Illegal Cannabis Market in Canada ‘Flourishing’ Despite Legalization: FINTRAC Report

Customers stand at a counter where prices of marijuana products are posted at the Medicinal Cannabis Dispensary, an unlicensed marijuana shop, in Vancouver on Oct. 9, 2019. Elaine Thompson/AP Photo

A recent government report warned banks, law enforcement, and security agencies to look for suspicious activity related to the “flourishing” illicit cannabis industry after examining around 5,000 suspicious transaction reports.

“Despite the introduction of the Cannabis Act, unlicensed activity related to cannabis continues,” says the September 2022 report titled “Operational alert: Laundering of proceeds from illicit cannabis.”

The analysis of suspicious transaction reports related to illicit cannabis was done by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit.

“While more consumers are reporting each year that they obtain their cannabis from legal sources, there still exists a flourishing and illegal cannabis market in Canada. Such illegal markets contribute to increased risk of harm to Canada’s financial system and its citizens through significant loss of tax revenue and increased funding of criminal activity by organized crime groups,” the report stated.

A 2021 study by the government shows that 37 percent of cannabis users surveyed say they continue to get their cannabis from illegal or unlicensed sources. The study also said consumers were spending $33 to $83 over the past month to obtain cannabis from legal sources, compared to $19 to $37 to get cannabis from illegal sources.

FINTRAC analyzed approximately 5,000 suspicious transaction reports (STR) from March 2020 to March 2021 related to illicit cannabis activities. It observed several money laundering techniques such as using virtual currencies, “nominees” (someone opening accounts and making transactions on behalf of someone trying to cover up financial records), front companies owned by the distributors and producers of illicit cannabis, and the layering of funds between related accounts.

The report said that “a wide range of businesses were used as front companies to launder the proceeds of illicit cannabis operations.” It gave examples of e-commerce businesses in the beauty and wellness industry, food and beverage wholesales, automotive-related businesses, electronics repair businesses, marketing, advertising and consulting, and construction-related businesses.

“Often there were little to no business-related transactions in the accounts held by these front companies,” the report said. “Many of these individuals owned more than one business and would transfer funds between their business and personal accounts and those of their associates, with no clear purpose.”

Cannabis Act to Be Reviewed

A September press release from the government says there will be an upcoming legislative review of the Cannabis Act that will examine the “progress made in deterring criminal activity and displacing the illicit cannabis market.”

The Cannabis Act, which laid out the rules for the legal cannabis industry, began four years ago on Oct. 17, 2018.

Blacklock’s Reporter said that a 2017 Access to Information memo predicted a “full transition to the new market will take time” before licensed retailers could compete with drug dealers.

“It will take time for the new, legal cannabis industry to grow full scale,” the memo said. It pointed to legal cannabis markets that opened in Colorado and Washington, saying it took four years until the legal markets were “capable of displacing a significant portion of the illegal market.”