Here’s What Happens to the Black Market Now That Weed Is Legal

We spoke to dealers, cannabis farmers and edible bakers about their plans post-legalization.

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Oct 17 2018, 1:43pm

Image source via AP.

If you’re to believe the Canadian government’s hype, legalizing recreational weed is all about eradicating the black market.

“The sale of cannabis is the easiest money that organized crime makes,” said Bill Blair, the Liberals’ Border Security and Organized Crime Reduction Minister, at a town hall hosted by CBC’s The Current Monday night in Ottawa, which I participated in as a panelist.

Blair said he estimates black market weed in Canada is a $6 to $8 billion industry.

“We have created a new, regulated, safer commodities industry in Canada that employs Canadians, creates jobs, growth and other opportunities in our communities and by displacing this business from criminal enterprise… we’re creating a new industry that will actually follow some rules, when there’s oversight, testing and accountability.”

Canada is also introducing severe new punishments for selling “illicit” cannabis—as in, anything not provided via the 129 licensed producers—once legalization kicks in October 17. Those punishments include up to 14 years of jail time for selling weed to a minor or selling it without a licence.

But the government’s ability to succeed in its goal of getting rid of the black market will depend on a lot of factors—price, access, quality, and diversity of product to name a few.

On the pricing front, the feds are introducing an excise tax for cannabis of $1 per gram or 10 percent of the purchase price, whichever is higher, plus GST. Given that the average price of black market weed in Canada is $8.24 a gram, consumers are likely going to be paying more for legal weed. And those purchasing it online will likely have to pay a shipping fee—the Ontario Cannabis Store is charging a $5 flat rate while BC is charging $10.

Access wise, things aren’t looking great for October 17. Newfoundland and Labrador, which is doing private sales, is leading the country in terms of brick and mortar weed stores, of which 24 will open on legalization day; New Brunswick is a close second with 20 government-run stores.

Meanwhile, BC and Ontario, the two provinces with the highest concentrations of grey market dispensaries, will have one and zero weed stores open on October 17, respectively. Ontario won’t have any brick and mortar cannabis stores until April.

So while October 17 seems like the day we’ve all been waiting for, the reality is legalization is still in the very early stages and the rollout is going to be messy. In the meantime, the black market that has operated in Canada for decades isn’t likely to vanish.

VICE reached out to black and grey market operators from different sectors of the industry to find out what their plans are post legalization. Here’s what they said:

Dealer

Frank*, a cannabis trafficker in southwestern Ontario, is on track to take home $300,000 this year.

He’s been selling weed—both wholesale (supplying dealers) and retail—for about 10 years but said last year he made an important connection in BC and things “blew up.” Frank told VICE technology—and primarily cell phones and apps like Instagram, have “allowed the black market to explode.”

“Until you shut down people’s phones you will never be able to shut down a black market of any kind,” he said.

Frank predicts after legalization we’ll see “a massive return to the traditional black market.”

“The grey market is going to collapse overnight,” he said of storefront dispensaries, the majority of which are in Ontario and BC.

That’s because dispensary owners are going to shut down in the hopes of getting into the legal market or because they’re fearful of the penalties that come with continuing to operate.

He also said some of the major grey market players will get out of the game because they’ve already made a lot of money and don’t want to deal with the wrath of Canada Revenue Agency.

Frank said people will continue to patronize the black market because at first, the legal market won’t be able to meet demand. And he believes the ability to legally possess an ounce of weed will make it easy for dealers to drive around and deliver ounces all day.

The government has announced that legal weed will have a tracking system and it is illegal to sell weed without a licence, but Frank said he doesn’t see that being a huge issue.

“The higher end weed dealers are essentially your young, white upper middle class guys. These guys blend in, they’re not getting pulled over,” he said. “These guys are just going to fucking kill it for the next two or three years.”

Frank told VICE you can buy a pound of high grade BC bud for less than $2,000 and retail it for double that. It’s reasonable for a middle of the road dealer who sells 20 pounds a week to take home $200,000 a year, he said.

As for himself, Frank said he’s going to continue to dabble in wholesale, retail, and the legal regime, and see what pans out.

“Most of my customers have told me they want me to stay,” he said.

Eventually, once there is enough high quality weed in the legal system, he thinks people will transition, but that process could take a couple years. In the meantime, he believes Canada’s underground black market will flourish while the government targets dispensaries.

“Traditional black market dealers are not really the competition. Their enemy is the storefront and online.”

Grower

Two years ago, Jamie*, a cannabis grower based on Vancouver Island, had no involvement with weed other than being a consumer. But being a personal trainer who worked with many dispensary employees opened his eyes to the business opportunities available in weed.

So Jamie decided to try his hand at growing cannabis.

“I had no experience growing anything but I would consider myself a jack of all trades,” the 25-year-old told VICE. He paired up with a well-respected organic grower to learn the trade.

“I basically had to give him a huge portion of the business I’ll have in the future just to learn all of his secrets,” Jamie said.

For the last couple years, he’s been exclusively supplying dispensaries, operating with a medical license to grow weed in a facility he describes as “obscenely large.”

“I have a license that allows me to have 380 plants and 40 pounds of dried cannabis at one time all ostensibly for my own personal use.” He said black market producers also “stack” their medical licenses to grow more weed in the same facility.

