Cannabis : the State against the black market

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Bertrand Schepper

Friday, February 23, 2018 09:44

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Friday, February 23, 2018 09:48

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Recently we have learned that six producers of cannabis have entered into an agreement with the quebec Society of cannabis (SQC), the subsidiary which will have the task of distributing marijuana for the SAQ. This production estimated to be approximately 62 000 Kg of cannabis annually, will be apportioned between the following companies :

• Hydropothicaire (QC) : 20 000 Kg
• Aphria (ON) : 12 000 Kg
• Canopy Growth (ON): 12 000 Kg
• Med Releaf (ON) : 8 000 Kg
• Aurora Cannabis (AB) : 5 000 Kg
• Tilray (BC) : 5 000 Kg

Even if it would be the “the largest world-wide selling of cannabis legal” ever made in the world, the question becomes whether it is sufficient appears to us justified.

Last year we carried out a study which was based on the official data of the Colorado, and which estimated the market of cannabis as a recreational legal in quebec to$ 1.33 billion (p. 16). According to data collected by Statistics Canada, this estimate seems to be confirmed.

In addition, we know that, on average, the price for a gram of cannabis is traded to 7,69 $ in Canada (p. 47). This means that the quebec market would purchase the equivalent of 173 000 Kg cannabis recreational. So, currently, in terms of quantity, the purchase of the SQC would represent about one-third of the market. The network of the SQC will be able to fight against the black market from the beginning of its activities? We doubt it strongly ! But the quantity purchased will certainly support the initial network of 15 branch offices and remote sales. Recall that this network could consist of up to 10 times more branches in the next 3 years. In short, there is a safe bet that during the next few years, purchases of SQC which appear to us so important today seem quite normal or even small in scale.

Who will use the black market in cannabis in Quebec ?

We would like to say that the black market will never be completely erased from the distribution of cannabis. Thus, in Colorado, which legalized in 2012 the consumption of cannabis, it is estimated that it will take 10 years for 90% of the market of cannabis is legal (p. 6). This situation, which could also apply in Quebec, allows us to glimpse that there will always be a market for smuggling, as is also the case with legal products like alcohol or tobacco. Remember that with us, the contraband market for cigarettes is estimated to be about 15 % of the market as a whole (p.2).

The bulk of the clientele of the black market will consist of consumers that will not be served by the service offering of the SQC. Think, for example, the people living far from the branch offices that want to deliver cannabis quickly at home or even large consumers, target customers of organized crime, which, although cannabis is legal, will have an economic incentive to buy in bulk. In addition, it’s a safe bet that the State, as it does with the SAQ filing for alcohol or allows for the “cartoons” of cigarettes, do not promote the purchase of large quantities by discount.

However, we can expect that, over several years, for most people, there will be a transfer from the black market to the legal market.

In short, the black market around the distribution of cannabis will probably never be dammed. However, it is certain, that, in the medium term, it will lose feathers. On the other hand, the products offered in the branch will be audited by the public health and may include less products harmful to health than the cannabis available on the street. Finally, instead of leaving it to organized crime, the State can take advantage of the money of this new market to promote the community.

In conclusion, the more there will be cannabis legal available and less organized crime may take advantage of the distribution of the product.