Why Is Customer Loyalty In The Black Market So Strong?
Over 80% of Canadian cannabis purchases are still black market. Why?
As a Canadian citizen, I have a lot to say about black market cannabis in a legalized world. I can personally attest to the many reasons why people are sticking to non-regulated cannabis in a regulated region. However, the black market issue is confounding the federal government, financial experts, and even some industry vets.
Consumer loyalty is much stronger in the cannabis sector than many suspected. But why? What is the allure of the black market, when cannabis has evolved into a legal consumer commodity?
Statistics on Black Market Cannabis
In only a few short months, cannabis has consumed the spending habits of Canadians. Across this great country of ours, we spent a whopping $5.9 billion on recreational sales. Yet, 80 percent of those dollars were spent in the black market. It seems as if Canadians are still struggling to move their purchases to legalized channels six months in.
As we enter into the outdoor growing season in the country, some suggest increased production should ease supply issues. Higher availability should hopefully lead to a price reduction.
If we look at the black market south of the border in established cannabis states, are the trends similar? Californian consumers purchase approximately 80 percent of cannabis on the black market. In Washington, a serious oversupply issue is resulting in sale of extra product outside of the ‘administrative framework’. In Colorado, the state with the most established recreational sales, there is still a thriving black market sector. Is customer loyalty causing this?
Three Reasons Why Consumer Loyalty Is With Black Market Cannabis
First and foremost is the issue of consistent and accessible supply. Where I live in British Columbia, the closest government-run dispensary is over an hour away. For many, the long drive into the city to source something locally available isn’t appealing. Considering many small towns continue to allow the operation of non-government dispensaries, why would anyone seek out the legal alternative?
Quasi-legal dispensaries service both the recreational and medicinal markets. They have established high customer loyalty over the years. At least where I live, these businesses have licenses with the local municipality and continue to pay their taxes. They are safe, reliable, and trustworthy – at least according to their many customers.
I’ve also heard from others in Ontario and the Maritimes that the supply at government-run stores is hugely inconsistent. Stores cannot keep the popular items in stock, and may have empty shelves for days on end. Especially for those seeking CBD products, the supply issue is a serious one.
Another consideration for supply is the ability to access the products you want and need. For example, edible or tinctures, creams or other topicals, even gum or breath strips. These are not legally available in all markets, but ‘your guy’ may provide at least some of these options. Some plugs even take special orders, and there is nothing like the lure of personalized medicine.
Perhaps unsurprisingly, the cannabis sold through the government is more expensive than that sold through the black market. Taxes paid by the cultivator, producer, and the dispensary bump up the price of the final product. Still, the price difference between legal and illegal is still confounding to many consumers.
According to a recent report from theGrowthOp, prices in BC for a single gram are as high as $17.99. In other provinces, premium quality bud hovers around the $15 per gram. Low-end cannabis across Canada tends to cost around $10.
Before cannabis became legal in Canada, even premium quality cannabis was roughly around $10 per gram (according to Statistics Canada and the Price of Weed). Consumers often developed long term relationships with their black market resource, leading to even lower prices. Chances are, if you knew the grower, you could find a premium product for as little as $2 to $5 a gram. For those whose black market resource is still in operation, why would you choose to pay 8 times the regular price?
In the states, the quality issue is less of a concern. But Canada is still waiting on concentrates, edibles, and vape products to enter into the marketplace. There are also labeling and distribution requirements which, in my opinion, also lower quality. According to many consumers in Canada, the quality of federally regulated cannabis is highly suspect.
Reports from Reddit users on a subreddit exploring the quality of Canadian cannabis are not great. Government cannabis is routinely criticized for poor trim jobs, harsh smoking experience, and poor product handling. In my personal experience, the product is often so dry it crumbles when handled.
If consumers are faced with a bad quality product from a new source or high-quality product from an old one, it’s very likely customer loyalty will win out. Unless the government can deliver a similar quality product (or better), it will be hard to get people to make the switch.
The battle for control of the cannabis market is just getting started. But, we may partially forgive the Canadian government. It’s still working through the kinks of legalization. Eventually, with consistent supply, improved quality, and more product options – consumers will find more reason to purchase their product legally. The government is learning that you must earn customer loyalty – not just mandate it.
Will the black market ever disappear entirely? Probably only once cannabis is legal everywhere, and even then probably not entirely. As Colorado, California, and Washington have shown us, they continue to sell cannabis illegally because there are illegal markets outside of the region. As with all consumer products, where there is a demand, someone will fill it.