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The illegal market promises to be a very potent competitor for the new regime

The C.D. Howe Institute and others have repeatedly warned that, to be successful, the new regime must be price competitive (after taxes) with the illicit market. But price is not the only consideration. An equally important—but so far overlooked—factor is ease of consumer access and product choice. Cannabis products are readily available “on the street,” in unlawful dispensaries and over the Internet. The illicit market even has a robust home delivery component. The new legal regime must not simply compete with this illicit market on price; it must be competitive in terms of the whole consumer experience.

The federal government’s current approach under the proposed Cannabis Act allows the provinces to regulate the distribution of adult recreational cannabis through licensed or government-owned retail locations. Since many provinces may not have retail locations ready for July 1, 2018, Ottawa is contemplating a temporary e-commerce delivery system, through which Canadians will be able to order lawful cannabis from licensed producers over the Internet (just like they can with many other consumer products). Lawful medical cannabis has been safely delivered this way for years without evidence of diversion. However, comments by various government representatives suggest the government intends to put an end to this e-commerce model once provincial retail stores are in place.

Terminating the e-commerce system would be a huge mistake

Terminating this e-commerce system would be a huge mistake. For a number of reasons, a robust, permanent e-commerce platform is necessary to displace the illicit market. For one, traditional retail distribution will add considerably to the cost of recreational cannabis compared to e-commerce. Many commentators have suggested it could double the price—before tax. Some consumers enjoy the experience of retail shopping for cannabis in bricks and mortar settings, and will be prepared to pay the premium associated with traditional retail. Others will not, and will opt for illegal cannabis if it is the only cheaper alternative.