At midnight on Oct. 17, 2018—the second it became legal to sell cannabis—Christopher Duffitt was ready. His store, Puff Puff Pass Head Shop, opened its doors to a lineup of customers in Clarenville, Nfld., a town of 6,300 people northwest of St. John’s. But it quickly became clear that the business wouldn’t be open for long.
Duffitt had assumed his would be the only legal cannabis shop in the small town of Clarenville when he applied for a licence, but the Newfoundland and Labrador Liquor Corporation approved another retailer in a gas station. Newfoundland allows big corporations such as Loblaws and Esso to sell marijuana in their stores and—more importantly—lets retailers negotiate directly with cannabis producers. Small players like Duffitt have to compete for limited supply with much bigger, better-resourced competitors. Duffitt had heard the producers were giving the corporate retailers first dibs on the best weed, leaving him with boxes of weak buds that no one wanted and none of the stronger stuff that was actually in demand.
In January, Duffitt hung a sign on his door announcing he would close his shop for good on the 31st. “Due to government’s (Newfoundland Liquor Corporation) over-regulation of this industry and their inability to control the suppliers which have shown favouritism to the corporate sites … we have no choice but to close up shop,” the sign read. “The private independent sites are suffering as a result and we are the first casualty.”
Duffitt is not the only Newfoundlander struggling with the province’s approach to cannabis legalization. The Atlantic province has the biggest cannabis supply problem in the country, exclusive data collected and analyzed by Maclean’s shows. No province or territory has done a perfect job of making cannabis legally available for the first time, but our data reveals that Canadians who live in some provinces enjoy a much better selection of products at lower prices than others.
In a prepared response, the Newfoundland and Labrador Liquor Corporation noted provinces and territories across the country have struggled with supply shortages since legalization. The response said the regulator was unaware of any unfair advantages enjoyed by corporate retailers and told cannabis producers they must treat everyone the same regardless of size.
But Duffitt says if he had known then what he knows now, he would have never opened the store. “It was an education for me,” he says. “I probably lost $20, $30, $40,000.”
The entire cannabis industry has been receiving an education over the past year. Retailers, cannabis producers and Statistics Canada now have crucial information that was completely unknown at launch, such as the scale of consumer demand and the prices shoppers are willing to pay.
Statistics Canada regularly releases data on the cannabis industry, such as month-over-month sales in each province and estimates of the size of the legal and black markets. Yet the agency doesn’t collect data on selection and availability. Because a limited number of companies are allowed to grow the cannabis that’s approved for sale, supply shortages are a major problem for legal retailers. Provinces and privately owned shops all compete for that short supply, seriously affecting their ability to compete with the black market.
To paint a fuller picture of the options available to Canadians who want to buy legal weed, Maclean’s collected data on dried flower cannabis for sale at all 10 provincially and territorially run online cannabis stores. That’s every province and territory except Saskatchewan, Manitoba and Nunavut, where private retailers are allowed to set up e-commerce shops. There’s more to the legal market than these government-run online stores, but experts who reviewed the data said it reflected what they had been hearing about supply problems in various jurisdictions. We are publishing statistics from July 10, which we ensured was a typical day by comparing the numbers to those collected on other days throughout the summer.
To make sense of the numbers, it helps to understand how the provinces and territories present legal cannabis for sale online. Each store offers various brands of marijuana, and the number of dried flower products ranges from just five in the Northwest Territories to 338 in Alberta. Most of the time, the store will offer each product in a variety of standard weights, similar to how a liquor store may sell the same brand of vodka in 375-millilitre, 750-millilitre and 1.13-litre sizes. Some, none or all of those weights could be in stock at any given time.
With a few exceptions, the provinces with the largest populations have the widest product selections and the highest percentage of in-stock weights. In Alberta, 78 per cent of the product weights listed in its online store were actually available for purchase; B.C. kept 69 per cent of weights in stock. Meanwhile, the smaller provinces of Prince Edward Island, New Brunswick and Newfoundland struggled, with just 51 per cent, 47 per cent and 20 per cent of the product weights listed on their e-commerce sites respectively available for purchase.
Jay Rosenthal, co-founder and president of the news and analysis company Business of Cannabis, says the larger provinces have leverage in negotiations for the scarce supply of legal cannabis because they’re buying in such large quantities. Meanwhile, the smaller provinces are cutting smaller deals for smaller markets. Newfoundland has a small population to begin with, and without the government acting as a wholesale buyer, its retailers are left making purchases that are the least lucrative for producers.
“The bigger provinces have better bargaining power,” Rosenthal says. “The retailers have basically none, because they’re one-offs or two-offs, especially out east.”
In its response, the Newfoundland and Labrador Liquor Corporation said it’s not responsible for the low percentage of in-stock products on its website. Unlike its counterparts in other provinces, the liquor board doesn’t buy cannabis products wholesale or manage the inventory available on its online store. Its site acts essentially as a portal connecting consumers to producers; producers ship directly to the buyers. “Given the infancy of the industry, [licensed producers] are trying to gauge the appropriate inventory levels needed to supply e-commerce customers,” the statement said. “As the NLC evaluates this new industry, you should see product offerings [on the site] better align with inventory.”
There are exceptions to the rule of larger provinces having better product availability. The Northwest Territories and the Yukon managed to keep 100 per cent of the weights they offered in stock, although that’s a lot easier to do with an extremely limited selection of five and 26 products, respectively. And the province with the highest percentage of in-stock weights was not a big province like Alberta or Ontario—it was Nova Scotia, which had 96 per cent of the weights it offered for 99 products available. Greg Engel, chief executive of the licensed cannabis producer OrganiGram, says the Nova Scotia Liquor Corporation got a lot of things right from the get-go by leveraging its expertise as a regulator and retailer of alcohol to have its physical stores ready to open in October 2018.
