The majority of Canadian pot consumers continue to buy from the illicit market, which remains almost half the price as legal cannabis, according to new Statistics Canada data.

In the final three months of 2019 the average price of legal cannabis was $10.30 per gram, while the illicit market was 44 per cent cheaper at $5.73 a gram, the federal agency said Thursday.

The price gap between the two markets widened from a year earlier when the price of cannabis was $9.69 for a gram of legal weed, versus $6.44 for a gram of underground pot.

But the latest price difference of $4.57 is the second-highest amount recorded since StatsCan began compiling the data in 2018. The widest price difference was $4.72 between April 1 and June 30.

The average price of cannabis increased to $7.50 per gram in the last three months of 2019 from $7.46 per gram a year earlier, which is attributable to legal cannabis, StatsCan said.

The agency collects the figures using its StatsCannabis crowdsourcing application. It said the latest data released came from 248 out of 291 price submissions between Oct. 1 and Dec. 31.

Legal cannabis industry needs to focus on price, quality in 2020: expert

StatsCan said a total of $1.5 billion was spent on both legal and illegal cannabis in the third quarter of 2019. But only 38 per cent of those purchases were made in the legal market.

This comes as the legal industry tries to fight back against a more nimble and resilient underground market.

Licensed producers and retailers across Canada will need to increase efficiency to lure new customers to the legal market by offering substantially lower prices, said Michael Armstrong, an associate professor at the Goodman School of Business at Brock University.

“Every province and major producer needs at least some products value-priced under $5 per gram,” Armstrong said. “Major producers and retailers need to become efficient enough to make money at that price.”

In the first year of legalization the industry was plagued with supply issues and a lack of retail stores, he added. The industry got past those hurdles but, in year two, it will need to shift its focus on decreasing prices and increasing quality, Armstrong said.

The launch of Hexo Corp’s (TSX: HEXO) Original Stash brand in Quebec last October is a good example of what the industry needs more of, he added. The 28-gram product sells for $125.70 with taxes included, which works out to $4.49 per gram.

Read more: HEXO’s black market-disrupting cannabis Original Stash hits shelves on Black Friday

In 2019, Quebec had the lowest price of legal cannabis at an average of $7.88 per gram, according to StatsCan.

Meanwhile, New Brunswick had the cheapest illicit cannabis at an average of $4.90 per gram, but the highest price for legal cannabis at $11.36 per gram.

The New Brunswick government is in a process of selecting one of eight companies that are seeking to take over the provincially-owned Cannabis NB. It requested proposals for a single, private operator last year after the Crown corporation has piled up losses since October 2018. Canadian players Canopy Growth (TSX: WEED) and Fire & Flower (TSX: FAF) are among the list of applicants for the 20-store operation.

Armstrong said both federal and provincial governments will have to do their parts to combat the underground market, which was toted as one of the big reasons to legalize back in October 2018.

One way to do that is by revising the excise tax formulas to eliminate the $1 per gram minimum, Armstrong said.

He noted that 35 per cent of the Hexo product price is tax.

Another objective for major producers this year is to improve quality, Armstrong said.

“[The legal industry] already beats black markets on quality in the sense of safety: products are tested and clearly labeled,” he said. “But it needs to improve on quality in the sense of enjoyment: the aromas, tastes, and highs that consumers want.”

Top photo courtesy of Reddit user CHIEFxNUGZ

jared@mugglehead.com

@JaredGnam