Canada became the first country in the world to legalize recreational marijuana when it did so in 2018. Five years later, they are still the only country with nationwide legal marijuana. But it is not all sunshine and roses. Canada’s legal marijuana market is struggling mightily. Some say it’s on the verge of collapse.
Things went well in the early days. In fact, you could say that Canada underwent a recreational marijuana boom during the first year or two. But then things started going south. These days, marijuana proponents and government regulators are concentrating on navel-gazing in an attempt to figure out what went wrong.
There are three big issues plaguing Canada’s legal marijuana market:
Anyone and everyone who had money to put into a new business tried to get on board with recreational marijuana when it was first legalized. More than one entrepreneur was consumed by visions of unimaginable wealth. The end result was market saturation. Furthermore, saturation occurred fairly quickly.
In the early years, there were so many retail dispensaries opening up that suppliers couldn’t keep the shelves full. There just were not enough producers to meet demand. That left consumers leaning on the black market to get their marijuana. When production finally did catch up, competition among retailers ultimately forced lower prices. Prices fell so far that retailers had trouble turning a profit. Today, many of them still do not.
In stark contrast, regulations in Utah allow a maximum of 15 medical cannabis dispensaries to serve the entire state. Beehive Farmacy operates two of them; one in Brigham City and the other in Salt Lake City. Unlike most Canadian provinces, Utah does not suffer from market saturation.
As is almost always the case with these sorts of things, the Canadian government chose to tightly regulate marijuana after legalizing it. They offered all the usual reasons including protecting public health, ensuring product quality, and so forth. But the regulations have hurt producers and retailers.
For example, marijuana companies cannot establish and market brands. All marijuana products must be sold in plain packaging that is government approved. Finally, marijuana companies cannot advertise. How is one company supposed to distinguish itself from the competition under such burdensome requirements?
Then there are the actual costs of doing business. It is expensive enough to run a business that you cannot market. Throw in higher regulatory fees and taxes compared to other industries, and things get even worse.
Last but not least is the black market. It is alive and well in Canada despite efforts by legal market advocates to downplay its influence. The black market continues to thrive for one simple reason: you cannot change human nature.
Legal marijuana is more expensive than its black market counterpart. Remember that black market operators do not pay regulatory fees. The pay no attention to packaging requirements. They don’t have to rely on marketing because they have a direct connection to their buyers. All this allows them to sell more cheaply.
Canadian consumers are no different than their American counterparts. If they need to choose between cheap street product and more expensive legal marijuana, they are going to choose the cheaper stuff every time.
As U.S. lawmakers continue to grapple with the legalization question, they should look to Canada’s legal marijuana market for lessons on what not to do. It is possible that marijuana could be legalized and made as profitable as alcohol. But it’s also possible that we could find ourselves in the same position as our neighbors to the north.