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As a result of the slow growth of the Canadian cannabis industry, a lot of consumers are continuing to rely on the black market.
Less than a year after Canada legalized cannabis, industry insiders are conflicted about the sector's current and future performance, in the North American country, with most people leaning toward a pessimistic outcome.
Many factors contribute to the underwhelming performance, one of which being Canada's advertising restrictions. The restrictions do not allow for personal recommendations, client testimonials or celebrity endorsements. Even fictional characters may not be used in cannabis advertisements.
Another huge challenge for brands trying to gain popularity is the restriction from using social media to market their products or hint at a cannabis-related 'lifestyle.' The policies' emphasis on keeping advertising strictly informational also does not allow for brands to use flashy or artistic packaging for their merchandise.
Other reasons cited by industry professionals, at the GMP Securities 2019 Global Cannabis Conference, are clients' uncertainty regarding finding reliable information on cannabis, and lack of access to physical stores which leads to the slow rollout of retail distribution.
On the other hand, Jason Wild, president of JW Asset Management said that Canada will likely grow in the market once more U.S. states legalize marijuana. "My view is that there is a lot of opportunity in Canada," Wild proposed.
Regardless, Wild's firm continues to focus on the U.S. market, saying it is "the biggest and best market in a lot of industries, and I think in the cannabis industry, it is."
As a result of the slow growth of the Canadian cannabis industry, a lot of consumers are continuing to rely on the black market. In 2019, the black market projected cannabis sales of about US$5 billion compared to the $2 billion in legal sales.
The legal market was highly unprepared for the surge in demand caused by legalization, which unfortunately for Prime Minister Justin Trudeau, went against his claim that legalization would "eliminate the black market."
“When I’m sold out, they’re still gonna find a product somewhere,” marijuana store owner Trevor Tobin stated and added that legal restrictions on selling marijuana byproducts, such as edibles and hashish, make stores unable to compete with illegal "grey market" stores.
At the end of the day, it comes down to price, which is definitely hurting legal cannabis channels. The black market reportedly sells a gram of cannabis for 36% cheaper than legal stores, according to Statistics Canada.
While this poses a problem, Rosalie Wynoch, a policy analyst at the CD Howe Institute, points out that "the government was aware that it wouldn't fully displace the black market on day one." Wynoch predicts that the black market will only stay active for another two years, which is the same amount of time it persisted in Colorado after cannabis was legalized.