N.W.T.'s online cannabis store lost $136K last year
Online store cost nearly $300K to create and $200K/year to operate for just 604 users
The Northwest Territories's online cannabis store has seen only 604 users since legalization and lost $136,000 last fiscal year. It's on track to lose the same amount or more in 2019-2020.
That's despite a 44 per cent markup on all products sold in the online store — a profit margin which guarantees its prices are not competitive with black market vendors.
Since legalization, $3.9 million worth of legal cannabis has been sold in the territory. But just $57,664 of that — less than 1.5 per cent — was purchased online.
"The online store was established to ensure that NWT residents in all communities have access to safe and legal cannabis," Todd Sasaki, a spokesperson for the territory's Department of Finance, wrote in an email.
Currently, only five communities have legal brick-and-mortar cannabis vendors: Fort Simpson, Fort Smith, Hay River, Norman Wells and Yellowknife. All are liquor stores licensed by the territorial government.
We very quickly discovered that Canadian consumers preferred to buy in-store.- Michael Armstrong, Brock University's Goldman School of Business
But the cost of operating the online store is high — about $50,000 per quarter, according to Sasaki — and it cost nearly $300,000 to create.
Using numbers from last year's annual report, that meant operating expenses amounted to nearly $260 per user. As of Wednesday, it offered just three varieties of cannabis.
"The [territorial government] remains committed [to] operating the online store, ensuring that residents in all communities have access to legal cannabis, until a viable option emerges," Sasaki wrote.
Those high costs haven't made a dent in the profits of the Northwest Territories Liquor and Cannabis Commission, which supplies all legal cannabis in the territory and operates the online store. It generated $23.5 million in profits last year.
'Trade off' between revenues and black market disruption
Michael Armstrong, a professor at Brock University's Goodman School of Business and an expert on the cannabis trade, wasn't surprised to hear the territory's online store isn't doing much business.
"We very quickly discovered that Canadian consumers preferred to buy in-store," he said.
But Armstrong did say the average price in the store — $14.44, according to the N.W.T. Department of Finance — is high if the goal is disrupting the black market.
"If you have a fairly high price in the Northwest Territories … and $15 a gram certainly sounds high … that's ultimately going to have a big, slowing effect on legal sales in your territory," he said.
Statistics Canada estimates the online black market price of cannabis at around $10 per gram across the country.
Data from illegal online vendors, gathered by Statistics Canada, show prices start at about $9 per gram and decrease with bulk purchases. A CBC sample of three popular black market online vendors found prices ranged from $9-11 per gram, including shipping to the N.W.T.
According to Armstrong's research, the N.W.T.'s 44 per cent markup is pretty standard for government vendors. But he said that high margin shows the government is engaging in a "trade-off" between disrupting the black market and raising new revenues through taxes.
"The justification, presumably, is, well, the government would like to make more money," he said. "But it comes with a drawback. The more you mark up the product, the less attractive it is for consumers, and that means that more consumers will stick with the black market."
- This story has been updated to clarify that the average price of black market cannabis is $10 when purchased online, according to Statistics Canada.Mar 13, 2020 8:39 AM CT