Correct. The market exists at the current price entirely because of the overhead of running an illegal operation (which includes the threat of violence from one's competitors).  The new "legal" market will have to price the product at some point lower than this, or there will not be any legal sales. 

However, given that the product will now be legal, and given the ease with which it can be produced, the "legal" market will almost certainly be saturated with a product priced only marginally above the price of production, regardless of provincial government attempts to direct the public to particular stores.

Put another way: the government has an abysmal record enforcing regulation of this product already, but somehow thinks it can square the circle of legalizing it *and* restricting access to the product via its preferred sales channels. Not a chance.