Retail Applicant Warns Wholesale Pot Prices Will Be So High, Black Market Will Flourish

Angus Taylor, chief administrative officer of NewLeaf, at his proposed outlet on 37th Street S.W. DARREN MAKOWICHUK/POSTMEDIA

Tight profit margins will quickly weed out many cannabis retailers and benefit black marketers, a prospective pot store owner says.

And an Alberta Gaming, Liquor and Cannabis Commission (AGLC) fact sheet for retailers states black market pressures and startup costs could mean legal pot stores might not be profitable for two years.

An entrepreneur, whose company hopes to open stores throughout the province, said government and marijuana producers will claim so much of the revenue it’ll squeeze all but the largest operators, giving illicit dealers freer reign.

“There’s no pie left over . . . there’s going to be a lot of problems,” said the man, who wouldn’t give his name out of fear of his store applications being rejected.

“The black market will run the streets, there’ll be no stopping it.”

Even so, he considers himself “pro-legalization” and said he’s in a good place financially to innovate and make a go of Alberta’s market.

“People are looking to me for help, but I can’t help them,” he said.

Last week, an official with AGLC provided a list of average wholesale prices per gram it’ll be charging retailers, including $8.95 for dried flower, $4.95 for milled flower, $9.11 per pre-rolled joint and $9.65 per oil capsule.

To turn a profit, retailers would have to increase that price to customers, while at least one online black market website sells flower by the ounce at a cost that breaks down to about $6.50 a gram.

A customer price typically quoted by soon-to-be-retailers is $10 for a gram of dried bud.

“Nine out of 10 retailers haven’t looked at these (AGLC) prices and, if they had, they wouldn’t have gotten into it,” said the businessman.

An AGLC fact sheet states the commission, which acts as a wholesaler, won’t be profitable from the cannabis trade for two years and that the same could apply for many retailers.

“The Government of Alberta has acknowledged that cannabis net operating incomes will be negative for at least the first two years of operation due to the initial expense of setting up this new business,” it states.

“Future cannabis retailers will have to make their own determination if their operations will be profitable.”

The would-be retailer also said private stores will be competing with the AGLC’s online cannabis sales.

Another prospective Calgary cannabis retailer said he’s not so concerned about the price structure, adding there’ll be some leeway for stores to appeal to customers.

“We’re able to choose any price,” said Angus Taylor of New Leaf.

He also said wholesale prices will ultimately fall along with retail ones as the industry hits full production and supply stride.

“The economies of scale will eventually drive down the cost of goods — we ultimately hope there’s less and less confidence in the black market,” said Taylor.

Unlike licensed and inspected legal product, he said, black market weed’s safety and quality isn’t assured.

How retailers craft their profit margins is up to them, said AGLC spokeswoman Heather Holmen.

“We’re not dictating, that’ll be determined on their business model,” she said, adding consistency of product could make a difference.

“Having a safe, clean product could make spending a few extra dollars worth it.”

In a move aimed at helping the industry’s launch, the province has also decided not to impose a provincial levy on cannabis sales, though they will be subject to federal excise tax and GST, said Holmen.

But she acknowledged there is concern among some in the sector about the effect a black market could have on the fledgling legal industry.

And both the AGLC and Alberta Justice have said they hope local police forces will crack down on illicit marijuana sales websites that have been largely left alone.

Prices listed on the AGLC’s AlbertaCannabis.org website will be revealed when it’s activated Oct. 17, said Holmen.

“I can’t speak on behalf of private retailers, but AGLC did set its pricing to be competitively aligned with retailers,” she said.

“Consumers will ultimately decide if they wish to purchase online or in retail locations.”

BKaufmann@postmedia.com

On Twitter: @BillKaufmannjrn

Source: Calgary Herald