles. Federal regulations cap THC doses in edibles at 10 milligrams per serving. Meanwhile, the black market readily offers edibles with dosages ranging from 50 to 100 milligrams or higher, meeting the needs of consumers with higher tolerance levels. This regulation discrepancy leaves a large segment of consumers underserved by the legal market, encouraging them to seek alternatives.

A Call for Regulatory Reform

If we are to redirect consumers toward the legal market, it’s clear that the government must address these three factors. The solution is not more enforcement but a reevaluation of the regulatory and tax framework governing the cannabis industry. Here are a few specific changes that could make a difference:

1. Lowering Cannabis Taxes

High taxation on legal cannabis products inflates prices, which, combined with operational costs, makes it difficult for retailers to compete. By reducing taxes on cannabis, the government could help licensed dispensaries offer prices closer to those in the illicit market. This step would also aid in the industry’s growth, making legal cannabis more accessible and appealing to consumers.

2. Broadening Product Offerings

Legal dispensaries need the ability to offer a more comprehensive selection of cannabis products. This could involve loosening restrictions on potency and allowing for a greater diversity of product types, such as concentrates and high-THC edibles. If legal retailers can match the selection available in the illicit market, more consumers may be willing to make the switch.

3. Reviewing and Adjusting THC Limits

The strict THC cap on edibles limits the ability of licensed producers to cater to the full spectrum of cannabis consumers. A regulatory adjustment that allows for a higher THC limit in edibles would enable legal stores to attract a broader range of users, including those with higher tolerances.

Creating a Legal Environment That Attracts Black Market Participants

If the government created an environment where it made more business sense to operate in the legal market, many people in the illegal market would be inclined to participate in the legal industry. Rather than treating black-market participants as adversaries, we should see them as potential allies who already understand the market and customer needs. Many individuals in the illicit market have years of experience, established client relationships, and product knowledge that could be invaluable to the legal industry.

Jack, for example, has been in the industry for over two decades and understands customer preferences, particularly the demand for affordable, high-quality, potent products. Rather than expending resources on enforcement that does little to deter these operators, the government could incentivize them to transition to the legal market by lowering taxes, relaxing THC restrictions, and providing support for businesses that align with consumer demand. Creating a welcoming regulatory environment could encourage more illicit operators to go legal, thereby reducing the black market and increasing consumer confidence in licensed dispensaries.

By bringing these experienced operators into the fold, the government could make strides toward creating a legal cannabis market that better serves the consumer, improves public safety, and strengthens the industry as a whole. The key is to focus on regulations that support, rather than stifle, the ability of licensed retailers to compete effectively.

Learning from Industry Insiders

Jack, the black-market dealer from my previous interview, provides a valuable perspective on why the black market thrives despite legalization. According to Jack, the black market fills gaps left by the legal industry by offering affordable, potent, and diverse products. While some consumers are drawn to the legal market for quality assurance, many prioritize cost and product strength above all else.

Jack also highlights the customer service aspect of illicit operations, emphasizing the relationships built with regular clients who trust his recommendations and appreciate the flexibility his service offers. Legal dispensaries, constrained by corporate policies and regulatory oversight, may find it difficult to provide this level of personalization. Still, there’s an opportunity for licensed retailers to foster customer loyalty through unique and engaging experiences that build trust and community.

The Economic and Social Implications

Canada’s cannabis industry holds vast potential for economic growth, job creation, and public health advancements. Yet, this potential is hindered by regulatory policies that, while well-intentioned, create barriers for legal businesses to thrive. The continued dominance of the black market not only reduces tax revenue but also perpetuates public health risks, as consumers turn to unregulated products of unknown quality and safety.

A Path Forward

The government must take a hard look at its approach to the cannabis industry and consider policy adjustments that will help create a more competitive and sustainable market. Lowering taxes, increasing product flexibility, adjusting THC limits, and creating incentives for illicit operators to join the legal market are vital steps to leveling the playing field.

By addressing these core issues, we can make the legal market more appealing to a broader consumer base, reduce the appeal of the black market, and ensure that Canada’s cannabis industry reaches its full potential. It’s time for the government to recognize that the current approach isn’t working and implement changes that will benefit both the industry and the consumers it serves.