Weed ScaleCanada’s medical marijuana growers say a jump in the number of illegal marijuana dispensaries as the federal government decides how to regulate the drug is costing them customers.

Prime Minister Justin Trudeau promised during last year’s election campaign that his Liberals would legalize recreational marijuana, following Washington and Colorado in the United States.

While there are no official figures, industry experts say the pledge has encouraged illegal store fronts that compete with licensed producers to provide marijuana to Canadians with a medical prescription.

“They’ve definitely been emboldened with the election and you’ve seen a huge growth,” said Aaron Salz, analyst at Dundee Capital Markets who follows licensed producers including Mettrum Health (MT.V) and Aphria Inc (APH.V)

Licensed producers, who distribute marijuana by mail, note they must comply with rules set by the former Conservative government, increasing their relative costs.

“We’re basically competing against a store that buys their product from whoever is growing it in their basement,” said Denis Arsenault, CEO of producer OrganiGram (OGI.V).

Former Toronto police chief Bill Blair, the government’s point man on legalization, emphasized the current laws remain in effect, but dispensaries have multiplied.

A Canadian court decision that medical marijuana patients have the right to grow their own cannabis is seen further encouraging dispensaries, which often buy their product from such growers.

Also called compassion clubs, dispensaries have long served patients with illnesses such as cancer. Proponents say they have the advantage of immediate convenience and Canadians also do not always know they are illegal.

“Because of this confusion, they are a source of competition,” said Greg Engel, CEO of producer Tilray.

OrganiGram’s Arsenault estimates that about 30 percent of new patients in the industry every month are going to dispensaries. He said he is not against dispensaries if the government forces them to buy from legal sources, but expects they will be shut down quickly if they are not included in the government’s new framework.

At the Ottawa Medical Dispensary, members with the required documentation can view products laid out beneath a glass case and discuss their needs one-on-one with a “budtender”.

The dispensary, which opened last November, has more than 500 members, said co-founder Shady Abboud. He said its mission is to provide pain relief and clients are encouraged to use the licensed producers as well.

“I’m not here to become a millionaire or anything. In the end, it’s everyone’s personal choice,” said Abboud.