BC Government Stores Versus Private retailers: Does the House Always Win?
Cannabis retailers in BC are lamenting their plight as they stand the risk of being kicked out of business any time from now. With government-operated stores selling cannabis “dirt cheap,” it has become almost impossible for the private retailers to make any substantial profits, as reported by CBC news.
British Columbia, the westernmost province in Canada, has adopted a hybrid model that allows both public and private retailers to run non-medical cannabis dispensaries. The Liquor Distribution Branch (LDB) oversees the wholesale distribution of cannabis in the province and the government-operated cannabis retail stores. Only government operated stores may sell cannabis online.
The non-medical cannabis market in BC started out at a slow pace but has since grown and now supplies about 40% of the cannabis that is consumed in Canada. The retail expenditure on cannabis (THC) in the B.C market was $280 million in 2020. But with over 100 retail dispensaries, competition is stiff..
The government enjoys monopoly as the single wholesaler and also a retailer, thus creating unfair advantage and an uneven playing field. Some business owners speculate that BC government stores are getting tax subsidies that are allowing them to settle for razor-thin margins. Cannabis being an over-taxed industry, it is very difficult to compete against the government. It is ridiculous to have the government being the sole wholesaler and, at the same time, also a retailer of cannabis. This appears to be a major conflict of interest which translates to a “the house always winning” situation.
The same government for many years fought to stop legal cannabis sales. Legacy operators fought back to have cannabis become legal and mainstream. Unfortunately, the industry is being snatched away from their hands by the same government. It’s difficult to remain competitive when the government is undercutting private retailers on price.
Some business owners have worried that this is a strategy to price out private license holders and once this is done, prices can be pushed up again. While private owners aim for a margin of 25%, government-owned stores aim for a mere 7%. The government has, however, defended this approach by stating that they need to balance profitability with competition from the illicit market. Consumers, on the other hand, are happy about the “cheaper prices” that are being offered at government stores.
Mom and pop shops are struggling to compete with the prices offered at BC government stores. Some business owners had resorted to pot shops as a retirement plan while others pounced on the get-rich- quick opportunity. With the current state of affairs, this seems to be pipe dream and the mom and pop shops may be forced to devise better strategies for making money from the B.C cannabis market.