My perspective - Dreams of cash up in smoke
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- Published on Friday, November 8, 2019
By Kate Jackman-Atkinson
Neepawa Banner & Press
It seems like it should be the punchline of a joke about governments, but it’s the reality in Manitoba— in the 2018-2019 fiscal year, the Province lost money selling drugs. When Manitoba Liquor and Lotteries (MLL) released their annual report for the year ending March 31, 2019, it showed a $2.4 million loss on cannabis sales.
With the timeline, Oct. 17, 2018, and the accessibility, retail locations within a 30 minute drive for 90 per cent of the population, set by the federal government, the Province was in a tough place. While the federal government mandated when and where legal cannabis needed to be available for purchase across Canada, it left how that was to be implemented up to the country’s individual provinces. In Manitoba, the retail locations are operated by the private sector, but all the product sold must be purchased wholesale through MLL. During the first year of legal sales, there were 21 retail locations in the province, 13 of which were in Winnipeg.
The provincial government collects income from cannabis sales in the form of wholesale markups and a social responsibility fee, which is a 6 per cent tax on retailers’ annual revenues. In 2018-2019, this grossed $5.3 million for the province. On the flip side, the costs associated with the sale of recreational cannabis were $7.8 million, $4.1 million of which were one-time costs. That $4.1 million included expenses such as policy development, health and safety considerations, training, enforcement and a public awareness campaign. The Winnipeg Free Press quoted a Manitoba Finance official as saying they didn’t know if cannabis would be profitable in the 2019-20 fiscal year.
Not unexpectedly, the first year of legal sales saw some challenges. There were supply shortages across the country and MLL reported that they received about 30 per cent of their expected product volumes. These supply problems are likely to have impacted prices. Statistics Canada reported that based on 11 months of prices reported by Canadians, while legal cannabis was about $10.71/gram, black market product was only $5.85/gram.
For all the publicity about the legalization of cannabis, its sale is a very small portion of MLL’s operation. Last year, cannabis accounted for about 1 per cent of the Crown Corporation’s operating income. For comparison’s sake, in 2019, the operating income for cannabis sales was $3.4 million, compared to $286 million in liquor sales.
It will be interesting to see how the sector develops in Manitoba, beyond the money the government does, or doesn’t make from it. The province is home to one publicly traded production and retail company, Delta 9. According to a press release, they reported a gross profit of $2.9 million in the second quarter of 2019. That’s almost $3 million more than in 2018, but the company still recorded a loss on operations. John Arbuthnot, Delta 9’s CEO, has talked about Manitoba’s cost advantages, including inexpensive power, rent and a relatively low cost of living.
Legal, recreational cannabis was expected to fill government coffers and that hasn’t been the case, at least not yet. Though it could well happen and on Oct. 17, the next wave of products became legal. This second phase includes products such as edibles, beverages and topical products, though none are expect to be available for sale until mid December, once Health Canada has reviewed and approved them before they hit the market.
As the market develops, more stores will open and product offerings will be expanded to include a wider audience of consumers, interested in different ways of consuming cannabis. However, these expanded offerings will likely come with added costs related to oversight, education and enforcement. The success of this experiment has yet to be determined.
