Canada’s Illicit Cannabis Still Dominates After Two Legal Years

“Pricing is still too high relative to what we’re seeing in the illicit market”

It’s been nearly two years since Canada became the first G20 country to legalize cannabis for recreational purposes. However, the majority of customers are still getting their pot from the illicit market — with a lot of ground left to cover.

In the fourth quarter of 2018, legal marijuana represented only 21% of total consumption in Canada, despite weed becoming lawful on Oct. 17 of that year. Fast-forward to the first quarter of 2020 and cannabis is now a C$2.2 billion ($1.7 billion) retail industry, yet legal consumption is still just 46% of the total, according to data from Statistics Canada.

“Consumer conversion from the illicit market is clearly occurring, but it is still early days,” Cormark Securities analyst Jesse Pytlak said in an email. “Retail infrastructure is still being developed, and useful insight on consumer preferences and behaviors is just now beginning to emerge.”

The relatively slow growth can be attributed to both steep prices in the legal market, as well as the fact that physical stores remain few and far between in large provinces like Ontario. The accessibility of brick-and-mortar storefronts is critical for converting consumers from illegal consumption, Pytlak added.

“The pricing is still way too high relative to what we’re seeing in the illicit market,” Canaccord Genuity analyst Matt Bottomley said in an interview. “If you are someone that consumes cannabis on a regular interval, there’s not a lot of incentive for you to transition over.”

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