BC Cannabis Retailers Say They Are Being Hunted By Deeply Discounted Government Stores
Paul Taylor waited two years and spent tens of thousands of dollars to get a license to legally sell recreational cannabis at his small Vancouver dispensary. Despite the upfront costs and overhead, Taylor thought it was worth it.
At 58, he saw it as his ticket to eventual retirement.
“I thought it was going to be awesome. In time I will be able to retire and enjoy this business and it turns out I had to double my hours just to stay afloat,” he said. -he declares. mentioned.
Recreational marijuana has been legal in Canada for almost four years, but in British Columbia, many retailers are still struggling to make ends meet. Private retailers, like Taylor, allege that unfair pricing at government-owned public dispensaries pushes owners out of the market by offering products at low markups compared to wholesale costs.
CBC News looked at the prices of dozens of products that had markups ranging from 25% to 7%. There were also other products with higher margins.
“They sell products at such a low price that we just can’t compete with that as a family store,” Taylor said. “In the end, we will eventually sink.”
Retailers Say BC Cannabis Stores [BCCS] offer very thin and unsustainable margins. However, BCCS claims that it operates to commercial standards while remaining competitive with the illicit market.
In British Columbia, there are 33 public government cannabis stores and over 400 private stores.
Retailers at risk of closure
Jaclynn Pehota, Executive Director of the Canadian Cannabis Retailers Association [ACCRES]which represents private retailers with more than 50 brands in British Columbia, says the heavily discounted prices aren’t just affecting private stores in the Lower Mainland.
“I’ve heard this from my retailers in Nanaimo, Vancouver, Kamloops. Across the province, this is a very big challenge for private licensees.”
She says the problem becomes immediately apparent as soon as a new BCCS opens near established private stores.
Ehren Richardson, co-owner of Sunrise Cannabis on Vancouver’s Kingsway, says he immediately started losing business when a public store opened up the street. That, in itself, he says, was not surprising, until he saw the prices at BCCS.
“We realized they were offering products at prices that we couldn’t even touch because you wouldn’t be in business if you matched those prices,” Richardson said.
Richardson welcomes the competition, but he fears that once the majority of private retailers are shut out of the market and state-owned stores hold the market share, prices could rise. And he fears BC’s cannabis industry will lose many of its former operators who advocated and helped pave the way for legalization.
“If we really want the lowest prices and the best values, then there should be a level playing field between all competitors in the cannabis retail space, including the government,” Richardson said.
Pehota predicts that over the next six months, 15% of private retail stores will close in British Columbia due to a lack of profitability.
Compete with the black market
It is unclear how BCCS can offer such low prices and whether the stores are profitable or, as Richardson suspects, they are subsidized by tax revenue. According to the British Columbia Ministry of Finance, the Liquor Distribution Branch [LDB] does not publish the profitability of individual stores.
“LDB only shares wholesale cannabis data, but does not publish sales data for retail and online stores, as this is competitive information,” the department said in a statement.
For the 2020/2021 fiscal year, the cannabis division of the LDB’s net income before corporate expenses was $13.6 million, according to the annual reportbut no further breakdown was provided.
Public Safety Minister Mike Farnworth said fluctuating prices are normal in business, but B.C. cannabis stores are not subsidized by tax revenue.
In a statement, the LDB says BCCS tries to maintain minimum margins between 23 and 25% for all pre-rolled and floral products. Products sold below, he says, are discounted to eliminate inventory or are products with poor sales.
However, he admits he also competes with a thriving black market.
“BCCS must balance its need to be profitable with remaining competitive with the illicit market, which it is mandated to eliminate,” he said.
Competitive prices vs predators
Taylor and Richardson allege predatory pricing by the LDB. But Thomas Ross, professor of regulation and competition policy at the University of British Columbia, says companies are often quick to cry foul when competitors are simply competitive.
The difference is the intention.
Predatory pricing involves a company deliberately setting low prices in an attempt to drive out competitors and then raise prices.
“This should be distinguished from normal competitive good pricing where sometimes companies set low prices because that’s where they think the market is,” Ross said.
“Their competitors might not be happy about it, but if that’s where their optimal price is, we wouldn’t consider it predatory.”
Richardson filed a complaint with the Competition Bureau, an independent Canadian agency responsible for maintaining market competition.