Long confined to the realm of black markets and illicit sales, the actual economic footprint of the cannabis industry remains somewhat clouded and clandestine.
The industry was often described as being a potential gold mine, language that might have contributed to the rush to stake a claim in the budding business. But the glittering promises of a green boom are hard to quantify in the city and province. Figures exist on the amount of tax generated but how many people are employed in the industry, for example, is not.
According to the province, through excise tax and PST since legalization, the cannabis industry has brought in a total $35,888,887 in actual revenue from 2018 to 2021. The PST component of sales is an estimate based on total sales from retail stores. Last year’s actual revenue was $21,264,229.
While that might seem like a substantial pot of cash, by comparison, with March’s announced extension of the PST — to things like tickets to sporting events, concerts and shows, movie theatres, museums, zoos and historical sites, rodeos, trade shows, arts and crafts shows, gyms, golf and curling fees and memberships, and hunting and fishing guide fees and outfitter services — the provincial government expects to reap more than $20 million per year from that extra tax.
Still, revenue from legalized pot is not mere pennies to a provincial economy, but the larger cannabis market is a bit depressed right now, almost four years into legalization.
Looking at publicly traded stocks might offer some insight into how the industry is doing. Stock in Canopy Growth Corp., which owns Tweed and has a couple of local outlets, fell more than 50 per cent over the past six months. Stock in Aurora Cannabis Inc., a publicly-traded licensed producer, fell almost 60 per cent over the past six months, and according to its financial report saw losses in the neighbourhood of $1 billion.
“I think the industry is struggling to be honest. I think we are seeing great prices for the customer, which is good. But you know, I’m curious what will happen when some more producers fail,” said John Thomas, a managing partner of Farmer Jane Cannabis Co.
The Saskatchewan government is bullish on the long-term prospect of cannabis sales, projecting in 2021-22 to bring in $22.4 million in actual revenue, with 2022-23 pegged at $32 million.
But Thomas predicts a period of looming contraction for the industry.
In a statement, the City of Regina said, “(It) does not limit the maximum number of cannabis retail stores, nor does it have an opinion on how many the city needs.”
It added, “We understand that this is an emerging market and it will take time for the market to mature and the number of retail locations to stabilize.”
A June 2021 report to city council from the city administration stated that, “According to industry analysts, access to legal cannabis issues remain with companies being restricted in their efforts to open new stores. The general rule for a mature market is about one store for 10,000 people.”
That means Regina, with a population of 239,497, would need to host roughly 24 stores to ensure a healthy business environment to disrupt the black market.
“The province, through SLGA, changed the way that it was issuing licences and decided to go with more of a market-based approach. So they wouldn’t be limiting, depending on the population of any particular centre,” said Ben Mario, manager of city planning branch with the City of Regina.
That change, in turn, led to a number of new permits sought by retailers. Mario said the regulations brought in by the city were more so there to make sure stores were compliant with zoning and land-use requirements.
Right now, the SLGA has approved 21 cannabis stores in the city, with approvals pending for 14 more locations.
“The markets are only going to support so many stores at the end of the day. So right now, I think what you’re seeing is, there are a lot of places trying to get their foot in, in the market door per se,” said Mario. “Eventually, that will level out I think.”
Setting yourself apart is tough in the city, says Jessa Zborosky, director of retail and purchasing with The Bakery in Regina.
Somewhat more focused on edible products, The Bakery opened in 2020, well after initial legalization but in line with when consumable products became legal.
“We’re definitely focusing on the local side of things,” said Zborosky. “But more stores does mean more competition.”
Being an edible-forward store is a “differentiator between us and some of the other retailers” said Zborosky.
Looking beyond the individual retailers and producers to try to quantify what they contribute as a whole to the economy or even how many people work in the industry is just as challenging as Zborosky carving out a niche among the competition.
“Two years into legalization, Saskatchewan’s per capita sales were an average of CA $16. Which essentially means, $16 of cannabis is sold per person in this province,” said Chelsea Low, Economic Development Regina’s senior communications manager. EDR keeps no figures on cannabis employment.
Numbers at the City of Regina are also elusive. Because many cannabis companies lease retail space, the City of Regina says getting a solid figure on property taxes from retailers specifically is difficult. And while municipalities pressed for a direct share of the excise taxes in the early days of legalization, the province has been steadfast that they benefit generally through municipal revenue sharing grants.
The SLGA defers to licensed producers (LPs) and Health Canada for statistics, and since there is no liquor board equivalent for cannabis sales in the province, they were unable to give a detailed breakdown of cannabis sales by city centre.
So what does the industry bring in?
“The short answer is, not as much as people thought,” said Jason Childs, an economics professor at the University of Regina who has followed legalization since its inception.
“It’s not a lot of money. It’s not huge. We’re still seeing, based on data and numbers, which I think are low, $76 million in illicit cannabis,” said Childs, citing Statistics Canada reports on Canada-wide sales.
Tackling the black market, which was Ottawa’s espoused intention in allowing legalization, comes down to two key things — you have to be cheaper and easier to access if you’re a legal seller and grower.
That brings another consideration for the local market, a store on every corner, with prices comparable to the black market will, in theory, root out illegal sellers. But who comes out on top, if that’s the case, could result in fewer small and micro-producers.
“For 2020 legal cannabis was smaller than illicit cannabis. So there’s about $3 billion in legal cannabis at about $3.2 (billion) in illicit,” said Childs. Saskatchewan was the exception to the rule, with legal sales outpacing illicit sales, according to Statistics Canada.
Trying to gain market share is tricky, as some local retailers, like The Bakery, look for ways to subtly set themselves apart. Marketing for a cannabis store is also a challenge since there are tight regulations on what a shop can do in terms of advertisements.
Packaging is uniform and many stores have a similar feel: Glass cases, maybe bongs and pipes on display; edibles, pre-rolls, flowers or nuggets all in the same packaging. There is very little variation in how the packages appear, all requiring province-specific excise stickers and neutral packaging.
The stores feel more like Apple retailers, with sleek displays and glass cases than an off-sale or liquor board store.
Ralph Kratz, co-owner of Western Cannabis (a commercial grower in Regina’s industrial district), said part of what is changing and affecting the market right here and now is the presence of large licenced producers that can afford to sell at deep discounts compared to smaller or micro-operations.
“A lot of the market is getting flooded,” said Kratz, but that does seem to have taken some wind out of the black market.
“Stores are getting $50 ounces, and then they’re able to sell it, you know, for $75 or under $100. Which, on the black market I know a couple of years ago, it was at $200 an ounce. That was the lowest you can pretty much find it.”
An issue posed for smaller producers, as Kratz sees it, is that they need repeat, loyal customers that seek their strains out. Smaller growers can get their product to market faster, two weeks versus a month or more, but in terms of price, it’s tough to compete with national LPs with massive grow spaces.
“They can really just grow as much as they want of just one strain, then really lower that price, sell it all out, and then everyone else has to either come down to you, or customers have to trust your brand enough to and stay with your price point,” said Kratz.
But how the city handles additional retail outlets, and how the micro and small local growers weather turbulence in the national, publicly-traded companies remains to be seen as the new market finds its footing.
Last in a two-part series.
The news seems to be flying at us faster all the time. From COVID-19 updates to politics and crime and everything in between, it can be hard to keep up. With that in mind, the Regina Leader-Post has created an Afternoon Headlines newsletter that can be delivered daily to your inbox to help make sure you are up to date with the most vital news of the day. Click here to subscribe.
Regina Leader Post Headline News
Sign up to receive daily headline news from Regina Leader-Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300