Regulations need to change for private retail cannabis to thrive, says prof
Province requests proposals for single private entity to run recreational cannabis in New Brunswick
There was a chorus of concern and counsel Thursday from observers and critics of the provincial government's plan to turn Cannabis NB over to the private sector.
From inadvertently assisting the black market to creating a more competitive model, experts and MLAs say privatizing recreational cannabis raises a host of issues that must be addressed before the transition, which could take place early next year.
Finance Minister Ernie Steeves announced Thursday afternoon the province has issued a request for proposals for a single private operator to take over operation and sales from the Crown corporation.
Cannabis NB has lost more than $16 million over its first 50 weeks, and the province said it wants to stop the bleeding. Steeves said the province will focus on regulating the industry.
But some fear handing the government-run monopoly to a single private player has its downsides.
Advantage black market
Business professor Michael Armstrong, who's been tracking the industry since legalization in October 2018, said the move may not help in curbing the illegal market — a core principle in Ottawa's decision to end prohibition.
"One of the things that you need to do to succeed at that is make your product easily accessible, so having more retail stores in more locations makes you competitive to the black market," said Armstrong, an associate professor in the Goodman School of Business at Brock University in St. Catharines, Ont.
"On the other hand, if your concern is covering costs and making a profit, then having a small number of stores, charging a relatively high prices, is obviously the way to pursue that objective, but you're not going to be as competitive to the black market."
He said the private sector can make changes more quickly and act more efficiently than government — a point Steeves raised in favour of the decision — but without changes to regulations that require standalone stores, some locations will be shuttered.
Armstrong said the private operator will likely close some of the 20 Cannabis NB stores around the province. Underperforming locations in smaller, rural municipalities could be on the chopping block, limiting access to legal cannabis in large chunks of the province, he said.
He said provinces like Quebec and Alberta are adding stores and increasing accessibility.
One way to make the existing regulatory model more efficient would be to permit a store within a store, he said. Nova Scotia, for instance, built most of its cannabis outlets in liquor stores.
"Those don't have to sell very much cannabis to cover their costs," Armstrong said. "They're much better suited to a smaller population centre."
Closing stores would also mean cutting the workforce of about 250 employees.
Following Thursday's announcement, Green Party Leader David Coon said it will likely mean the loss of "good-paying" jobs to minimum-wage positions.
Steeves said the operator would make decisions regarding employees and closing — or opening — stores.
The minister emphasized that Cannabis NB will continue operating as usual, and the transition would occur only if a "compelling" proposal was presented.
Coon also expressed concern for losing control over cannabis distribution.
"It's entirely appropriate when you're dealing with cannabis, especially with edibles in the mix, for the government to control and manage the sales of those," said Coon.
"The government's record on regulating the private sector and enforcing regulations is less than stellar, and this gives me grave concerns."
The New Brunswick Medical Society raised concerns about the intent to privatize, saying it would like to participate in discussions between the province and a potential retailer.
"While we understand the financial challenges government is facing, it is important that government policy put public safety at the forefront of all decisions regarding the sale of cannabis," said society president Dr. Chris Goodyear in a statement.
"While it may be legal, that does not mean cannabis is safe."
Steeves and Public Safety Minister Carl Urquhart said Thursday the government takes its regulatory responsibility "seriously" and will strive to protect the health of the public and combat the illegal market.
Still a monopoly
People's Alliance Leader Kris Austin lauded the move in a statement Thursday, saying the government has "no business of being in the business of selling cannabis."
Austin, who wants cannabis and liquor sales to be placed in the free market, did say it would be "preferable if the government were willing to go to more of a free-market model."
Armstrong echoed his point, saying he hopes the government will open up the market to competition.
"What makes the private sector efficient is not that it's privately owned, so much as the competition among private retailers forces each one to be more efficient," he said.
He said if they stick with the monopoly, he suggests two things: relax requirements for standalone stores, and negotiate with Ottawa to revise the excise tax structure in order to offer better prices.
The federal-provincial excise tax works out to about 10 per cent of wholesale, but there's a minimum of $1 per gram.
Proponents interested in taking over cannabis sales will need to demonstrate experience in recreational sales, financial capacity to develop and sustain operations and "a viable plan" to combat the illegal market, the provincial government said. The deadline for proposals is Jan. 10, 2020.
The proposals will be evaluated by a third-party fairness monitor. A new private operator could be announced as early as spring 2020, with a new delivery model later next year.
The provincial government would bring amendments to the New Brunswick Liquor Corporation Act in the fall.
With files from Shift New Brunswick and Elizabeth Fraser