Québec’s Cannabis Corporation and the black market

The Québec Cannabis Corporation has a monopoly on recreational cannabis sales within the province of Québec. The city’s operated cannabis shops made $71 million in sales in their first year and sold the most cannabis in the country but they still posted a $4.9-million loss. The provincial government revenues totaled about $21.7 million between June 12, 2018, and March 30, 2019.

During the second quarter of 2019-2020, the Québec Cannabis Corporation recorded a net profit of $5 million, with sales over $63 million. Since the beginning of this fiscal year, sales have reached $109 million.

In its press release, the Québec Cannabis Corporation pointed out that the profits generated will be reinvested in cannabis prevention and research.

In this way, the company continues to generate value, as expected, while fulfilling its mission of education and health protection by gradually integrating consumers into the licit cannabis market.

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Quebec’s cannabis market and black market supervision

“Looking at the cannabis industry solely in the context of economic development, I think this is a mistake,” said Quebec’s Minister of the Economy, Pierre Fitzgibbon.

“In reality, tight supervision and government restrictions encourage the black market further,” said Sylvain Charlebois, a professor at Dalhousie University. “We are basically stimulating the black market.”

“We talk about it, it’s in the media, the product is legal. Illegal products are intertwined with a market where cannabis is legal. It is easier for the black market to adapt and sell a product that is more attractive. The product that comes from the black market is cheaper and of better quality today than before October 2018.”

Black market access

“The challenge for the industry is market access, which remains complex,” said Charlebois.

“Once the market matures, it will become easier for companies that want to sell edible products. Currently, the black market is worth about $5 to $6 billion and it must be eliminated. The legal market represents about $1 to $2 billion.”

Cannabis represents a new source of income which will only grow over time. The Québec Cannabis Corporation said that government revenues, including consumption taxes and excise duties, reached $17 million in the second quarter and nearly $30 million since the beginning of the year.

Quebec’s cannabis industry profit target

The Québec Cannabis Corporation is on track to meet the government’s profit target of $20 million in 2019-2020. The company has already repaid the $14.5 million debt with interest.

While the Québec Cannabis Corporation is finding stability fairly quickly, the industry expected faster growth in 2019.

The companies’ projections were ambitious, the shareholders were disappointed. Securities fell on the stock market and investment projects were postponed.

According to Sylvain Charlebois, slow regulatory changes will allow the black market to maintain a substantial market share over time.

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(Featured image by JFGagnonPhotograhie via Pixabay)

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