Cannabis retailers battle regulations, black market

Fewer legal marijuana products being sold in British Columbia than anywhere else in Canada

Despite Byzantine regulations, a robust black market, financing hurdles and wary landlords, retail sales of cannabis products in B.C. have a bright future, according to the Vancouver-based president of the Association of Canadian Cannabis Retailers.

“There is room for change and growth, but the future of the industry is full of potential, and I am feeling very positive about the evolution of the sector,” Jeremy Jacob told Business in Vancouver.

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But Jacob conceded that B.C. cannabis retailers face higher obstacles than in any other part of the country, and it is showing up at the cash register.

B.C. has the lowest sales of legal cannabis of any province, according to Statistics Canada, and the second-lowest cannabis store density in the country.

In July, B.C. posted its highest monthly sales since legalization at $5.5 million, but this compared with $29.6 million worth of legal cannabis sales in Ontario in the month and is far below even much smaller provinces such as Prince Edward Island and Nova Scotia. Alberta cannabis sales in July represented $4.89 per capita, compared with $1.09 per capita in B.C., the lowest in Canada. During the first nine months of legalization, Alberta reported $145 million in legal cannabis sales, compared with $25 million in B.C.

Matthew Greenwood, a Vancouver real estate agent and would-be cannabis retailer, said B.C.’s strict security regulations, a sluggish approval process and problems obtaining financing make selling marijuana legally a challenging enterprise.

There is also resistance from some retail landlords who are concerned about insurance issues, the reaction from neighbouring tenants and lenders and doubts that cannabis dealers can survive long-term leases.

“I have not come across a landlord that seeks out cannabis stores,” said James Smerdon, vice-president and director of Colliers International in Vancouver, who consults on retail real estate. “[Larger] landlords with parent companies, banking ties, stocks listed, or any other ties to the U.S. or other jurisdictions where cross-border cannabis laws have not been tested are hesitant to formalize their relationship with a cannabis retailer through a lease.”

Greenwood and his partners are trying to open a street-front cannabis store on West Broadway in Vancouver but have been waiting more than a month for approval, and he fears that may stretch to six months or longer.

Meanwhile the group is paying monthly rent of $5,000 to secure the premises and has forked out thousands of additional dollars for the specialized locks and other security provisions demanded of legal pot stores.

“You need to have deep pockets,” Greenwood said. ”It makes it very difficult for a small business.”

As Jacob explained, B.C. retailers must find a location, persuade the landlord to take a risk on them, secure financing from tentative lenders and address all the regulatory provisions, all before they secure permits.

There is also a $7,500 provincial application fee. After an approval process that can take 12 months, applicants then pay $1,500 for a provincial licence and, in Vancouver, $33,000 for a municipal licence.

“It puts landlords at a disadvantage because they are being asked to grant a long-term lease to an applicant yet to be vetted by the province,” Jacob said.

This month, a year after recreational cannabis was legalized in Canada, only 14 stores in Vancouver have provincial licences. Calgary, as a comparison, has 203 stores approved.

Once open, B.C. retailers also face regulations unique in Canada. For example, any cannabis taken from sealed containers for customers to smell must be destroyed.

As well, retailers are limited to ordering product once a week, regardless of consumer demand for certain strains.

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