Could Covid-19 Boost the Illicit Cannabis Market?

By March 12, 2020, the Covid-19 outbreak had officially been classified as a pandemic. A day later, thousands of cannabis dispensaries across the US and Canada saw record sales as consumers began stockpiling for the weeks ahead. For many in the industry, it was a comforting sign that the sector could pull through the pandemic.

But, by late March, it appeared this profitable stockpiling period was over. According to BDSA, a cannabis market research firm, recreational cannabis sales in the US dropped below the average rate around March 21 and have yet to properly recover.

The reasons for the fall in demand aren’t fully clear. Of course, following the stockpiling period, it’s likely many consumers won’t need to replenish their cannabis supplies for a while. But, as millions of North Americans take an economic hit from the pandemic, could the cheaper illicit cannabis market be tempting away some consumers?

Back to the black market?

“It’s always difficult to have data on the illicit market in the first place,” BDSA’s CEO, Roy Bingham, told Analytical Cannabis. “Typically, you have data on the legal market and then you [work out] what might be happening in the illicit market.”

Current data suggests that some consumers are fitting their cannabis shopping around the ‘shelter in place’ announcements from local governments. In California, for example, cannabis sales began to rise again just after the shelter in place order was extended on March 31, according to BDSA. This upward trend peaked around April 4, but the total sales figures were much lower than those seen in mid-March when the shelter in place order was first announced.

“The biggest problem that we're experiencing California is the black market,” Aaron Riley, president of CannaSafe, a Los Angeles-based cannabis testing lab, told Analytical Cannabis. “The illicit market is five times as big and they typically do better even during times like this. I would imagine that their sales were up a lot higher than the legal dispensary chains.”

Partly due to a lack of retail outlets across the state, it’s estimated that $8.7 billion of the total $12 billion made in California cannabis sales in 2019 went to the illegal market. But, with all aspects of modern life affected by the coronavirus social distancing measures, trade in the state’s illicit market may also be down.

“I imagine delivery by illicit sources becomes much more difficult,” Bingham added. “So there's a trade-off there. We don't know which way it's going to go.”

If illegal sources struggle to reach their usual sales figures, prices will likely rise to make up for the loss in revenue. This kind of inflation has already been reported in the illicit cannabis markets in other countries.

So, pricier than ever and more difficult to come by, illicit cannabis might also be taking a hit from Covid-19. But, as the state of the global economy becomes more uncertain, the financial prospects of the legal cannabis industry aren’t looking great, either.

Taking a hit

As recently as April 16, Canopy Growth, one of the world’s biggest cannabis producers, announced it was ceasing cultivation in Africa, Canada, Colombia, and the US in a bid to “improve efficiencies” in its global operation. As the business and others like it already made unprecedented cutbacks and layoffs earlier this year, many analysts fear Covid-19 could be the nail in the coffin for some companies.

“I have no doubt that the damage done to the broader economy by the Covid crisis will have a dramatic impact on the nascent cannabis industry,” Akwasi Owusu-Bempah, an assistant professor of criminology at the University of Toronto, told Analytical Cannabis last month. “We will no doubt see a number of bankruptcies in the coming months and perhaps some mergers. It will certainly be a tough time for many – not only the growers and distributors, but also for the ancillary businesses.”

Any economic setback for a cannabis company could go on to impact the prices of its products. So, if both the legal and illegal markets increase their prices, which will customers choose to source from? Without data from the illicit market, it’s difficult to tell. But what is certain is which way is safer.

“One of the common questions I get in interviews is 'how do I know I'm buying a safe product?'” Aaron Riley told Analytical Cannabis. “And it starts with buying it from a licenced legal dispensary.”

Given the outbreak of vaping related lung injuries in the US last year – an illness strongly linked to additives in illicit cannabis vaping products – the distinction between the safety of the regulated, tested market and its clandestine counterpart has never been clearer. As recently as March this year, a San Diego-based testing lab found that 80 percent of cannabis vaping products sourced from the illegal market were so contaminated with lead and other harmful materials they were deemed “unfit for consumption.”

“The greater risk is if cannabis prices rise significantly or there is a national drought, some people will look for substitutes,” Ian Hamilton, a senior lecturer in addiction at the University of York, told Analytical Cannabis. “So we could see an increase in alternative drugs being sought and used.”

“As long as people are familiar with the substitute drug and have confidence in how potent it is, they should be alright. But if they don't, or are securing their drug from an unknown supplier, they risk harming themselves.”