Cannabis NB: $11.7 million loss selling legal weed

Leave it to the government to somehow find a way to lose money selling cannabis, despite having a monopoly! That’s right. Cannabis NB, New Brunswick’s only legal cannabis retailer, has managed to lose $11.7 million dollars, according to the year-end financial report released April 30th.

Since opening, Cannabis NB has been plagued by layoffs, temporary closures, shortages, and disappointing sales

But how is that possible?

Mass cannabis shortages

As Cannabis NB general manager Lara Wood told Global News:

“We really didn’t anticipate [supply shortages] at this level. We knew it was a new industry, a new business, we knew there would be some challenges”.

But she’s wrong. While cannabis may be newly legalized, it certainly isn’t new by any means, and the government’s legalization strategy has only exacerbated the problems.

The federal government chose to heavily restrict who can grow and sell cannabis through a rigorous and slow licensing process that is a major contributing factor to the massive, countrywide shortages that is blamed for these million dollar losses.

This only makes the black market stronger. In other words, the government has not only shot itself in the foot, it has shot itself multiple times.

Basically, the government is trying to create a legal industry from scratch while actively trying to shut down a decades-old, billion-dollar black market that’s been staring it in the face the entire time.

And that’s not even mentioning how a non-violent, cannabis-related conviction could mean an automatic ban from the legal industry.

On average, growing cannabis can take anywhere between 2-7+ months, and we need to keep in mind that it’s only been six months since cannabis was legalized. So perhaps we’ll soon see an end to the shortages, or maybe it could last for years, as others predicted.

Could New Brunswick have avoided this?

What if instead of creating a new system from scratch, the government simply regulated the cannabis industry through setting standards for growing cannabis and licensing people who met those requirements?

Also, don’t forget that Trudeau and the Liberal government had 3 years between being elected in 2015 and legalizing cannabis last year. Some foresight could have a gone way to alleviating a lot of the problems we are having now since Health Canada only began speeding up its glacial pace of licensing in the lead up to legalization.

Why Cannabis NB’s plans were doomed from the start

New Brunswick’s cannabis is significantly more expensive than its Atlantic neighbours. But, as mentioned earlier, people are pointing to the shortages as the main reason for Cannabis NB’s disappointing sales.

But how could sales be so bad? Let’s look at its marketing strategy.

According to a CBC story published two days after legalization, the target market of Cannabis NB was existing cannabis users, meaning Cannabis NB had to convince them to switch from their dealers to buy off the government instead.

Brian Harriman, the former Cannabis NB president, said at the time that he believed “better quality cannabis and a safe and legal shopping experience should be enough to overcome better prices on the street”, and said he wasn’t going to get in a price war with the black market.

Do you really care about the “shopping experience”?

By focusing on “shopping experience” instead of price to win existing cannabis users , Cannabis NB seemingly forgot that before the dispensaries started popping up, many of these people were content (or at least grudgingly put up) with meeting their local dealer in parking lots or parks.

The government needed more than just fancy stores, and competitive pricing could have been that edge.

Definitely can’t compete on quality either

So let’s take a quick look at legal weed competing with the black market based on quality. In the government-controlled system, you can’t even really distinguish yourself based on quality as all the retailers in the country are forced to buy off the same growers as everyone else.

There’s only about a hundred LP’s and many of the smaller ones are owned by a few big players.

Take that all into account, and consider how, according to the Licensed Producers Canada website, New Brunswick has signed deals with only 4 LP’s at the time of writing.

Having 4 LP’s supplying doesn’t leave a lot of room for competition either, and being licensed doesn’t automatically guarantee quality, anyways.

Take Organigram, for example. It’s one of the four LP’s that has a supply deal with New Brunswick and happens to be based there. The company is currently facing a class action lawsuit over selling patients medical cannabis tainted with a banned pesticide that created poisonous hydrogen cyanide when smoked.

New Brunswick lost money, but does it matter?

Unlike private businesses, the government doesn’t need to find efficiencies and isn’t necessarily motivated by profit like private businesses are because that’s what taxpayers are for, right?

Featured image courtesy of The Wave.