Price of Cannabis Continues to Fall in Canada After Legalization
Complete the form below and we will email you a PDF version of "Price of Cannabis Continues to Fall in Canada After Legalization"
The price of legal cannabis is falling in Canada, according to new research.
In a paper published in the journal Drug and Alcohol Dependence, researchers from the University of Waterloo, Ontario, report that the mean price of dried flower from legal sources fell in 2019 and then again in 2020.
Despite legal cannabis flower remaining more expensive during these years, the researchers also found that a greater proportion of consumers reported purchasing from legal sources in 2020 as compared to 2019.
Legal cannabis prices are beginning to challenge the illicit market
Getting cannabis consumers to switch from illegal sources to the regulated legal market is one of the central objectives of cannabis legalization. But Canadian government statistics indicate that the price of cannabis is a primary factor for consumers when choosing between the legal and illegal markets. And when cannabis became legal in Canada in 2018, prices were not low; the average gram of legal cannabis in Ontario at the time cost between $10 and $14. A gram of marijuana from the illicit market, on the hand, could cost as little as $6.83.
But that price imbalance seems to have now flipped.
In the new study, researchers examined data taken from the International Cannabis Policy Study (ICPS), an annual cross-sectional survey of cannabis users taken in Canada and the United States. For the purposes of this study, the researchers focused on the answers provided by Canadian respondents who reported consuming and purchasing dried cannabis flower within the past twelve months and who were of legal age to purchase cannabis in their province or state.
Survey respondents were asked to report their cannabis use frequency and give an estimation of the percentage of dried flower they had bought from legal/authorized sources versus illicit sources. Respondents were also asked about their most recent purchase source, its legality, its quantity, and its price. From this, the researchers were able to calculate the unit price (price per gram) of the flower purchased for both survey years.
They found that the average unit price of legal dried cannabis flower in 2019 was $12.63, falling sharply to $11.16 in 2020. This was still significantly higher than the unit price of illicit flower in the same period: $9.04 in 2019 and $9.41 in 2020.
Overall, legal purchases of dried flower were greater in 2020 than 2019. Fifty-eight percent of consumers reported their last purchase being from a legal source in the 2020 survey wave, versus 46 percent in 2019. This trend also continued when looking at past 12-month purchases, which increased to 68 percent in 2020, up from 56 percent the year before. At the provincial level, Newfoundland and Labrador was the only province in Canada where a lower percentage of legally purchased flower was reported in 2020 compared to 2019, but the researchers suspect that this may be due to the temporary closure of ten legal cannabis stores during the 2020 survey period.
Frequent users are transitioning to legal sources at a slower rate
The researchers identified a “modest shift” in purchases sources, as respondents typically purchased from legal dispensaries or online stores more in 2020 than in 2019. Online purchases, in particular, gained popularity, possibly due to the Covid-19 pandemic and provincial lockdowns that impacted large parts of 2020.
When breaking down the results by demographic, the researchers noticed that those who self-identified as frequent cannabis consumers appeared to be transitioning to the legal market at a slower rate than others. After adjusting for covariates, daily cannabis users were less likely to purchase dried flower products from legal sources than infrequent consumers. However, when the quantity of cannabis purchased was also included in the statistical model, this association disappeared.
Quantity discounts are relatively common in both the illicit and legal cannabis markets, but the legal cannabis market in Canada has a maximum purchase limit of 30 grams for dried flower. If the more frequent cannabis users also prefer to purchase their products in greater quantities, and thus take advantage of more significant quantity discounts, it may be harder for the current legal market to appeal to these users, say the researchers.
“Price and retail policies must continue to encourage the transition to the legal market in Canada,” the researchers wrote, adding that future research studying the price and purchase sources for products other than dried flower would also help to better inform scientists and policymakers on how to support this consumer transition to the legal market.
Signs indicate price drop has continued into 2021
While the scope of this new research only covered 2019 and 2020 and exclusively focused on dried cannabis flower, there are early signs indicating that the trends highlighted have extended to the wider market and into 2021.
According to data from Statistics Canada, total sales of legal recreational cannabis products overtook illegal transactions for the first time in the third quarter of 2020. Sales of all non-medical products on the legal market totaled CA$824 million in Q3 2020, versus CA$752 million in the same period for unlicensed product sales. Falling prices plus a wider array of product offerings on the legal market were both thought to contribute significantly to the success of the legal market.
This effect is illustrated neatly in Nova Scotia, where the average price per gram of cannabis hit $6.50 in November 2021, down nearly 40 percent compared to the prices set in 2018 when legalization was first implemented.
Financial figures for Q2 2021 published by the Nova Scotia Liquor Corporation (NSLC) show that cannabis sales were up by 20 percent in the province, as cannabis prices dropped by 13 percent. The local Nova Scotia cannabis products sector also experienced significant growth, seeing a 32 percent increase in sales.
“The whole intent of legalization was to make an impact on the illicit market,” Bev Ware, a spokesperson for the Nova Scotia Liquor Corporation, told CBC News recently.
“The last couple of price reviews, suppliers have been reducing their prices, and they’re also offering us more value-priced products to offer to our customers,” Ware explained. “There isn’t brand loyalty with cannabis [...] So what customers are looking at is price and THC – high THC content and a reasonable price.”