The Competition Between the Legal Cannabis Market and the Black Market

The cannabis market is currently at a crossroads, with legal dispensaries competing with the unregulated, though often more accessible and cheaper, illicit market. Despite increasing legalization and availability, many people still choose proven sources from the illegal cannabis market. The “New Frontier Data” report sheds light on this competitive space, showing just how complex a battlefield it is for licensed operators.

This report not only examines the current state of the market, but also offers guidance on how to expand legal cannabis dispensaries and reduce the gap between them and the unregulated market. This is essential reading for anyone interested in the economics and regulations of the cannabis market.

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Cannabis market overview

The cannabis market appears to be an arena of fierce competition between legal and illegal sales channels. According to a 2022 report by “New Frontier Data,” illicit cannabis sales reached $74 billion, far outpacing legal transactions, which totaled $28 billion. Moreover, projections indicate that black market sales will outpace legal sales until 2030, even in states where cannabis is legalized.

This phenomenon highlights not only the growing popularity of cannabis, but also the challenges facing the legal market. Internal competition among licensed sellers is intense, and consumers who already use regulated channels are a prime target. Whether it’s availability, price or quality, legal operators face difficulties in attracting and retaining customers who can easily find alternative, often more accessible, sources.

Challenges for the legal cannabis market

The legal cannabis market faces many challenges that make it difficult to compete effectively with the unregulated market. One of the main problems is internal competition, where legal dispensaries have to compete not only with illegal dealers, but also among themselves. This situation leads to market fragmentation and limits the ability of legal operators to build a strong, recognizable brand.

A key factor influencing consumer choices is availability. Many consumers who regularly use illegal dealers live in urban areas where access to legal stores may be limited due to lack of convenient transportation. Additionally, these consumers often have lower incomes and purchase cannabis in smaller quantities, but more frequently, requiring them to make frequent visits to dispensaries.

In states where cannabis is only available for medical purposes, the bureaucracy and costs associated with obtaining a medical card can be another hurdle. Simplifying the process, for example by lowering costs and expanding the list of eligible conditions, could increase the share of the legal market.

Strategies to expand the legal cannabis market

To reduce the gap between the legal cannabis market and its unregulated counterpart, there are several key strategies that can be used. Above all, it is critical to provide accurate and transparent information about cannabis, especially targeting potential users, such as older adults and women, who show interest but remain undecided.

Educational initiatives may include dispelling myths, explaining safety and legal aspects, and highlighting medical benefits. The use of various platforms, such as social media, local community activities or online forums, can more effectively reach a wider audience, especially when traditional forms of advertising are not always available.

Improving access to legal cannabis distribution channels is another important factor. This ranges from setting up retail stores in convenient locations to creating user-friendly online platforms. Consumers who primarily source from dealers often live in urban areas and may not have convenient access to dispensaries.

In states where cannabis is available only by prescription, simplifying the process of obtaining a medical card – by reducing bureaucracy and costs, and expanding the list of qualifying medical conditions – could significantly increase legal cannabis use.

Price dynamics

In the context of the legal cannabis market, price often plays a decisive role in the consumer decision-making process. The New Frontier Data report suggests that offering a wide range of products, from different varieties to different forms of consumption, such as edible forms and oils, can attract a more diverse customer base. It is also important that this assortment includes products in different price ranges.

Consumers who rely on dealers for their cannabis supplies have, on average, much lower incomes than those who source from friends or family, and both groups have lower incomes on average than retail store customers. Therefore, retailers should strive to offer products in various price ranges and offer promotions or loyalty programs wherever possible.

Collaboration with regulators and medical professionals was also noted as a key strategy. Such collaborations can lead to more informed regulation, which can support market growth while maintaining public safety. Engaging healthcare professionals in cannabis education can lead to more informed recommendations for patients, which will naturally contribute to an increase in the number of medical cannabis users.

In summary, the legal cannabis market faces many challenges in terms of competition between legal and illicit distribution channels. The use of strategies including education, accessibility, price diversity and close cooperation with regulators and medical specialists will be key to the survival and development of legal operators. Adherence to quality standards and transparency can go a long way toward building trust among consumers, which is essential to the long-term success of the legal cannabis market.

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(Featured image by sergeitokmakov via Pixabay)

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First published in FaktyKonopne. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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