High demand for legal cannabis good for government — but low supply still punishing retailers

It's been less than five months since cannabis was legalized in Canada and Finance Minister Tom Osborne says demand has so far exceeded expectations.

That zeal is set to generate almost $6 million in taxes for the provincial coffers — but it's also strained suppliers who say it's hard to make a living with little to sell.

Osbourne announced Wednesday that Newfoundland and Labrador has the third-highest per capita supply in the country, despite complaints from vendors and consumers alike since the first legal stores opened in the fall.

"I think it's fair to say demand is probably greater than we anticipated, which is probably a good thing for the NLC in terms of regulator of the product, and a good thing for the industry," said Osborne, referring to the Newfoundland and Labrador Liquor Corp., which is managing cannabis sales.

Maybe unexpected demand is exciting news for government, but without enough supply to go around — and given the NLC's regulations on how much profit sales can generate — retailers are still struggling to earn an income, argues private distributor Thomas H. Clarke.

Despite bringing in more than $600,000 in sales, Clarke said he's "barely making enough" to pay his employees and keep his Portugal Cove-St. Philip's shop afloat, echoing complaints from other sellers.

He blamed the NLC's commission structure for placing a hefty sales burden on vendors.

"We're making under eight percent commission on the cannabis, and that's not enough for an independent operator to stay in business," he said — especially when there's no product to sell.

In January, Clarke said, "I had twelve days of business where I didn't have any cannabis," he said.

"That really affected the bottom line."

$12M in sales

There have been a few "bumps in the road," Osborne acknowledged, citing supply issues for legal product in stores, an issue that will have to work itself out in time.

Until then, he said it's hard to tell what the provincial demand is.

"But once that supply is there consistently [so] that stores are not running out of product, we'll be able to better gauge what the full demand is," he said, adding that to N.L. consumers to date have spent about $12 million on legal cannabis products.

"I guess once we do get supply completely stabilized, we'll see if cannabis ranks up there with beer."

Already, one private retailer has closed its doors, saying it was hard to run a legal cannabis business without any legal cannabis to sell.

While Osborne said the Newfoundland and Labrador Liquor Corporation, the Crown regulator for legal cannabis, continues to put pressure on suppliers to get product here, he's not unaware of the problem.

"It's a brand-new industry, as I said right from the start. And I think, to be fair, I think as we continue to, this industry continues to grow, we'll probably see more bumps in the road, I fully anticipate that," he said.

"I will say, based on what we've seen, I have given direction to the NLC to look at possible mitigation for the … independent Tier 1 retailers who have put a considerable investment into their stores."

Among questions he's asked the NLC to look at is whether the ratio of legal product being supplied to independent retailers is too low, given supply issues, and whether there are possible interim solutions to ensure "the industry remains viable."

"That's the question that I've asked them. I want that answered … maybe it's an interim measure until supply is steady, maybe it's a consistent measure that they put in place. I can't give you that answer today, but in the spirit of being completely open, the question that was asked about supply, it is a concern for me," Osborne said.

"If there's one Tier 1 independent retailer that was affected, I wouldn't be doing my job responsibly if I didn't say to the NLC, let's have a look and ensure that we give the best advantage possible to the other independents."

Clarke said he and other private retailers are meeting with the NLC later this week to discuss their concerns.

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