A huge majority of Canada's marijuana industry is still controlled by black market sellers.
The legal cannabis industry has been plagued with a number of issues since it was first introduced last October. Because of these problems, licensed cannabis businesses have failed to achieve one of the primary goals of legalization: overtaking the black market. In 2019, roughly 71 percent of recreational cannabis sales will be made through the black market, according to a recent industry analysis by Scotiabank. The Canadian financial institution said that numerous kinks in the legal industry need to be worked out before it can truly own the marijuana market.
Topping that list of obstacles is the issue of supply. Since legalization came into effect, the legal market has been afflicted with huge shortages of cannabis across the country. These shortages are only being compounded by the long lengths of time it can take for the federal government to approve new cannabis cultivation facilities. That's not to mention that even when producers have market-ready weed on hand, they can sometimes face challenges in securing packaging that meets regulations as suppliers of those items are also having a hard time keeping up with demand.
There are also problems with the price differences between the illicit and licensed cannabis sellers. Buying weed on the black market continues to be cheaper in many cases because illegal dealers don't have to charge or payout taxes, nor do they have to worry about paying for costly cultivation and sales licenses. These things all mean that illicit sellers don't have to charge as much for their product in order to turn a profit.
Another problem is the number of licensed retailers in the country. For some consumers, there simply aren't any legal pot shops located nearby, which is good news for illicit dealers.
However, Scotiabank analysts seem confident that these issues won't take too long to be resolved. As production of legal cannabis increases throughout 2019 and more legal stores begin to come online, the market share will swing in the other direction. By 2020 the amount of weed purchased from the illegal market is expected to drop down to 37 percent.
If the Scotiabank analysts are right, that means the legal cannabis industry can expect to see tremendous growth in a short amount of time. And while it seems unlikely that the black market will entirely disappear, it shouldn't take more than a few years before it accounts for only a small fraction of cannabis sales in Canada.
h/t The Motley Fool