Cannabis New Brunswick Losing Money Despite Q2 Growth

Cannabis NB may need to rethink how cannabis is sold.

Saint John, New Brunswick, Canada - October 17, 2018: People line up to purchase cannabis legally from a Cannabis NB store on the first day of legalization in Canada. iStock / madsci

Despite cannabis being legal in Canada for over a year, some provinces are still losing money in an industry they’d hoped would make big bucks.

New Brunswick, a Canadian province on the Eastern coast, is one of the provinces that has continued to lose money since sales began, with estimates saying that they will probably keep losing money in the future.

New Brunswick Faces a Strong Black Market

New Brunswick’s cannabis market currently operates in a government monopoly controlled setting, where the government owns the market and operations.

There are four provinces in Canada that operate this way, with the government being the end-all-be-all for cannabis, but only New Brunswick is seriously losing cash.

There are a host of reasons why the province is bleeding cash, but the main problem being faced is a larger and cheaper black market that is still reigning over the province.

According to the CEO of Cannabis New Brunswick (NB), which currently runs the province’s marijuana industry, the company will not see a profit until maybe the 2020 – 2021 business year.

Among other problems, the province has some of the highest price-points for cannabis in the country, which stems from the shortage of available product, and has pushed customers away from legal cannabis.

This financial quarter, the province lost $1.5 million dollars, while it sold $10.7 million worth of product, which is a 17.6 percent increase over first-quarter sales. Since the company began selling last October, the company has lost nearly $16 million dollars, which some lawmakers are beginning to grow angry about.

In other provinces with the same system, they are just beginning to get into the black.

In Quebec, which has some of the cheapest cannabis in the nation, they just went into the black with a profit of around $1.4 million dollars. Meanwhile, New Brunswick’s neighbor Nova Scotia used their selling of marijuana in liquor stores to their advantage to pull an $18.1 million dollar revenue during the same quarter.

New Solutions Are Needed to Drive Down Prices

One of the biggest disadvantages the New Brunswick is facing is the prices, which many are saying is keeping people in the black market.

Looking at prices from across the country, the province is routinely the most expensive one to buy legal marijuana from. 

Comparing the costs to the province of Prince Edward Island, the cost is almost double, with 3.5 grams of cannabis coming out to just over $39 dollars on Prince Edward Island and around $57 in New Brunswick.

“There is a lot of evidence that shows that price is one of the biggest predictors in terms of moving folks from the unregulated market, which isn’t that surprising,” Jenna Valleriani, CEO of the National Institute for Cannabis Health and Education, told Global News Canada in response to the high prices.

However, while lowering prices would mean selling more product, it might not mean profits will increase as the systematic problems the province faces with taxes and being publicly owned might cause more problems.

Another major problem is the high amount of retail stores matched with a shortage of sellable cannabis.

In the first six months, the province opened over 20 legal stores, which began to drive up prices as the supplies lowered amid the fervor. 

It is believed that many stores will not be able to be open for too long unless some changes are made structurally. Plus, with New Brunswick being a fairly rural province, a lone town may not be able to support a business solely dedicated to selling cannabis.

Brock University business professor Michael Armstrong said that in order for the province to turn a profit, they may need to start diversifying or loosening restrictions on where the product can be sold, pointing to Nova Scotia’s success in selling in liquor stores.

“If New Brunswick switched to selling cannabis in liquor stores, or allowing other kinds of retailers to sell cannabis, like grocery stores, that would drastically drop the base costs of how much sales you have to have per site,” Armstrong told Global News Canada.

By allowing the product to be sold in places like gas stations or grocery stores, where you can buy liquor and tobacco, a profit would be much easier.

The Honeymoon Phase is Over

While the fledgling industry is still trying to work itself out, those behind the government are beginning to grow weary.

Premier Blaine Higgs of New Brunswick has repeatedly called for the privatization of the cannabis market in the province, saying that it should fall on businesses, not the government, to make a profit.

“We’re losing our shirt,” Higgs said in October, “we’re not going to keep losing money on this.”

While the current model is losing money, Cannabis NB is still driving full force to try and make up for the losses with the system they’ve got.

Many have come to the defense of the system, as it is only a year old while saying that it might not be the best one and that the government should look at other options. So far no moves have been to make any changes.

In the short term, the province is looking to get past its supply troubles and start cracking down on illegal dispensaries, which are plaguing the country.

Many are hoping that by further establishing the market in the country, that some of the problems like the shortages and black market will eventually fade out as prices normalize. However, there is no guarantee that prices will get lower.

For now, New Brunswick and the rest of Canada will have to continue working toward a more profitable future.

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