One of the core motivations driving the federal legalization of recreational cannabis is the potential purge of the illicit cannabis market. The newest revelation out of the B.C. Liquor Distribution Branch (LDB), however, may in fact push adult-users further underground in search of quality bud, according to industry executives.
A recent article on Marijuana Business Daily quotes an anonymous high-level insider familiar with the current talks surrounding the proposed wholesale pricing of cannabis set to be legal by the summer, saying the low price-point will restrict the quality of products available in the legal market.
“The B.C. LDB cannabis store risks being branded by its patrons as a place to get boring weed, and if you want to get good weed you have to go to the black market,” says the source.
“If the black market is seen as better quality and price, we’re going to continue to perpetuate what’s going on.”
The provincial government appointed the LDB to be the sole wholesale distributor of non-medical cannabis meaning they are responsible for procuring dried flower and seeds to distribute through private and public retail stores, and online.
Marijuana Business Daily reports B.C. is rumored to be offering licensed producers (LPs) between $2.50 and $4 per gram to wholesalers, while other provinces are offering around $5 to $6.
The competition from the existing illegal market means the government has to keep the price point as low as possible, but it also means LPs are faced with reviewing their sales options elsewhere. High-quality cannabis is likely to go to the highest paying wholesaler.
The article cites another anonymous source confirming the low price-point will deter LPs from engaging with the LDB, instead selling their product to the wholesalers offering the most money.
Based on the provincial distribution model, retailers will not be permitted to purchase any cannabis products directly from licensed producers, meaning whatever the LDB is able to obtain is what consumers are (legally) stuck with.
“So why would (a licensed producer) want to engage in a price war with the LDB when you can be making more elsewhere?” the source says.
“B.C. has to understand that, at the end of the day, there is a limited number of LPs that will have sales licenses by September, so they’re not fully understanding that there’s a limited supply. And that supply can ship to other provinces or countries.”
UPDATE: Comment from the B.C. LDB was received on May 9, 2018.
“What we’re hearing is a lot of rumours about how we’re going to undercut folks. Our key aim at the LDB is to be competitive with the illicit market and we are facing unique challenges given that the existing cannabis marketplace in B.C. is much more discerning and mature. By that I mean there are a lot of other provinces that don’t have dispensaries operating," says Viviana Zanocco, Communications Manager at the LDB.
"We also have a Statistics Canada survey of average pricing and we have production costs of publically traded producers that we know, that we rely on, as we work through our supply agreements and our pricing models. We take all of those considerations into our deliberations."
When asked if the LDB is at all worried about some of the public comments suggesting wholesalers could sell their product elsewhere because other provinces may offer more money, Zanocco said: “No. We are speaking to a lot of licensed producers and nobody’s walking away.”
Zanocco adds the LDB is not in a position to comment on price points yet, but they are “not going to sacrifice quality for cost.”