Since cannabis was legalized for recreational use in Canada in October 2018, the government has
reaped a massive influx of tax revenue from the legal market. Yet, despite the government’s push for a
regulated industry, illegal cannabis stores continue to thrive. The question on many legal business
owners’ minds is: Why is the Canadian government allowing these illegal stores to operate freely without
consequences?
There are several factors at play, and it’s not just about the government turning a blind eye. The issue of
enforcement is multifaceted and, unfortunately, legal business owners in the cannabis space are left
paying the price.

The Costs of Playing by the Rules
For those operating legally, the burden of regulation is heavy. Legal cannabis stores must pay hefty
licensing fees and taxes, undergo rigorous background checks, and comply with a host of health and
safety standards. As a result, operating legally is a costly and time-consuming endeavor. For example, in
Ontario, cannabis retailers must pay an application fee of $75,000 and additional fees on a per-store
basis. On top of this, they must maintain strict compliance with numerous local, provincial, and federal
regulations. And let’s not forget the taxes they pay to the government, which include both excise taxes on
cannabis products and sales tax on each transaction.
These regulations have not only created a barrier to entry but have also made it harder for legal retailers
to compete with their illegal counterparts who can operate with minimal overhead costs.
Meanwhile, Illegal Cannabis Stores Flourish
Despite the government’s efforts to build a legal cannabis market, illegal stores are still running rampant
across the country. According to a 2022 report from the Ontario Cannabis Store (OCS), the illicit market
in Canada is still alive and well, with estimates suggesting that approximately 40% of cannabis sales are
still taking place through illegal channels. This is a huge contrast to the growth in the legal market, which
only accounted for 60% of all sales in 2022.
So, why are illegal stores still allowed to operate? There are a few possible explanations.

Lack of Enforcement and Resources
One key issue is the lack of sufficient resources dedicated to combating illegal cannabis operations.
Local police forces are already stretched thin, and cannabis-related crimes often fall low on the priority
list compared to other forms of criminal activity. In some cases, law enforcement may choose to target
more pressing issues rather than closing down an illegal dispensary that seems to be operating under
the radar.

The Role of Aboriginal Status in the Illicit Market
Another element that could be contributing to the persistence of illegal stores is the complex legal status
of Indigenous communities. Many illegal dispensaries operate on Indigenous lands, where laws
regarding cannabis regulation can be murky or less strictly enforced. The federal government has been
hesitant to prosecute or intervene in these areas, given the unique status of Aboriginal groups under
Canadian law.
Indigenous sovereignty is a sensitive and complicated issue. In many cases, First Nations are asserting
their right to control the sale of cannabis on their lands without adhering to the same provincial and
federal regulations that apply to non-Indigenous retailers. As a result, illegal cannabis dispensaries are
often operating under the protection of Indigenous sovereignty, making it more difficult for the
government to take legal action without triggering conflicts with Aboriginal leaders.

Government’s Mixed Signals: Taxing Legal Retailers While Allowing Illegal Shops to Thrive

The government’s contradictory stance on cannabis enforcement has left many legitimate business
owners frustrated. On the one hand, legal cannabis retailers are paying their dues, contributing to the
economy, and following the rules. On the other hand, illegal stores continue to rake in profits while
avoiding the costs and taxes associated with operating within the legal framework.
The situation raises questions about fairness and the government’s priorities. Why does the government
collect tax revenue from businesses that follow the rules, but let illegal shops skirt the law?
While the government claims it is working to close the gap between the legal and illegal markets, the
reality is that enforcement remains a patchwork solution, and many illegal stores operate with impunity,
especially those in more remote or Indigenous-controlled areas. The legal cannabis industry is at a
distinct disadvantage when it has to shoulder these extra costs while its competitors can profit without
complying with any regulations.

Conclusion: The Government’s Inaction Hurts Legal Retailers
The situation surrounding illegal cannabis stores in Canada is a tale of missed opportunity and unfair
competition. While the government continues to rake in tax revenue from legal cannabis retailers, it has
failed to hold illegal stores accountable for undermining the integrity of the legal market. For the
businesses following the rules and paying hefty fees to operate, this inaction is both frustrating and
damaging.
Until the government takes more aggressive action to clamp down on illegal cannabis operations and
ensures that all businesses play by the same rules, it will be difficult for the legal market to thrive in the
way that was originally envisioned. Legal cannabis retailers deserve the same protections and fairness
as any other legitimate business, and it’s time for the Canadian government to step up and take action to
ensure that everyone plays by the same set of rules.
By doing so, it will not only level the playing field for legal retailers but also create a safer, more
sustainable cannabis market for Canadians as a whole.