Legal cannabis is spreading across the planet, and with it, purchasing freedoms for some consumers. Yet, the unregulated market still exists even where cannabis can be purchased legally. Researchers at the University of Waterloo in Ontario recently examined the factors that motivate a consumer or patient to purchase unregulated cannabis versus regulated cannabis in North America in an attempt to understand why the unregulated market still exists in Canada despite legalization, and to a lesser extent, the United States.

By human history standards, cannabis prohibition is a relatively new thing. After all, cannabis is not a new plant and humans have used it for medical and recreational purposes for centuries. It wasn’t until the last century that political forces prohibited it. Fortunately, three countries have now legalized cannabis for adult use – Uruguay, Canada, and Malta. Cannabis can be legally acquired in some form in Uruguay and Canada, and soon, Malta.

Out of the three countries, Canada has the most robust industry model. Cannabis consumers of legal age from anywhere around the planet can come to Canada and make a legal purchase through a storefront dispensary, through the mail, and/or through delivery services. Similar options have existed in the U.S. at the state level for many years. Researchers have kept a close eye on North America as the ‘cannabis experiment’ has continued to roll out, including researchers at the University of Waterloo in Ontario.

Motivating Factors

The average cannabis consumer is more sophisticated now than arguably any other time in human history, and that is largely due to the options available to them, particularly in Canada. Some consumers want to smoke cannabis flower, some want to vaporize it, and still, many others prefer smokeless forms of cannabis such as edibles and topicals.

Regulated industries boost the options for patients and consumers. I live in a legal jurisdiction, and the different types of cannabis products and consumption methods are exponentially greater now compared to when there was no regulated market With that being said, the unregulated market still exists where I live, albeit at a much lower level than before legalization.

Researchers at the University of Waterloo in Ontario looked at consumer data from 2019 and 2020. The data was compiled as part of the annual International Cannabis Policy Study. Survey data asked consumers about their purchasing habits over the past 12 months, and when they indicated that they purchased cannabis from an unregulated source they were provided a list of reasons to select from regarding what motivated the unregulated purchase.

“‘Legal sources had higher prices’ was the number-one answer in Canada in both years (35.9% in 2019, 34.6% in 2020) as well as in the United States (27.3% in 2019, 26.7% in 2020). Convenience (both ‘legal sources were less convenient’ and ‘legal stores were too far away/there are none where I live’) was high on the list as well, with the percentage of respondents who named these as reasons ranging from 10.6% to 19.8%.” researchers stated in their press release.

Sensible Regulations To Help Boost Legal Sales

On average, the cost of legal cannabis will always be greater than unregulated cannabis. A legal cannabis company has to pay ongoing licensing and compliance fees, rent on their commercial facilities, and a number of other operational costs that do not exist in the unregulated market. All of those added layers contribute to the overall cost of legal cannabis.

Speaking anecdotally, I am willing to pay extra for legal cannabis being that it is tested and regulated. However, there is a point to how much more I am willing to pay, and I assume many consumers are the same as me in that regard. Paying 10% more is reasonable, however, if legal cannabis costs 2-4 times as much as unregulated cannabis, clearly many people will choose to go the unregulated route.

The second motivating factor identified by the researchers, convenience, is much easier to address from a public policy standpoint. Boosting the ways in which consumers and patients can legally acquire cannabis helps a considerable amount. Conversely, the fewer ways people can legally acquire cannabis the more it creates opportunities for unregulated sources to fill the void and meet the demand. Jurisdictions that choose to cling to prohibition or hinder safe access do so at their own peril.

Lawmakers around the world need to do everything that they can to strike the right balance between regulating cannabis, generating public revenue, and implementing sensible regulations that help keep the cost of legal cannabis down as much as reasonably possible. Everyone needs to temper their expectations when it comes to getting rid of the unregulated market. Just as there will always be a market for unregulated alcohol, so too will there always be an unregulated market for cannabis, at least to some degree.