Can Ontario's Legal Cannabis Shops Compete With the Black Market?

Ontario's struggling cannabis industry has hit another snag as shoppers say the province's legal stores are too expensive.

Ontario's small handful of legal brick and mortar cannabis stores have only been open for a week, but the new shops are already running into some issues. For some potential customers, the price of legal weed is simply too high. That was the case for the 60-year-old Matt Daisley, who said he was asked to pay almost twice what he would from an illicit seller when he visited St. Catharines' first legal pot shop.

"I knew immediately that I would not leave the black market," Daisley told CBC News. "There's no chance."

Other customers agree with Daisley, which presents a huge problem for the regulated market, according to Joe Couto - a spokesperson for the Ontario Association of Chiefs of Police. Couto says that without a competitive market, the provincial government has no hope of putting illicit dealers out of business anytime soon.

"I don't know if the price is right," said Coutu. "We've always recommended to them that if you don't price the product at a market price obviously it does create pressures and black market activity."

However, some industry insiders think the problem comes down to consumer education instead of cost. Hamilton-based cannabis consultant, Olivia Brown, explained that the price premium you see at legal cannabis stores also comes with a quality boost. When people complain about the prices at legal shops, Brown tells them you can't compare "fine wine to moonshine."

"These people aren't understanding the difference between really fantastic, lab-tested quality-grown, labeled, packaged, beautiful products."

But while some customers will base their purchases on quality alone, for many others, affordability is a chief concern.

"Eventually the retail stores need to be able to sell something like a No Name cannabis, pre-rolled joints for maybe $5 a gram, maybe $3 bucks a half gram," said Michael Armstrong, a professor at the Goodman School of Business. "To compete with the black market in the longer term absolutely we need some of the products priced low."

Bringing these lower priced products to market isn't easy though. Safety screening regulations, taxation and the scale at which legal cannabis is currently produced all contribute to the end price.

With any luck, as more legal producers come online in the coming years, supply will level out and we will see at least some reduction in cost. Until then, however, legal cannabis in Ontario is likely to remain steeply priced.

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