Where to Operate? Choosing the underground cannabis industry or the regulated one

Legacy Story, Miscellaneous

Countries around the world have regulated cannabis, and some of them even offer medicinal cannabis in a similar way they do with pharmaceutical drugs. Yet, none of these countries have created an ideal industry structure that paves the way for sustainable growth and success.

In some countries, like Russia or Saudi Arabia, cannabis is still completely illegal. At the same time, other countries have varying levels of legality for consumption. Some countries, like Argentina have decriminalized the plant for recreational purposes. Still others, like Canada, have fully legalized cannabis for recreational use but regulate it under the same lens as alcohol.

With so many different markets opening up in different ways, people want to know what is better: operating in an unregulated industry, or in a regulated one?

A challenging environment

Working in the underground cannabis industry brings challenges unlike any other, like navigating around the law and managing a growing customer base with limited resources. The regulated cannabis industry faces its own challenges as well, with increased regulation complicating operations and leaving existing businesses feeling overwhelmed. Strict laws around advertising and lab testing have made it difficult for businesses that are just entering this government-controlled system to succeed. No matter what sector of the cannabis industry you find yourself in, challenges are sure to arise and will require hard work, determination, and clear focus if you want to thrive.

Access to capital

Businesses in the underground cannabis industry face a tight squeeze when it comes to accessing the resources they need. Raising capital to invest in anything of scale or creating any form of credit is incredibly difficult. The situation becomes even more complicated when it comes to moving from the unregulated space into regulated markets. Despite public perception that businesses have access to unlimited capital and credit when working with legal cannabis, firms are often frustrated when trying to access traditional banking or financial institutions. There are, however, an increasing number of non-traditional options available for companies looking for financial backing or loans. With guidance from qualified experts, business owners can be directed towards creative options which may help them weather this challenging economic climate and build successful businesses in a changing market.


Security is a top concern in the underground cannabis industry due to the potential for serious criminal charges. Those in the business prioritize security as a matter of survival. Conversely, the regulated cannabis industry faces fewer legal consequences, but still must comply with federal and provincial laws to maintain a license and avoid regulatory penalties. Adhering to safety laws and standards is just as important as avoiding law enforcement.

Product Regulation and Safety

Shopping in the underground market can seem tempting due to lower prices, but it’s important to be aware of the risks involved. Consumers have no way to know for certain the quality and safety of the products they are buying, which could put them at risk of consuming unsafe goods. When it comes to buying items in a regulated market, consumers have peace of mind that these products have been held to high standards. They are monitored regularly by regulatory bodies, meaning that users can trust that whatever they’re consuming is safe and has been produced according to best practices. Shopping in a regulated market definitely pays off when it comes to keeping your health and safety a top priority.

Product Innovation

Product innovation happens all the time and the underground market serves as an excellent platform for entrepreneurs with unique ideas to test out their latest creations. However, once those products enter the regulated market, they must adhere to a number of strict rules and regulations in order to remain available. These include making sure that dosages, ingredients, methods of preparation, packaging, and even labeling parameters are all congruent with official requirements. In other words, entrepreneurs must conform to a certain framework if they want to keep their creations on the shelves and make them available to customers. Fortunately, innovation is alive and well despite these strict regulations – creativity always finds a way!

A man is seen cooking and experimenting with candy
Fritz’s founder Ari Cohen conducts much of Fritz’s initial R&D in his own home candy workshop.

Connecting with Customers

Underground producers have the amazing advantage of being able to directly connect with their customers, learning firsthand about product development, use cases, and customer perspectives. This is helpful because it enables them to make changes quickly in order to give their customers exactly what they need and want. On the other hand, regulated producers may have limited ability when it comes to engaging with consumers regarding effects, usage, and so on. This is due to restrictions on marketing or even fundamental differences in the way they do business. Because of this lack of access to customer feedback and insight, it can be more difficult for regulated producers to refine and improve their offerings over time based on customer needs. This can result in a less perfect product experience for their customers.

Fritz’s founder Tabitha Fritz stands in front of a market table in 2017.


The cannabis industry is at a crossroads. As the number of countries legalizing cannabis increases, each jurisdiction must determine just how much regulation is right. There are pros and cons to any regulatory scheme.  If your company is thinking about making the transition from operating in an unregulated environment to a regulated one, we can help. We have the experience and knowledge to guide you through this process so that you can make the best decision for your business. Contact us today to learn more about how we can help.

Tabitha Fritz

Tabitha Fritz


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