Marijuana legalization is around the corner. Here's how it will affect the black market.
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The legalization of cannabis in Canada is on the horizon. Canadian provinces are taking different approaches to how it will be sold to the public.
The Ontario Cannabis Retail Corporation (OCRC) grabbed attention in April for identifying its first store locations. But it was the accompanying call for product suppliers that caught my eye as a business professor. It hints at OCRC’s future relationships with cannabis growers and consumers.
WATCH ABOVE: How will marijuana be marketed once it’s legalized?
Provincial approaches
Every province except Saskatchewan will use its liquor agency as the central distributor of recreational cannabis. The agencies will buy it from licensed growers and ship it to retailers. But each province will go its own way regarding how cannabis will be sold to consumers.
Western provinces will mostly rely on businesses for retail sales. Manitoba, for example, has accepted four applications for province-wide cannabis chains. Alberta saw 226 applications for independent stores in Calgary alone.
Meanwhile, eastern provinces will set up government-owned outlets. Nova Scotia will sell cannabis in nine liquor stores. Quebec’s liquor agency instead will set up dedicated stores. There will be at least four in Montreal.
Ontario likewise created OCRC as a liquor board subsidiary. But its cannabis stores will be separate from liquor outlets.
READ MORE: Justin Trudeau not backing down on timeline for legalizing marijuana despite calls for delay
Suppliers wanted
OCRC’s call most notably indicated that it doesn’t have any confirmed suppliers yet. Growers had until May 2, 2018, to submit offers. OCRC hopes shipments could begin June 1. But that optimistically leaves just four weeks to negotiate contracts and schedule deliveries.
By contrast, Quebec has already signed six supply contracts. Ontario lags with suppliers, despite leading in legislation. (Its law passed in December, whereas, for example, British Columbia just introduced its bill.)
Such delays could pose problems. Some observers expect temporary cannabis shortages initially. If OCRC doesn’t lock down supplies soon, it risks having bare shelves.
READ MORE: Growing 4 cannabis plants for recreational use is not a ‘grow-op,’ experts say
Pricing challenges
Quebec’s news also suggests financial challenges for cannabis retailers. Its largest supplier expects to receive $5.40 per gram wholesale. Meanwhile, Statistics Canada estimates illicit retail prices at $6.96.
That modest retail-wholesale difference suggests government retailers will lose money if they try competing with black markets.
Suppose OCRC charges $6.96 per gram while paying $5.40. After subtracting $1.80 of required taxes, it’ll lose $0.24 per gram. That’s even before paying operating costs.
Speaking of prices, politicians have repeatedly mentioned needing a legalized cannabis price that’s competitive with black markets. But OCRC asks suppliers to suggest a retail price for each product. So there will be many prices, not just one.
Just as fine wine costs more than basic plonk, premium cannabis will cost more than entry-level weed. Consumers can choose how to trade off quality versus price. Meanwhile, growers can compete on price to capture larger market shares.
READ MORE: The big surprise of cannabis legalization might be the size of the low dose market
A A
Listen
The legalization of cannabis in Canada is on the horizon. Canadian provinces are taking different approaches to how it will be sold to the public.
The Ontario Cannabis Retail Corporation (OCRC) grabbed attention in April for identifying its first store locations. But it was the accompanying call for product suppliers that caught my eye as a business professor. It hints at OCRC’s future relationships with cannabis growers and consumers.
WATCH ABOVE: How will marijuana be marketed once it’s legalized?
Provincial approaches
Every province except Saskatchewan will use its liquor agency as the central distributor of recreational cannabis. The agencies will buy it from licensed growers and ship it to retailers. But each province will go its own way regarding how cannabis will be sold to consumers.
Western provinces will mostly rely on businesses for retail sales. Manitoba, for example, has accepted four applications for province-wide cannabis chains. Alberta saw 226 applications for independent stores in Calgary alone.
Meanwhile, eastern provinces will set up government-owned outlets. Nova Scotia will sell cannabis in nine liquor stores. Quebec’s liquor agency instead will set up dedicated stores. There will be at least four in Montreal.
Ontario likewise created OCRC as a liquor board subsidiary. But its cannabis stores will be separate from liquor outlets.
READ MORE: Justin Trudeau not backing down on timeline for legalizing marijuana despite calls for delay
Suppliers wanted
OCRC’s call most notably indicated that it doesn’t have any confirmed suppliers yet. Growers had until May 2, 2018, to submit offers. OCRC hopes shipments could begin June 1. But that optimistically leaves just four weeks to negotiate contracts and schedule deliveries.
By contrast, Quebec has already signed six supply contracts. Ontario lags with suppliers, despite leading in legislation. (Its law passed in December, whereas, for example, British Columbia just introduced its bill.)
Such delays could pose problems. Some observers expect temporary cannabis shortages initially. If OCRC doesn’t lock down supplies soon, it risks having bare shelves.
READ MORE: Growing 4 cannabis plants for recreational use is not a ‘grow-op,’ experts say
Pricing challenges
Quebec’s news also suggests financial challenges for cannabis retailers. Its largest supplier expects to receive $5.40 per gram wholesale. Meanwhile, Statistics Canada estimates illicit retail prices at $6.96.
That modest retail-wholesale difference suggests government retailers will lose money if they try competing with black markets.
Suppose OCRC charges $6.96 per gram while paying $5.40. After subtracting $1.80 of required taxes, it’ll lose $0.24 per gram. That’s even before paying operating costs.
Speaking of prices, politicians have repeatedly mentioned needing a legalized cannabis price that’s competitive with black markets. But OCRC asks suppliers to suggest a retail price for each product. So there will be many prices, not just one.
Just as fine wine costs more than basic plonk, premium cannabis will cost more than entry-level weed. Consumers can choose how to trade off quality versus price. Meanwhile, growers can compete on price to capture larger market shares.
READ MORE: The big surprise of cannabis legalization might be the size of the low dose market
