The difference between cannabis prices on the illicit and legal markets in the fourth quarter of last year widened slightly from the prior three-month period, according to new figures from Statistics Canada published Thursday.

The average price of cannabis in the illicit market during the fourth quarter of 2019 was $5.73 per gram, slightly higher than the $5.65 reported in the prior quarter but below the $6.44 mark tallied in the year-earlier period, data from StatsCan showed in its quarterly release of crowdsourced pricing information.

The average price of legal cannabis purchased by Canadians in the fourth quarter was $10.30, edging higher from the $10.12 observed in the prior quarter and up from the $9.69 in the fourth quarter of 2018, the data showed.

The difference between the two metrics is $4.57, the second-highest amount since StatsCan began compiling crowdsourced data in 2018. The widest price gap between the illicit and legal markets was $4.72 in the second quarter of last year.

The growing price gap between the illicit and legal markets will limit the growth of the legitimate cannabis sector given that consumers show a “strong sensitivity” to prices, Bill Kirk, executive director at MKM Partners, wrote in a report to clients on Thursday. It will also result in added pressure from licensed producers to lower their prices, which will likely impact profitability, he added.

“The price gap is impressively stubborn considering the pricing and product actions of the manufacturers,” Kirk said. “Rather than lowering price on existing products, the only immediate solution is the introduction of new products at lower price points.”

StatsCan said a total of $1.5 billion was spent on legal and illegal cannabis in the third quarter of 2019. However, it found only 38.2 per cent of that spending was made in the legal market. Roughly 58 per cent of all spending on dried cannabis and cannabis-oil products — the only products then available on the legal market — went toward licensed producers, while the remaining 42 per cent was spent in the illicit market.

The resilience of the illicit cannabis market, despite the legalization of recreational pot in Oct. 2018, is likely to weigh on the industry as it attempts to find a way out of its current slump. The launch of so-called “Cannabis 2.0” products this year is widely expected to drive sales higher in the legal sector as more consumers flock to cannabis-infused edibles and vaping products, which have significantly higher margins than traditional offerings such as dried flower.

However, as dried flower becomes more of a commoditized product, it’ll be harder for cannabis producers to demonstrate a pathway towards profitability, Kirk said in his report.

“This is similar to other agricultural products: As yields per acre improved, profitability per acre decreased. Even on shorter horizons, increased supply will cause pricing pressure,” Kirk said.

The average price of cannabis in Canada in the fourth quarter of last year came to $7.50 per gram 2019 from $7.46 per gram a year earlier. Quebec had the cheapest legal cannabis in the country with prices at $7.88 per gram, while Prince Edward Island sold the most expensive legal pot at $11.19 per gram.

Prices are beginning to show some stability despite the industry’s recent woes. Cannabis Benchmarks, which publishes a weekly spot price metric, said the price of legal cannabis per gram in Canada has drifted between $6 to $7 during the past four months, with the current price set at $6.46 per gram, down 0.7 per cent from the prior week.

Still, there are some early signs that prices in the legal market could decline further. StatsCan said prices for legal cannabis fell seven per cent in December from the prior month, according to the latest release of Canada’s consumer price index on Wednesday.

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