Cannabis Black Market

Date: June 15, 2020

Classification: Unclassified

Branch/Agency: CSCCB

Issue:

The government is committed to maintaining the integrity of the legal cannabis market by displacing the black market.

Proposed Response:

Background:

One of the main goals of the legalization of cannabis was to reduce criminal activity by keeping profits out of the pockets of criminals.

The illicit drug trade provides organized crime with one of its most financially lucrative criminal markets. Leading up to the implementation of the Cannabis Act, approximately 44% of assessed Organized Crime Groups (OCGs) were involved in the cannabis market. According to Statistics Canada data, in the first three quarters of 2018 (prior to legalization), the cannabis black market in Canada accounted for approximately $3.8B in retail sales.

In an effort to curb the cannabis black market, in September 2017, the government announced up to $274 million to support law enforcement and border efforts to detect and deter drug-impaired driving and enforce the proposed cannabis legalization and regulation. Of this amount, the Government has committed up to $113.5 million in federal funding, over five years, to Public Safety Canada, the Royal Canadian Mounted Police (RCMP), and the Canada Border Services Agency (CBSA) to develop policy, ensure organized crime does not infiltrate the legalized system, and keep cannabis from crossing our borders.

Current situation

One year after legalization, 52% of Canadians obtain (at least some of) their cannabis from a legal source (compared to 22% prior to legalization). However, it seems that Canadians are still obtaining their cannabis from the black market. In the third quarter of 2019, results from the National Cannabis Survey show that 42% of Canadians had purchased cannabis from an illegal source. Some provinces are experiencing more challenges displacing illegal sales. For example, in British Columbia, less than 40% of cannabis users report obtaining cannabis from the legal market. Consumers are turning to the black market for a variety of reasons, including but not limited to: higher prices, limited selection, and a scarcity of licensed stores in their area. According to Statistics Canada a gram of legal cannabis costs 55 per cent more than illicit cannabis ($10.30/gram vs. $5.73/gram).

In the early months following legalization, there were concerns about shortages of legal cannabis across Canada, making room for the black market. This was in part due to the slow roll-out in opening retail stores, especially in Ontario. On October 28, 2019, the Cannabis Council penned a letter to Ontario’s Premier, the Honourable Doug Ford, confirming that there is ample supply of cannabis for the adult recreational market and no longer a shortage. The Cannabis Council represents 35 federally licensed cultivators which accounts for about 90% of the production of Canada’s legal cannabis industry.

The Criminal Intelligence Service of Canada (CISC) monitors the involvement of organized crime in the Canadian criminal marketplace. In their latest report published in April 2019, CISC reported that of the assessed OCGs involved in the black market of cannabis, almost all of these groups were also involved in at least one other illicit drug market and were unlikely to be disrupted by legalization, given their alternate streams of revenue. CISC reported that although the new cannabis legislation makes it harder for OCGs to infiltrate the legal regime, these groups are finding new ways and adapting to changes in the market.

During social distancing measures adopted to counter the COVID-19 pandemic, jurisdictions across Canada reported seeing an increase in cannabis sales, which may have been attributed to consumers stocking up on products. More recently, some jurisdictions are indicating that the increase in consumer demand may be levelling off. Some media predicted that the industry would see a shortage of cannabis in response to the increased demand; however, jurisdictions are indicating that inventory levels remain adequate.

Recognizing that the pandemic has created operational and resource challenges for cannabis licence holders, Health Canada has temporarily adjusted its approach to the administration and enforcement of the Cannabis Act and its regulations in areas related to licensing, security clearances, inspections and reporting requirements. This temporary approach will be in place until June 30, 2020. Even in these exceptional circumstances, licence holders are expected to continue to comply with the Cannabis Act and its regulations.

Public Safety Canada has included manufacturers, operators, and distributors of cannabis for medical purposes in the list of functions and services that are considered essential. Most provinces and territories that ordered all non-essential businesses to close have kept brick-and-mortar cannabis stores open and online vendors remained operational.

Government Action

Since legalization, the Government’s focus has been to direct cannabis consumers to the legal marketplace. The Government has been working with provincial and territorial partners, as well as law enforcement agencies to close down illegal stores, intercept packages through the mail system, limit the online visibility of illicit stores and increase public awareness of health and safety facts of cannabis use. In fact, most provinces and territories in Canada maintain an official list of authorized cannabis retailers in their respective jurisdiction to better inform Canadians.

In addition, as Canada’s national police force, the RCMP continues to contribute to the implementation of the Cannabis Act by continuing to work towards its strategic priority of combating organized crime and through their mandate to prevent, disrupt and investigate serious criminal activity in partnership with contract partners, law enforcement, outreach services and communities across Canada.

Contacts:

Prepared by: Marie-Cristina Beaulieu, Senior policy Analyst, [Redacted]

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