Black market will thrive if Alberta government runs marijuana stores, says mid-level dealer

The black market will continue in Alberta if the province goes with a government-run sales model for recreational marijuana when it's legalized next year, predicts a mid-level dealer who has been selling dope in Calgary for nearly 20 years.

"If it goes Ontario's model, I become richer," said the dealer, who spoke to CBC Calgary News on the condition of anonymity.

"If they do private, they have a chance to compete."

The dealer says he got started about 20 years ago, selling to friends and classmates as a way to fund his own supply. He says he began treating it like a businessabout seven years ago and now averagesabout150 kilograms in sales annually.

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Legislation introduced by the federal government aims to legalize marijuana in Canada by July 2018.

The province of Ontario'sframework for recreational marijuana received criticismwhen it was announced in early September. The planwill see cannabis sold in just 80government-runstores across the entire province to start, which will be expanded to 150 stores by 2020.

The minimum age to buy and consume there will be 19.

Mike Schreiner, leader of the Green Party of Ontario, said in a statement that having limited retail outlets "will do virtually nothing to combat the huge illegal market."

Several prominent cannabis activists were also critical of the plan, including Eric Nash and Wendy Little, two Canadian cannabis industry consultants who tweeted their concern about the lack of cannabis stores being opened by the province.

Pot will also be available online in Ontario, but deliveries will require a signature and proof of age.

By comparison, Alberta's draft framework was unveiled by Justice Minister Kathleen Ganley last week. It calls for:

• A minimumage of 18to buy or consume marijuana.
• Public possession limit of 30 grams (with no limit on possession in private residences).
• Allowing up to four plants to be grown per household, up to one metre high.
• A ban on smoking and vaping marijuana in vehicles, even for passengers.
• No online sales.

The Alberta Gaming and Liquor Commission will serve as the central wholesaler for all products, but Ganley said the province has not yet decided whether storeswill be privately runor operated by government and that decision will affect what happens to the black market, says the dealer.

"In my opinion if you have a free market, the government not controlling it and [businesses] battling it out, you will have better prices, 100 per cent," the dealersaid.

"Better prices, better innovation. That's the only way."

Another unanswered question is whether products like marijuanaoils and edibles will be available for recreational sales.

The NDP government is calling for feedback on the draft rules until Oct. 27.Legislation will then be presented by the end of the year, including whether to use a public or private model.

Negotiations between the provinces and federal government around taxation which will play a factor in the final price likely won't be finished by then, said a Ganley spokesperson.

The federal government has proposed a 50-50 split of tax revenues, which Ganley has said won't work. Since it's the provincethat will be covering a majority of the cost to set up and run the system, she argued, it should be the provincegetting a majority of the tax revenues.

Ganley has also said she doesn't think initial revenues will be enough to cover the start-up costs.

Ontario officials have indicated they'll be aiming for a price of $10 a gram, but thatmay be too high, figures the dealer, who said he charges between $6 and $8 a gram.

"If they're looking at $10 or $11 grams in nondescript packaging that only [is sold during] the hours of the LCBO, they're going to get destroyed," he said.

"[The black market] is going to be half the price of what they can do it. That's what the government is not understandingthese [dealers] are ahead already, they have better product and clientele and people that are knowledgeable."

The U.S. experience

Taxes on marijuana in Washington State totaled 75 per cent when it was first legalized in 2014, and coupled with supply issues, drove the price up to nearly $25 USa gram, which allowed the black market to thrive.

The tax rate has since been adjusted to 37 per cent and the price has dropped to around $6 US a gram, curtailing illegal sales.

In Colorado there's a 15 per cent excise tax on marijuana, along with a sales tax of 15 per cent (which was raised from 10 per cent earlier this year)and a state tax of 2.9 per cent, for a total of 32.9 per cent.

The average price of recreational marijuana in Colorado is about $6 US a gram.

That seems to be striking the right balance, says Lewis Koski, who was director of the marijuana enforcement division for the state of Colorado when it was legalized. He's now a lecturer at University of Colorado Denver and co-founder of a consulting company that helps local and state governments with policy implementation.

The evidence of that balance, saysKoski, is the facta large majority of sales have moved from the black market to legitimate stores.

"We did a demand study and found the total demand for the entire state was around 131 to 133 metric tons," he said.

"We estimated in there what part was medical and what part was going to be serviced by the commercialized, licenced and medical retailers and what part was going to be done by the black market still.

"What's interesting is, in the year since that study was published, the regulated market, between medical and retail, the licenced businesses, they're on track to produce that much or more, so what that tells us is to a large extent the regulated market is probably meeting the local demand."

The price of marijuana also continues to fall in U.S. states where it's now legal. According to numbers released by the stateof Colorado, the price of marijuana there has dropped from about $2,000 US a pound in January 2015 to about $1,300 US a pound today.

And total revenues from marijuana taxes, licences and fees in Colorado were more than $158 million up to the end of August this year, according to numbers released online, which are the most recent statistics available.

Prices are similar in Canada, says the dealer, sitting between $1,300 and $1,500 a pound, but that's in Canadian funds.

Black market still exists

The black market still exists in U.S. states where marijuana is legal, but it has morphed somewhatfrom street-level sales to wholesale distribution toneighbouring states where it remains illegal, says Koski.

That could happen in Canada too.

"If there are a number of U.S. states that have a demand for marijuana, there's a potential for Canadian marijuana to be diverted," he said.

"If the black market is changing their business patterns because they're disrupted by the regulated marketplace, they may be interested in moving it to other areas where it's illegal. The black market is less likely to pay attention to the boundaries between countries."

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