The main goal of the feds in legalizing recreational pot in 2018 was to eradicate illicit sales of cannabis.
But the black market is flourishing. It still accounts for an estimated 43 per cent of the total market.
True, the latest figures from StatsCan show monthly illegal pot sales dropping from an estimated $1.2 billion in 2018, the year commercial sale of recreational cannabis was legalized, to about $690 million by July 2021.
That number might have further declined since 2021, though pandemic era closings of legitimate pot shops suggest otherwise. And official numbers understate the true size of an illicit market that is impossible to measure with any precision.
If drug dealers keep records, they don’t share them.
Also doubtful are the official numbers on legal pot sales, which StatsCan puts at $3.7 billion in the first 10 months of last year.
That’s far short of the $7 billion annual rate of legal pot sales the industry was expecting by now.
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Medicinal marijuana market shrinks
And those legal-sales numbers are inflated, since many buyers of what is classified as recreational pot actually use it for medicinal purposes.
The medicinal market has shrunk by 25 per cent since 2018, according to StatsCan.
But medicinal pot use didn’t shrink during a pandemic era of elevated anxiety and stress levels. It has instead been tacked on to recreational sales.
Canopy has lost money every year since recreational pot sales were legalized, for a total of $4.2 billion in losses since 2018.
That includes a 30 per cent jump in Tilray’s losses last year, to $477 million. That’s a staggering number. Tilray’s 2022 revenues were only $628 million.
Pot industry blames black market
Canopy lays the blame the industry’s misfortunes on the black market.
“Today, there are two very different cannabis markets in Canada,” Canopy CEO David Klein said last week in announcing his long-troubled company’s latest downsizing, which will cut about 800 jobs.
“(There is one market) that’s legal, highly taxed and regulated, and one that’s thriving and illicit,” he said.
To be sure, the pot industry is partly to blame for its misfortunes. In a word, it overexpanded.
There are too many pot vendors chasing too few customers. With some 1,600 Ontario cannabis stores in operation, about one-third of them in Toronto, the province has more pot shops than florists.
Yet despite its ubiquity, the industry has not been able to increase its market’s size.
Statscan’s latest National Cannabis Survey finds that about 20 per cent of Canadians make frequent or occasional use of cannabis.
That number has barely budged since 2018, when it was 22 per cent.
Reckless growth in legal pot industry
Which is not surprising. Practically everyone who wanted to use pot in 2018 was already doing so, given the easy access to it since the 1960s.
Canopy is a prime example of the legal industry’s reckless growth.
Canopy’s revenues have increased about sevenfold since 2018, to last year’s $520 million. But Canopy’s operating costs increased more than 12-fold during that period.
Canopy invested heavily in cultivation and new product development and made costly acquisitions in the U.S. and Europe expecting pot to be legalized there.