Then there’s Quebec, a larger province that on July 10 had 89 products available and just 43 per cent of the weights it offered listed in stock. Availability was as high as 56 per cent on other days we examined. Éliane Hamel, a spokeswoman for the Société québécoise du cannabis, says the regulator has focused on securing deals with producers who can deliver a high quantity of product as opposed to a large selection and says it has received good customer feedback: “This offer seems to satisfy our consumers if we refer to the positive comments published on websites.”
There are signs not every customer in Quebec is satisfied, however. Shortly after legalization, the province’s government-run stores shut down three days a week to keep them from completely running out of stock. Ottawa-based cannabis lawyer Trina Fraser says the provincial government’s proposal to ban the sale of topical creams and most cannabis edibles when they become legal is likely affecting the regulator’s negotiations with licensed producers. “While you have a shortage of supply, you’re probably going to allocate that supply to the provinces where you have the ability to sell your full range of products,” she says.
It’s less clear how Manitoba, Saskatchewan and Nunavut, the two provinces and one territory that don’t have government-run online stores and allow private retailers to operate e-commerce sites instead, compare. Lacey Norton, vice-president of retail at Canopy-owned Tweed and Tokyo Smoke stores, works with all three jurisdictions. Norton says the ability to operate online stores as a private retailer doesn’t affect sales much—less than 10 per cent comes from e-commerce—and is mostly useful for marketing purposes. She expects sales will pick up as supply improves and customers need less help selecting products.
There’s no countrywide data available on the percentage of cannabis sales coming from e-commerce, but Statistics Canada’s monthly provincial sales numbers suggest that Canopy is not the only legal retailer generating the vast majority of its revenue from brick-and-mortar stores. The numbers show a correlation between physical stores per capita and revenue. For example, when Ontario opened its first 25 legal retail stores in April, total sales shot up from $7.6 million to $19.6 million.
Several experts cited privacy concerns and the ability to ask knowledgeable staff questions as reasons why Canadians seem to overwhelmingly prefer to buy their legal weed in person. But an internet search for the phrase “buy marijuana online Canada” suggests another explanation. That search returns page after page of links to black market retailers who offer cannabis at much lower prices than those found at the legal online stores.
Two long-time Toronto-based cannabis activists and entrepreneurs, Abi Roach and Chris James, say they know a number of business owners who have given up on ever getting one of Ontario’s limited number of retail licenses and opened illegal online dispensaries instead. Police tend to focus more on shutting down physical dispensaries, so illegal online stores have a lot working in their favour.
Pedestrians make their way past the cement blocks barricading the entrance to the illegal CAFÉ dispensary along St. Clair Avenue W. in Toronto on Thursday, July 18, 2019. (Tijana Martin)
Illicit online vendors can sell higher-quality weed obtained from black market sources with none of the supply issues plaguing the legal industry, no costs associated with regulatory compliance and a much lower risk of running into trouble with the law. And despite stiff competition from the black market, legal marijuana is much more expensive, thanks to limited supply and the cost of staying on the right side of strict regulations.
If provincial governments don’t loosen their regulations and make it easier for entrepreneurs to open legal cannabis stores, says James, the lucky few with licences are eventually going to find themselves completely unable to compete. “They don’t know the threat that’s looming online,” he says. “They’re just happy to have a store. They’re selling out of product every day, so they don’t even realize it’s peanuts . . . compared to what’s being sold online.”
Still, James hopes to become one of those lucky few with a licence. He says he shut down his lucrative black-market online cannabis businesses, including the delivery service Weedora, in the hopes of getting a chance to run a legal store. However, the decision—like Duffitt’s in Newfoundland—hasn’t worked out for him so far.
James opened a shop in downtown Toronto called Coffee and Cannabis, making do with sales from the coffee in anticipation that he’d get a licence to sell the cannabis. Then Ontario’s provincial government announced it would give out licences at random, announcing the winners of its second lottery on Aug. 21. James didn’t get a golden ticket—but an address associated with Cafe, a Toronto dispensary shut down by police, did. Coffee and Cannabis is now closed for renovations as James holds out hope that he’ll get a licence eventually when the province realizes a system that rewards people who have no experience, or are active participants in the black market, is a bad idea.
James is livid about the money he’s lost trying to play by the rules while Ontario rewards those who haven’t bothered. “It’s been a complete reversal,” he says of his life as a black-market vendor compared to life as a would-be legal cannabis entrepreneur. “I didn’t get into it for money, but it’s gone from where I was making enough to survive and pay my bills and pay my rent to, now, I’m just losing money waiting for the government to get its act together and hoping I’ll recover that money in the long term.”
Unlike Duffitt, James isn’t giving up for now. But if Canada’s various levels of government don’t fix the supply issues plaguing legal cannabis, and the patchwork of regulations plaguing would-be legal retailers, more like him will.
Currently, the black market still reigns supreme. It accounts for about 80 per cent of the country’s annual $5.9 billion in household spending on cannabis, according to Statistics Canada. A lot needs to change before legal weed takes its place. Until then, expect the “closed” signs on businesses like Cannabis and Coffee and Puff Puff Pass Head Shop to remain up.
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Authored By: MacleansArticle category: Recreational Marijuana NewsMarijuana Business NewsRegional Marijuana News: British ColumbiaNewfoundlandSaskatchewanManitobaOntario
READ MORE: https://420intel.ca/articles/2019/09/20/puff-luck-provincial-pot-websites-have-hugely-uneven-supply-and-selection