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With one week before the first licensed cannabis stores open in Ontario, unlicensed dispensaries throughout Toronto aren’t backing down – insisting that their services offer customers something better or faster than the government can provide.

A crackdown on the illicit industry has been continuing since legalization, but the owners of some illegal dispensaries say they are determined to dig in their heels, convinced that the province will eventually see the industry from their perspective and welcome them into the licensed market.

Eliminating the black market for marijuana was a key goal of the federal government when it forged ahead with the legalization of recreational cannabis, which took effect on Oct. 17, 2018. But the roll-out of the legal cannabis regime got off to a shaky start, with an immediate shortage of supply that led to reduced operating hours at some provincially run stores, the sale of a few private stores to deeper-pocket chain retailers, and a rollback of retail licensing in Ontario and Alberta.

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Statistics Canada said earlier this month that, on an annualized basis, Canadians spent $5.9-billion on marijuana in the final quarter of 2018, with about $1.2-billion or 20 per cent of that money being spent on legally produced pot. More recently, Health Canada reported that legal sales of both medical and non-medical dried cannabis in January fell 3.7 per cent from December.

Jefferson Green, who runs the Spaced Out dispensary in Toronto’s Kensington Market, said the price of legal pot at the Ontario Cannabis Store (OCS) is just one of his concerns about the legal regime. “You’re paying way over the proper market price,” he said in an interview, as customers ebbed in and out of the storefront on a weekday afternoon. “You’re getting way overcharged, and most of the stuff that they end up getting – I’ve seen pictures, I’ve seen it myself, I’ve seen reports of mouldy cannabis."

There was one recall of a RedeCan product late last year shared by the OCS, which also warned customers in British Columbia. RedeCan said the recall was triggered by five complaints in Ontario about mould in one lot of product, of which they shipped 13,344 units.

“They also come here for the simple fact that you get it right away,” Mr. Green said of his product. OCS director of communications Daffyd Roderick countered that the OCS is “meeting customers’ expectations for delivery” and had processed more than 600,000 orders. (At the time of Mr. Roderick’s e-mail, a note on its website said that orders placed may experience a delay of up to two days.)

Mr. Green’s sentiments were echoed by other unlicensed cannabis businesses. David Thompson, a spokesperson for the CAFE dispensaries located throughout the city, said their customers didn’t enjoy waiting on their product for days or being unable to obtain certain products. “Customers simply request reasonable dignified access,” he wrote in an e-mail. He listed hundreds of locations to purchase liquor in Ontario presently. “There are zero licensed locations to obtain cannabis, in a best-case scenario possibly 25 by the end of 2019.”

Statistics Canada said earlier this year that crowd-sourced data provided by cannabis users showed that the average price of a gram of legal recreational marijuana in 2018 was $9.70, compared to $6.51 in the illegal market.

The City of Toronto has conducted more than 1,300 inspections of unlicensed storefronts since Oct. 17, including inspections simultaneous to police raids, more observation-based assessments from outside storefronts, and repeat inspections of the same place.

The number of unlicensed cannabis stores in Toronto has fluctuated over the last five months – on legalization day, 36 were found to be operating. By January, that number had dwindled to around 12 or 13 consistently open, according to Mark Sraga, director of investigation services with Toronto’s Municipal Licensing and Standards. But after the government announced its “lottery” system, he said, it saw a surge in unlicensed businesses operating within the city; its most recent intelligence counts 29.

The city has laid 28 charges so far, which adds to the charges laid by Toronto Police. Of those, 24 are under the Cannabis Control Act and four are related to selling edibles. Fifteen of the charges have so far gone before the courts, and none have yet reached an outcome. As of late March, licensing and standards is taking on more of an enforcement role, shouldering weight previously carried by Toronto Police, Mr. Sraga said. “It will be continual, five days a week, every week of the month,” he warned. “If you’re in this line of work, we’re going to disrupt your line of work.”

But even where dispensaries have been shut down, offers from the unlicensed market persist. At a downtown storefront that appears shuttered on Queen Street West – which was listed in news coverage as one of the stores raided shortly after legalization day – a flyer was taped to the door for a “Weed on Wheels GTA” online cannabis store and delivery service. Contacted by The Globe and Mail, a spokesperson said customers were using his service because it’s fast and reliable.

The Globe visited several of Toronto’s illegal operational dispensaries. Many stores featured covered windows and staff hesitant to speak publicly lest they draw the attention of police or city officials. Some employees reported that their contracts explicitly prevented them from speaking to a reporter. Spaced Out and CAFE were exceptions to the hush, with Mr. Green explaining that he’d be “seen” eventually, due to his involvement in several different shops. Spaced Out has been open since November.

“I took tons of precautions and kind of loopholes,” Mr. Green said of his business. The dispensary at the top was technically listed as a residential dwelling, he said, believing the situation now meant that police needed a warrant similar to entering someone’s private home to conduct a raid. “Technically somebody is living upstairs, but they’re not. It’s a shop upstairs,” he said. And parking was typically congested around the store, making it easier to spot surveillance vehicles, he believes. Downstairs, he says he has an official business licence for the shop where he sells bongs and other wares.

Day-to-day business hasn’t changed much since legalization, Mr. Green reported. His wholesale costs for product haven’t fluctuated, which he attributes to being “well-connected” within the industry. He stopped using a supplier in British Columbia – “it’s a little bit harder to get it mailed across the country without having altercations and problems,” he said – in favour of a supplier in the Niagara region. “It’s less of a hassle doing it that way, because we can just drive down to Niagara and get it ourselves,” he said.

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When asked about any changes to supply procurement post-legalization, Mr. Thompson at CAFE replied that they saw cannabis as medicine, “and we do not focus on its valuation.” “The cannabis plant grows across Canada and there has been a supply equilibrium for 40 years,” he said.

Both CAFE and Spaced Out elected not to pursue the government’s lottery system. Mr. Green called the process a “huge money grab,” saying the dispensary route allowed him to cut corners, including skipping certain inspections before opening, and offer whatever product they wanted; he suspects the government wouldn’t allow them to offer “Kushtella”: a Nutella spread infused with THC distillate. “It’s just the regulation and rules that they’re forcing down our throat, is what the problem is," he said. Mr. Thompson, meanwhile, said CAFE still hopes to work with the Ontario government “to be the rising tide that lifts all boats.” “Already we have been invited to Mexico and Jamaica to showcase responsible distribution and retail training,” he wrote in an e-mail.

He denounced Ontario’s choice of the phrase “lottery” to describe its model. “A lottery implies that you do not have to work hard and can instantly receive reward,” he said. He believes that Canada, while in a spotlight, should embrace what he calls “the forces that brought about legalization” and the subsequent economic jolt he sees them having provided.

Just before legalization, Ontario issued a warning that any illegal dispensaries still open after Oct. 17 would never be allowed to operate legally, but Mr. Thompson maintains that there will inevitably be a bridge created to bring dispensary owners into the licensed market.

He believes that discarding responsible cannabis retail experience “would be nonsensical.”

Special to Cannabis Professional

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