The cannabis black market will control 71 per cent of sales in Canada this year, Scotiabank says

The logistical challenges and related supply issued of producing legal cannabis in Canada are many–and as a result, the Canadian cannabis black market is booming.

A new research note from Scotiabank analysts estimate that the black market will control 71 percent of cannabis sales in Canada in 2019.

Oliver Rowe and Ben Isaacson calculated the figure, which reduced its legal recreational sales prediction to about 30 percent, citing supply issues, government inspections, packaging snags and quality control issues as some of the reasons for the low percentage.

“As we expect these issues, particularly the limited retail presence in key provinces, to continue through 2019, we have reduced those volumes by 100 metric tonnes, or 30 percent of legal demand,” Scotiabank toldBNNBloomberg.

“We forecast illicit conversion will be swift, although limited form factors and potentially limited supply may keep 2019 low.”

The lack of consistent supply in legal cannabis shops across the country has been a major market stimulator for the illicit sector, which is not plagued by the same regulatory restrictions, taxes and licencing fees as the legal industry and can, therefore, offer consumers a more consistent supply at a considerably cheaper price.

More optimistically, the analysts predicted that the percentage of black market cannabis sales would drop to 37 percent by 2020–a drastic reduction–due to experience, improved supply and packaging issues are resolved.

With two out of three recreational cannabis sales currently going straight to the illicit industry, the flip to 37 percent next year seems extreme–but the analysts described the supply issues in particular as a “temporary bottleneck” as opposed to an actual shortage.

The Bank of Nova Scotia has also lowered their expectations with regards to cannabis sales this year, blaming “temporary logistics issues” for the adjustment.

 

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