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Canada

Will B.C.'s legal weed prices be low enough to draw consumers from underground?

How much of a dent British Columbia’s legal sales of recreational cannabis will make in the black market for weed after Oct. 17 remains an open question while the province keeps retail pricing under wraps.

Based on the information B.C.’s Liquor Distribution Branch has made available on wholesale pricing, however, operators in the legal market may find it tough to take market share from illicit dealers.

“(A lot) depends on how fast and how accessible a system is created for the legal market,” said Dana Larsen, who operates two illegal dispensaries that he plans to keep open in defiance of the new, legal system.

Statistics Canada now tracks consumer cannabis prices through a voluntary reporting mechanism. Based on its report, in 2017, British Columbians paid $7.63 per gram on average for medicinal cannabis and $6.94 for non-medical weed.

“It’s very rare to see something more than $10 (per gram),” Larsen said, in a market where prices can start at $5 per gram. “If it is, it’s something very special and different.”

The BCLDB, however, will make cannabis available to B.C.’s retail network at prices ranging from $5-$6 per gram for “good” quality to $10-$11 for “premium” quality, according to the schedule published on its website.

“It sounds to me like it’s going to be very expensive cannabis,” Larsen said.

At $5 per gram, which will include excise tax and a 15-per-cent wholesale markup, Larsen said legal retailers will have room to set more competitive prices, but that will depend on how much the requirements of licensing add to their overhead.

The province’s licensing guide spells out requirements ranging from high security to specialized training, background checks and registration of employees that add to a retailer’s overhead.

“I expect those shops are going to have a higher markup (than illegal) dispensaries because of all the other requirements,” said Larsen.

However, Dan Sutton, CEO of licensed cannabis producer Tantalus Labs, is more concerned about availability of supply than pricing.

“I do understand that we will see product priced very competitively with the black market that will touch a budget, or bargain-bin offering,” Sutton said.

Tantalus Labs received its sales licence from Health Canada in August and Sutton said the company was in discussions to add its name to the BCLDB’s roster of official suppliers to B.C.’s recreational market.

Sutton said Tantalus sells its higher-quality medicinal marijuana for $9 to $12.50 per gram, but its recreational pricing will likely be higher to account for things like the wholesale markup.

“The primary concern for me is the availability of supply for sale to the recreational channel,” Sutton said.

No private retail stores and only one BCLDB-branch operated outlet, located in Kamloops, will be open Oct. 17.

Online sales will open Oct. 17, and while the BCLDB is promising delivery within 48 hours, “the reality is there’s not a lot of cannabis available,” Sutton said.

The province said the liquor and cannabis licensing branch had received 173 applications for private retail outlets, though only 62 were complete enough to forward on for municipal approval, another of the requirements for licensing.

In the meantime, Sutton estimated that the illegal market holds up to 95 to 98 per cent of the existing market for cannabis, so it is ambitious to expect the legal market to cut substantially into that in six months or even five years.

Solicitor General Mike Farnworth, on Monday, warned existing dispensaries that don’t close and plan to enter the legal system risk being shut down under enforcement of the new laws, but Larsen said he has no plans to do so.

If the province does close down illegal dispensaries, Larsen said hardcore cannabis users would likely turn back to the underground market that has always been there.

depenner@postmedia.com

twitter.com/derrickpenner

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