New Brunswick

Finance minister raises prospect of privatizing Cannabis NB after $11.7M loss

Finance Minister Ernie Steeves wants the province to consider privatizing Cannabis NB or cutting down on the number of stores after the Crown-owned retailer of recreational marijuana products recorded a loss of $11.7 million during its first fiscal year.

Ernie Steeves beyond disappointed with 1st fiscal year results of Crown-owned recreational marijuana retailer

Finance Minister Ernie Steeves contends Cannabis NB's nearly $12 million in losses after two full quarters 'sends a pretty good signal to most anybody' that the model isn't sustainable. (Michel Corriveau/Radio-Canada)

Finance Minister Ernie Steeves wants the province to consider privatizing Cannabis NB or closing some of its stores after the Crown-owned retailer of recreational marijuana products recorded a loss of $11.7 million during its first fiscal year.

"To say [I'm] disappointed would be an understatement," Steeves said Tuesday after the unaudited year-end results were released.

"I'm looking for a way to try and save some money for taxpayers, trying to make some money for taxpayers, and try and bring in some revenue for taxpayers and this is not turning out to be one of those ways."

The figures show total sales of cannabis for the quarter ending March 31 were $9.7 million, resulting in a year-end total of $18.6 million.

When Cannabis NB launched last October, former president and CEO Brian Harriman had predicted sales of $45 million during the first fiscal year, which he expected would result in a break-even or small loss once start-up and operational costs were factored in. Harriman resigned earlier this month.

On Tuesday, general manager Lara Wood described the financial results as "pretty good" for only 22 weeks of sales since the stores opened on Oct. 17, when recreational cannabis became legal across Canada.

It's hard to imagine that it would be sustainable.- Ernie Steeves , finance minister

"We knew there would be challenges and unknowns in this brand new industry," said Wood, blaming the losses largely on "supply challenges," not its higher than illegal market prices.

But Steeves is questioning whether the existing business model implemented by the former Liberal government of Brian Gallant, needs to be revamped.

He said 20 storefronts "seems like a bit of overkill," particularly because they're expensive to lease and operate.

"It's hard to imagine that it would be sustainable at this point, but if sales go up dramatically, then there you go."

In-store sales revenue for the last quarter was $9.4 million, according to the unaudited figures released on Tuesday. (Julia Wright / CBC)

In the meantime, Steeves wants caucus, cabinet and Cannabis NB officials to look for efficiencies.

"Do we keep the model we have and maybe cut down on the number of the lowest-producing stores, do we privatize the model, or do we find an expert in the business and say, 'You know what, manage this for us?' Those are three options, there may be more."

Steeves said he has been studying the privatized model in Saskatchewan.

"We're trying to look at all the models in Canada and find out if there's one that's better out there that will work."

People's Alliance Leader Kris Austin has previously called for New Brunswick to abandon the government-owned system of selling cannabis and liquor.

Full privatization has worked well in other jurisdictions across North America, he has said, citing Alberta as an example.

"They brought forward a privatization model which saw increased employment, increased revenue, better variety and distribution. Just all the way around seemed to be a better system."

Cannabis NB general manager Lara Wood said Tuesday the agency is 'on a good trajectory for improvement.' (CBC)

Wood contends Cannabis NB's mandate is not an economic one, but rather to provide safe products, reduce the illicit market and create public awareness.

Having said that, she believes the existing model "has an opportunity to be really profitable and successful" now that the agency has passed the costly start-up phase, which included hiring and training staff and getting systems set up.

She noted the loss for the latest quarter was $4.6 million, down from $7.1 million in the previous quarter.

"Everything's sort of stabilizing, we're getting back to normal operations and that's why you're seeing that loss get smaller and the trajectory looks really good for next year."

Not enough product to meet demand

The demand is there, she said. It's supply shortages, both in terms of volume and range of products at varying price points, that have posed the biggest challenge.

Cannabis NB had planned to offer 360 products when it launched, but was only able to provide 50, said Wood.

However, she said there has been "slow but steady improvement."

"As our partners continue to get us the products that we originally wanted, you're going to see a broader range of price points, you're going to see more diversity in products, we are going to be a bit more competitive on price … and I think that will sort of appeal to customers and bring them back more regularly."

Breakdown of sales

The figures show in-store sales revenue during the fourth quarter was $9.4 million, while online sales revenue was $0.3 million.

Dry flower sales represented 85 per cent of sales; extracts, 12 per cent; seed sales, 0.2 per cent, and accessories, 2.7 per cent.

Parent company NB Liquor will consolidate Cannabis NB's results into its year-end results, according to the release.

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.