Recreational cannabis not expected to be a money-maker for NSLC

Cannabis is expected to generate $87 million for the Nova Scotia Liquor Corp. when it becomes legal to sell later this year, but officials with the Crown corporation and provincial government don't expect there to be any profit.

"The margins that we're anticipating in the cannabis category are much slimmer than they are in beverage alcohol," NSLC senior vice-president and chief services officer Dave DiPersio said in an interview.

Information in the NSLC business plan released Tuesday shows that while net sales will go up when cannabis goes on sale, net income will be dragged down because of the associated costs.

The budget for 2018-19 has income from operations at $233.6 million, down from the 2017-18 forecast of about $239 million.

A need to compete with black market

While cannabis will affect the bottom line, DiPersio said the growing sales of local alcohol also has an effect because it doesn't generate the same margins as larger brands.

Part of the cannabis-related uncertainty is because the supplier community is new and not at full production capacity, so they don't yet have efficiencies, said DiPersio. While that's expected to improve, DiPersio said the other issue is the need to price cannabis competitively with the black market.

Assuming sales become legal in July, the NSLC is budgeting to sell 12 million grams in 2018-19, a figure based on consultation with producers elsewhere and jurisdictions such as Colorado, where it's already legal.

DiPersio said it's too soon to know if it will become a legitimate revenue stream for the NSLC.

"It really depends on where the costing lands from our vendor community," he said. "It's probably going to take a few years until that's fully understood."

Aside from purchasing the product and renovating stores to sell it, DiPersio said other major costs will be related to hiring more people and to the supply chain. The NSLC doesn't have space in its existing distribution site and is looking for somewhere to warehouse cannabis. DiPersio said it's still discussing what to do about a location.

Meanwhile, the provincial government has also said it doesn't expect to make money, despite budgeting for almost $20 million in revenue related to HST and duties.

While the government has only acknowledged the addition of 2.4 full-time equivalent jobs in the 2018-19 budget related to legalized cannabis, Premier Stephen McNeil told reporters at Province House other costs will include advertising, more police and related equipment.

But because the province is negotiating with Ottawa for help covering those costs, McNeil would not say how much is actually in the new provincial budget related to those issues, nor is it detailed anywhere in the document.

"We have a very different opinion on the implementation [costs] of this product," he said.

The province will be able to afford the added police, public awareness advertizing and other services related to legalization, but McNeil said he would keep the number secret until negotiations with the federal government are complete.

"You don't walk in and say, 'Here's what I'm prepared to give you,' and then start a negotiation."