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More Canadians reported buying cannabis illegally over the past three months than in the first quarter as legal prices rose and illegal prices fell, new data released Wednesday morning from Statistics Canada shows.

Based on more than 500 submissions to the agency’s StatsCannabis crowdsourcing application sent between early April and late June, 59 per cent of Canadians who purchased cannabis in the second quarter of 2019 did so illegally, up from 55 per cent in the first quarter. The proportion of respondents who cited “legal cannabis being too expensive” as the reason for buying illegally rose to 34 per cent from 27 per cent in the first quarter, while the proportion who cited “difficulty accessing legal cannabis” fell to eight per cent, less than half of the 18 per cent of respondents who cited lack of access as the reason for purchasing illegally in the final three months of 2018.

“This aligns with an increase in government-licenced retailers in recent quarters,” Statistics Canada said.

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The data suggests price is the dominant factor over availability for cannabis consumers when it comes to deciding whether to migrate from the illegal to the legal market. However, Rishi Malkani argues availability is more about giving consumers convenient access to cannabis products in high demand than just a proliferation of storefronts.

“The fact of the matter is everyone is just using vapeable oils right now and those are only available through the illegal market,” Mr. Malkani, who leads the Canadian cannabis practice for Deloitte, said in an interview. “After December when you’ve got people filling the gap in products available in the illegal and legal markets, you’re going to see another big push to the legal channel like you did when dried flower first became legal.”

“By then there should be less stockouts and much greater variety and much better quality and reliability,” Mr. Malkani said. “I think it is just a matter of time.”

Data from markets in the United States supports that argument. Denver-based market research firm BDS Analytics in a recent report that sales of vape-based products such as pens and cartridges grew by 81 per cent over the first 10 months of 2018, while dried flower sales increased by a comparatively small 25 per cent.

Cannabis Pro's FAQ: What are top-selling products according to mature U.S. markets?

Pricing data from illegal online cannabis retailers was also collected as part of Statistics Canada’s efforts to validate its crowdsourced information. Based on more than 400,000 prices collected since May of 2018, Statistics Canada found the average illegal price of cannabis was $5.93 per gram in the second quarter, down from $6.23 during the first three months of the year. Legal cannabis prices, meanwhile, actually rose over the same period to $10.65 per gram from $10.21 previously.

Research suggests consumers are willing to pay more for legal cannabis, but only up to a point. In a survey released before recreational legalization took effect last fall, Deloitte found Canadians were willing to pay an average of nine per cent more for legal cannabis than what they were used to paying for illegal products.

Because legal cannabis outlets still regularly sell out of product, Michael Armstrong says the legal market still lacks incentive to lower prices. However, the Brock University business professor believes that will eventually start to change.

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“Provinces that already have a relatively high legal market share might be encountering some of that [pricing] resistance now,” Mr. Armstrong said, noting several Atlantic provinces such as Prince Edward Island have already managed to coerce more than half of their cannabis-consuming populations to move away from the illegal market. “We are not there yet, but when we do get there pricing will start to become much more important.”

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