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Comparing legal and illegal cannabis prices in post-legalization Canada

With legalization of cannabis happening in Canada tomorrow, British Columbia’s Liquor Distribution Branch says legal cannabis operators might find it difficult to compete with illicit dealers over market share when cannabis is made legal to everyone over 19 years old on October 17.

“(A lot) depends on how fast and how accessible a system is created for the legal market,” said Dana Larsen, who plans to keep his two illegal dispensaries open after “non-medical” legal cannabis is made available in Cannabis on Wednesday.

According to a report comprised of voluntarily-submitted data, British Columbians paid $7.63 per gram on average for medicinal cannabis and $6.94 for non-medical cannabis.

“It’s very rare to see something more than $10 (per gram),” Larsen said of grams that often start for $5. “If it is, it’s something very special and different.” BCLDB will offer $5-$6 per gram weed to $10-$11 “premium” quality cannabis, according to its website.

“It sounds to me like it’s going to be very expensive cannabis,” Larsen said.

The excise tax and 15-percent wholesale markup is included in that A $5 gram. Larsen does believe legal retailers could set better pricing. It will depend on licensing requirements and costs, though.

The province’s licensing guidelines include high security to specialized training, background checks, and registration of employees. All that add to a retailer’s overhead and potentially leading to illicit dealers enjoying a competitive advantage.

“I expect those shops are going to have a higher markup (than illegal) dispensaries because of all the other requirements,” said Larsen. Dan Sutton, who is the CEO of licensed cannabis producer Tantalus Labs, thinks supply might be more of a problem than price.

“I do understand that we will see product priced very competitively with the black market that will touch a budget, or bargain-bin offering,” Sutton said. “The primary concern for me is the availability of supply for sale to the recreational channel.”

Despite pot sales becoming legal across Canada – a major policy shift – just one government-approved cannabis store will open in British Columbia on Wednesday – a lone BCLDB government-operated branch in Kamloops. No private retail stores will open in British Columbia. Still, the province’s public safety minister doesn’t foresee a supply shortage.

Mike Farnworth said other stores will follow the only approved cannabis store in Kamloops. The government’s online cannabis service will be fully operational on Wednesday.

“What we are doing is putting in place a legal cannabis regime,” Farnworth told a news conference Monday. “I’ve said it is not going to happen overnight and it is going to take some time.”

He says some cannabis dispensaries will close by Wednesday so they have a better chance to receive a license to operate. Others may stay open and gamble on future approvals. Enforcement remains a local issue.

“The 18th of October in many ways is going to look a lot like today,” he said. “As we’ve said, there will be enforcement in place but I’ve said a number of times now that enforcement is going to take place as more and more legal stores open. Then enforcement will ramp up.”

Farnsworth said the government has so far received 173 applications for cannabis retail outlets. 62 are reviewed and submitted to local governments for further review. 35 of those are close to being approved. Farnsworth advised those stores that choose to stay open after Wednesday to “start to abide by those rules”.

He added: “The sooner they move to a legal system the better it is.”

Image by Adi Kavazovic

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