International Society for the Study of Drug Policy (ISSDP) 2024

The influence of quantity discount and market share for setting legal market cannabis price

The legalization of cannabis marked a paradigm shift, making the state less of a repression-driven entity and more of a competitor to the illegal market. Recent reports suggested that the Canadian legal market failed to be competitive as the price per gram was twice higher than on the illegal market. One of the main issues for offering competitive prices is the presence of significant quantity discount on the illegal market. Therefore, the objectives of the present study were twofold. On the one hand, to identify the impact of the quantity of cannabis purchased on the price per gram of illegal cannabis, and on the other hand, to determine the market share in function of the quantity purchased. Using a survey of 2,425 persons who declared having purchased illegal cannabis in the past year, regressions were conducted to determine if and how quantity of cannabis purchased predicted the price-per-gram. Then, predicted values of the model were used to identify buyers' market share and the threshold price for which legal cannabis becomes less competitive. Findings suggest that the relationship between the quantity and price-per-gram was statistically significant and curvilinear. Furthermore, results suggest that larger purchases were more advantageous on the illegal market. This implied legal market prices were not competitive among large quantity buyers who, despite their small number, represent the largest share of the cannabis market. Accordingly, pricing guidelines should consider quantity discounts to encourage a larger share transfer to the legal cannabis market.