October 17th is fast approaching, and the government has some very tight deadlines. Legislation still needs to be set, licensing framework needs written, and legal pricing needs to be finalized (while still making room for all those taxes). However, with all of that left to do, Trudeau is remaining steadfast in his goal to legalize pot before the end of October. Governments are busy at best, scrambling at worst, with the path to legalization that needs to be cut. There is a lot of confusion at every level. Federally, provincially, municipally, governments are quickly implementing policies with a general mentality of “Let’s see what happens”. Policies that seemed to be set in stone a month ago, are now completely shifting in the opposite direction.
Government or Private?
Many Ontario based dispensaries are breathing a smoke filled sigh of relief with the recent announcement that marijuana sales in the province will no longer be government run, but left in the private sector. Doug Ford is known to promote smaller government systems overall, as he believes this is the more efficient way. Expanding that mentality, he has seemingly decided that the private sector should be the ones allowed to sell cannabis, and keep government sales chains and systems completely out of the process.
While this decision is being seen as a positive one by the majority of the weed smoking community, there is already push back from Ottawa. Ford is known to be head strong and push ahead regardless of what the rest of the government wants, but he’s already promised to consult with local municipalities before he makes a final decision. While privatization would be the best route overall, a switch this late would cause distribution and financial headaches. Experts say that private brick and mortar stores will not have full legislation and license requirements until 2019, with the bulk of sales still going to government run online dispensaries until then.
Be it private or government, sales over the first six months of legalization are expected to be well below predicted amounts. Although Canadian health officials are confident there will be enough weed to meet demand, the distribution channels have not been tested. Plus, investment interest has definitely decreased as of late. Industry leaders, Canopy Growth Corp. and Aurora Cannabis Inc, have seen very little investment growth lately. Aurora actually fell 27% in market value. And while Canopy did make some gains, it was nowhere near what was expected for a company that has already secured retail licenses in three provinces.
To break all this down: Governments are already flip-flopping between private or government run sales; Investment in licensed private retailers and weed producers is down; Distribution challenges may or may not be an issue, but opinions greatly vary; Most of us will end up still buying from online distributors.
Regardless of private or government sales chains, everyone agrees that legal cannabis would have to be cheaper than illegal sources in order to remain competitive. However, governments may be putting themselves out of business as a result of misreading the market and data given to them.
A recent study by Deloitte found that Canadians pay an average of $8.24 per gram across the country. To that price, the federal government wants to add an excise tax of about 10%, plus 13% to 15% GST, depending on the province. So, consumers will be paying about 25% more than the current average for cannabis.
Also, the government’s main competitive edge, in their mind, is that consumers will trust government, or regulated, dispensaries more. Clearly, most officials do not realize that cannabis users have long standing relationships and trust has been built with their current dealers. Higher price and less trust? The government will have a tough fight on their hands.
Food and Weed Not Mixing
On the so-so side of what’s happening, major weed distributors, and smaller up and comers, have started to poach talent from the food and beverage industries. Harvest One Cannabis Inc, recently named Grant Froese as their CEO. Mr. Froese is coming from a 38 career with Loblaw Cos. Ltd, where he was COO. Other companies are doing the same. From marketing, to supply chain management, food and beverage sector professionals are making the move to the cannabis industry. And it makes sense.
Weed and food have many marketing parallels, and both are highly regulated industries, with lots of government red tape and nonsensical rules. While the two industries are different, this trend may turn out to be positive in the end. If Loblaws can ship millions of tons of food across the nation, surely their old COO can figure out how to get enough marijuana from BC to NB.