Marijuana Users in B.C. in No Rush to Ditch Their Traditional Suppliers, Experts Say

Written by: Nick Eagland – The Vancouver Sun

Business experts say B.C.’s deep-rooted cannabis culture is making pot users more reluctant than those in other provinces to ditch their dealer or dispensary for Canada’s legalized recreational system.

In the first 24 hours after opening Oct. 17, B.C. Cannabis Stores made close to 10,000 sales online and at its only store, in Kamloops, but sales took a steep drop, down to about 3,100 on Oct. 18, followed by 8,700 spread over the next five days.

Meantime, in Ontario, whose population is roughly triple B.C.’s 4.8 million, the online-only Ontario Cannabis Store hit 100,000 sales in the first 24 hours (the OCS did not immediately return a request for first-week sales data).

“You folks in B.C. have a much better-established cannabis-distribution ‘ecosystem’ already, and so there’s less of an incentive for people to move over and try the government system as they did in Ontario,” said Brad Poulos, an instructor at the Ted Rogers School of Management at Ryerson University in Toronto. “There may be some price barriers, too.”

B.C.’s cannabis “ecosystem” experienced rapid growth in the 90s, when production boomed and “B.C. Bud” emerged as a global, multi-billion-dollar brand. In 2015, Vancouver became the first city in Canada to regulate and licence pot shops, despite their being illegal under federal law, and was soon joined by several other B.C. municipalities. Many of the illicit shops have remained open despite warnings from the provincial government that they could be denied licences or be closed for selling cannabis not supplied by the B.C. Liquor Distribution Branch.

Poulos, who teaches a course on cannabis business, said few municipalities in Ontario still have unlicensed stores operating. Toronto police raided at least 11 in the first five days of legalization.

Poulos said that if governments want to retain customers, they will need to adjust pricing but also compete with the superior product selection at the illicit stores. To do that, they’ll need to quickly make supply agreements with more licensed producers, he said.

B.C. has supply agreements with 38 licensed producers and Ontario has at least 32, but Ontario is struggling with product shortages and shipping delays, while B.C. appears to be well-stocked and is shipping overnight.

On Thursday, the B.C. Cannabis Stores website listed 99 varieties of dried marijuana (starting at $6.99 a gram), 25 types of pre-rolled joints and 20 oil products. Ontario Cannabis Store listed 42 varieties of marijuana (starting at $7.56 per gram), two types of pre-rolled products and a trio of oil products.

But Poulos said he expects supply issues outside of B.C. to subside over the next three to six months, so that constraints on supply will no longer factor into price.

“There’s a lot of people in the industry who think that the wholesale price is heading lower, and that’s in order to wipe out the black market over the next several years,” he said.

“Right now the (licensed producers) can demand a higher price, but when there’s lots more out there … the conventional wisdom is we’re heading down to $2 per gram at wholesale. That’ll pull a lot of people in.”

Deepak Anand, vice-president of business development and government relations at Cannabis Compliance Inc., said the B.C. Cannabis Stores’ warehouse appears to be well-stocked, but provinces where stock is low — particularly Alberta, Ontario and Quebec — are contacting his clients about supply agreements.

“We’re seeing some of our clients that are licensed producers now get contacted by provinces that historically would not have dealt with them or said no to them, (and) are now going back and saying, if you’ve got stock, let’s talk pricing,” he said.

Anand said he’s not surprised B.C.’s initial sales are significantly lower than other provinces. For example, Quebec, with 8.4 million residents, reported 140,000 sales in the first week, while Nova Scotia, with a population just below one million, reported 12,810 sales on Oct. 17 alone.

“I think people (in B.C.) are still sticking to the black market because, quite frankly, ease of access seems to be the norm,” he said. “Nothing significant happened on Oct. 17 in B.C., while you’re seeing lines in Quebec, Alberta, Manitoba and, obviously, Ontario.”

Anand pointed to the illicit dispensaries still operating in Vancouver and the illicit dealers who have been serving their neighbourhoods for years.

“They’re sticking to their existing sources in B.C., which has a deeply-rooted cannabis culture,” he said. “People have had relationships with their suppliers for years now and I don’t think they’re going to switch over overnight.”

On the retail side, Anand said his firm has hundreds of clients working to obtain provincial and municipal licenses for private stores, including at least three in Metro Vancouver which he expects to open within the next seven weeks.

The province isn’t approving the stores fast enough “but they are moving,” he said.