DRIVING OUT BLACK MARKET DEALERS AND GROWERS

SOLUTION: MORE STORES, STEADY SUPPLY, LOWER PRICES AND BETTER QUALITY TO COMPETE WITH ILLEGAL OPERATORS

Guns, liquor, smokes, propane, fresh fish or a can of beans.

You name it, Terry Hedderson has sold it from his little store near the tip of Newfoundland and Labrador’s northern peninsula.

More importantly, he’s sold them all legally.

Each product, except perhaps the can of beans, has required him to navigate complex sets of regulations both federal and provincial.

The time and paperwork is just part of providing a service to his community of St. Lunaire-Griquet.

So when pot was legalized by the federal government he pored over the forms to apply as a retailer with Cannabis NL and sent them off to St. John’s last March by priority post.

“I never got a phone call, email or letter back — nothing,” said Hedderson.

A year after legalization the nearest place to legally buy cannabis is in Deer Lake, 450 kilometres away from Hedderson’s Store.

The rush to retail for a hitherto illegal product saw the provinces and territories all coming up with their own models. A year after marijuana’s legalization, picking winning and losing models isn’t easy.

“But we can start to,” said Michael Armstrong, a professor at Brock University’s Goodman School of Business.

The first step, he cautions, is figuring out what counts as winning.

Is it displacing the black market by making legal pot affordable and accessible or is it turning a profit for taxpayers?

As it turns out the two don’t go hand in hand and both, so far anyway, remain hard to quantify.

All we know for sure is that that the four Atlantic provinces are doing a better job as pot dealers than Ontario. As of September, Canada’s largest province had posted a $42 million loss selling marijuana and had only licensed 25 stores for a population of 14.3 million people. Atlantic governments have set up 48 stores for one-sixth of that population.

Neither the Nova Scotia Liquor Corporation nor Cannabis NL — which wholesales and licenses 25 private retailers — have released financials for their cannabis operations, but they seem confident.

“I didn’t say we didn’t make money, I just said we don’t disclose,” said Dave DiPersio, NSLC’s senior vice president of corporate services.

“Profits are squeezed right now because we need to be competitive with the black market.”

NSLC estimates it spent $11-12 million renovating 11 existing liquor stores to include marijuana and training staff. Those costs won’t be a drag on the corporation’s second year in the cannabis business.

Beyond profit and loss sheets for marijuana sales, government also collects revenue from taxing those sales. According to Statistics Canada federal and provincial governments collected a total of $186 million in taxes off cannabis in the first five and a half months since its legalization.

So, there’s money to be made for government and with supplies more secure and most of the set-up expenses complete, it’s now a matter of edging out the black market.

According to a phone survey recently contracted by the NSLC they are managing to cut the black market’s grass.

About 41 per cent of Nova Scotian marijuana users buy only through the NSLC while 40 per cent buy from both the NSLC and black market. The remaining 19 per cent buy solely from the black market.

Armstrong considers that a good first year.

“Once you have a good supply of product and good retail networks, then you’re into the head to head competition against the black market on price and quality,” said Armstrong.

“So, I think 40 per cent at this stage is pretty good.

As for Hedderson's quandary—Armstrong expects that as retail cannabis becomes normalized the hyper-caution of regulators around its proximity to alcohol will also lighten up.