While he operates under the guise of being a medical grower—and feigns running a landscaping business when he has to deposit money at the bank—Jamie is now hoping to transition into being a legal craft grower.

His one factory that’s fully up and running produces roughly 200 pounds of cannabis every three months, but he’s looking at a space that will be the equivalent of four of those factories, and could yield 1,200 to 1,500 pounds of weed every three months. Because he grows high quality, organic cannabis, he says he can sell it for up to $2,400 a month.

“By the time this next crop comes down we’re gonna have $400,000 of essentially liquid income,” he told VICE. “I don’t think it would be unreasonable to make $500,000… by the end of 2019.”

But it hasn’t come easy, he said, noting he’s been working 14 hours a day, seven days a week for the last two years and has to be careful to avoid cops.

“I’m exhausted,” he said.

His hope is to build up his brand of high quality bud and get bought out by an LP or start his own LP.

“It’s either tremendously successful… or a fucking dumpster fire.”

Edibles producer

Edibles—aside from oils—won’t be regulated by the federal government for at least another year. Sarah Gillies, owner The Baker's Shop, a Toronto-based company that makes THC and CBD based edibles, tinctures, and topicals currently gets her product to customers via pop up markets, in dispensaries and online. However, she said a lot of dispensaries have shut down in light of the strict penalties that come with legalization. The pop up markets have attracted upwards of 1,000 people, she said.

Right now, she’s focused on getting the brand ready for when edibles are legalized.

“We’re just preparing to have a licensed facility and… getting everything up to code,” she said.

But there’s no blueprint in Canada for how a licensed edibles producer will be able to operate, so it’s a bit of a guessing game. The Baker's Shop is focusing on areas like packaging (edibles will likely require child proof packaging), locations to set up a kitchen, food safety standards, and dosage.

One of the bigger issues that’s come up with edibles is accurate dosing information. Gillies said The Baker’s Shop has sent in product to be tested by labs. She’s also heard of innovations in the industry, including dissolvable strips that contain an exact dose of THC and can be placed in each edible.

Gillies also considers herself an activist and she’s determined to continue to provide medical cannabis patients—many of whom prefer edibles to smoking—with product.

“I don’t want to go cold turkey and leave these people without anything,” she said, noting some edibles markets are shutting down.

She said one solution might be to be stricter with the markets, only allowing licensed medical cannabis patients to attend.

“We want our brand to make it through to legalization without being barred from it.”

Dispensary owner

Justin Loizos has long been an advocate for medical cannabis patients. Loizos, 34, who uses medical cannabis to treat his multiple sclerosis symptoms, has been running Just Compassion, a compassion club out of North York, for the last two-and-a-half years.

While much of the media frenzy as of late has focused on recreational weed, medical cannabis patients are still facing many challenges, including the imposition of the government’s excise tax on October 17. Medical patients still also won’t have storefront access to cannabis, and many products, including high potency extracts and edibles, aren’t available for them to purchase through licensed producers.

Loizos opened Just Compassion to fill some of those gaps, only serving patients who are licensed with Health Canada. But staying open after October 17 could mean 14 years of prison.

“Unfortunately, I don’t see Just Compassion fitting in anywhere. I don’t see any regulations for medical dispensaries,” he told VICE.

He’s currently looking into getting a micro-cultivation licence in order to do direct to patient sales.

“I can grow better than anything I can buy,” he said. He’s also looking into opening cannabis clinics to consult with patients.

For the time being, he said Just Compassion will be closing down and turning into a vapour lounge.

I just want to do anything with patients.”

Weed lounge operator

Weed lounges—spaces where adults can gather and consume cannabis—aren’t legal anywhere in Canada, though they do exist.

Proponents argue lounges give adults a safe environment to consume cannabis. Despite many politicians expressing concerns about keeping weed away from kids, several provinces including Newfoundland and New Brunswick have banned cannabis consumption anywhere other than a private dwelling, effectively forcing people to consume weed at home—around their children, if they’re parents.

Abi Roach has been operating HotBox Cafe, a cannabis-friendly lounge with an adjacent head shop in Toronto’s Kensington Market, for 15 years. Roach is hoping the Progressive Conservative government, which recently loosened the rules around weed consumption in the province, will regulate and license lounges.

Last week, she delivered a deputation at Queens Park outlining the steps lounges will take to ensure they are safe for the public, including proper air filtration systems, a health and sanitation plan for weed accessories e.g. vaporizers, and signage and ID’ing requirements.

In addition to providing a safe place for locals to consume cannabis, Roach said lounges and similar businesses are great for tourism.

“People are going to be coming to Canada looking for legal weed, looking for places to consume, looking for hotels that are [cannabis]-friendly and private retail experiences that are exciting and Instagram-worthy,” she told VICE, noting that 40 percent of her customers from spring to fall are tourists.

Roach, who also runs a bud and breakfast hotel in Jamaica that offers ganja farm tours, is hoping to be able to get a license to sell retail cannabis, so people can buy and consume weed in one spot.

In the meantime she is set to launch The Good Grass in November—a retail accessories shop that will have an “experiential chill zone” to allow vaping.

*names have been changed due to privacy concerns

Follow Manisha Krishnan on Twitter.

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