Understanding grey markets
Grey markets distribute goods outside their appropriate distribution channels, and in many cases they also manufacture goods – often in plain sight. The distributed goods, though, are legal. The distributors, however, lack the appropriate licensing and certifications to distribute such goods.
Grey market operations may possess legal business licenses and even pay taxes. However, these operations are still illegal as they do not follow the jurisdictional regulations related to the distribution and sales of goods.
The grey market captures the largest share of the Canadian cannabis market. Source
The Canadian cannabis grey market
In 2018, cannabis use was fully legalised in Canada. Since its legalisation, the cannabis market is no longer what it once was. The market is no longer over-saturated by organised crime gangs and outlaws. Now, the market sees a new player which is struggling for pre-eminence over legal cannabis operations. This new player is the cannabis grey market.
The cannabis grey market is a thriving market which produces and sells cannabis without proper licensing and certifications. These cannabis operations advertise themselves as legal businesses by taking advantage of the legal status of the substance. However, these outlets have either incomplete or pending licenses and should not be operating under the guise of the law. These outfits are available both online and offline (brick and mortar stores).
The birth of the cannabis grey market in Canada
Upon legalisation, it was projected that the market for recreational cannabis would garner up to $6 billion once in full operation. However, just two weeks after legalisation, numerous stores – online and offline – began to struggle with meeting the demand of their customers.
It was documented that a vast bulk of the country’s legal marijuana supply had dried up. Rosalie Wyonch, a policy analyst at the CD Howe Institute, reported this exact problem -- that the legal pot available just wasn’t enough to supply the Canadian demand.
The shortage in the supply of legal marijuana presented adverse effects for registered dispensaries and cannabis stores. Many store owners became unable to meet the demands of their customers. Numerous reports hold that many store owners even had to turn their customers away due to their empty shelves.
The hurdles faced by the legal marijuana market did nothing to quell the demand for the substance in consumers. While the government tried to iron out its hurdles with marketing the substance, a new market emerged – the grey market.
Why the grey market exists?
The legal cannabis market finds the cannabis grey market to be a force to reckon with. Many grey market outfits operate in plain sight, their owners boasting their continuation despite the law.
The existence of the cannabis grey market may be puzzling for some, as cannabis is a legal substance in Canada. However, the existence of this market can be attributed to the following factors:
- Cannabis supply shortages– As stated, the legal cannabis market began to face hefty shortages within two weeks of operation in the nation. In Quebec, the Société Québécoise du Cannabis – a government regulatory body to oversee cannabis sales – has opted to ration the limited supply of cannabis within its community. The cannabis shortages in Canada are expected to last up to 5 years. Grey market operations began to fill in the gaps in demand left by government cannabis suppliers. Unlike licensed retailers, these operators are not limited to the supply of the government.
- Unfavourable laws for retail chain distributors – The supply of cannabis to retailers – private or government – is undertaken by licensed suppliers. Shifting to new suppliers is a tedious and lengthy process. Many interested in supplying or retailing cannabis simply skip the process, opting to operate on the grey market due to its ease.
- Hefty taxes on cannabis – Cannabis purchased at dispensaries are heavily taxed – and therefore more expensive – while cannabis procured via other means have less government interference. Reports show that Canadians are paying about $10 a gram for legal marijuana while the illegal market charges about $6.37 for a gram. These price differences encourage consumers to procure marijuana via the grey market. Some also cite better quality in grey markets.
Canadians cannabis consumers' reasons for using the grey market. Source
The Canadian grey market for cannabis is expanding. The constant hurdles faced by the legal marijuana market are making consumers turn to the growing grey market. With the demand for the substance at an all-time high, and supplies doing little to quell the demand, governments seem to be pushing consumers into the open arms of the grey market.