The price of cannabis in Canada
The preceding section of this guide outlined the sources and methods used to estimate the volume of cannabis produced, purchased from abroad, sold abroad and consumed in Canada. To derive estimates of expenditure, information related to the price of cannabis was required. This section outlines the various cannabis prices, how they were estimated, their underlying data sources and some of the assumptions and models that were used in their compilation.
The purchaser price or market price or street price of unlicensed cannabis was calculated using information ‘scraped’ or extracted from various websites, principally the www.priceofweed.com. These data were edited and averaged across locations and over time to obtain an average price for the years 2012 to 2017. The street price for the years 1961 to 2011 was estimated using information obtained from various research studies, which included estimates of the price of cannabis at the time the research was undertaken. When observations for a given year could not be obtained data were interpolated between the two nearest points using an input price index constructed by Statistics Canada that tracked the cost of electricity and materials, rent and labour that are used in the production of cannabis.
The price of licensed cannabis was obtained by ‘scraping’ price estimates from websites of licensed producers. These prices were aggregated to produce an estimate of the price for the year 2017. This price was roughly 10% higher than the unlicensed cannabis price in 2017. This price differential was carried back to 2014 - the point in time where licensed producers sold cannabis to registered clients. The price of licensed cannabis for the period 2001 to 2013 was constructed by taking the 2014 price and moving it backward using the input price index derived by Statistics Canada.
In economic accounting, the purchaser or market or street price is comprised of what is called the basic price of a good along with various ‘margins’. Margins are mark-ups that are added to the price to get the good from the production floor to the consumer. Typical margins include retail, wholesale, transportation and tax margins.
In the case of the sale of unlicensed cannabis, a single margin was estimated called the dealer margin. This margin is an aggregate of the retail, wholesale and transportation margins. This was estimated to be 25% of the selling price (Sm). This margin (Mpulc) was subtracted from the street price in order to obtain an estimate of the basic price. The basic price is the price the unlicensed producer received for growing the cannabis (Bpulc). For example, if the market price of cannabis was $10 per gram and the margin rate was 25% then the basic price (the price the producer charges for the cannabis) would be $7.50 and the margin would be $2.50.
(2) Bpulc=Mpulc*(1-Sm) (7.43*(1-.256)=$5.53
Given that registered clients buy cannabis directly from licensed producers it was assumed that there were no retail or wholesale margins included in the purchaser price of licensed cannabis. Since licensed cannabis can only be ordered online and is shipped to the registered client there are associated transportation margins. In addition, licensed cannabis is also subject to value added tax (GST, Provincial Sales Tax, HST). These margins were calculated using average shipping rates for cannabis as well as applying the tax rate in the jurisdiction where the cannabis was sold. The basic price (BPlc) of licensed cannabis was therefore calculated as the market price (MPlc) multiplied by a transportation margin (Tm) and a tax margin (Txm).
(3) BPlc=MPlc*(1-Tm)*(1-Txm) (8.18*(1-.1)*(1-.13)-$7.04