High fees, long delivery times work against cannabis retailers, store owners say

Some cannabis store owners say the current retail structure works against businesses and they want changes to help them survive in what's become an ultra-competitive market in Manitoba.

The province has introduced legislation that would eliminate the social responsibility fee, which takes six per cent of a store's gross sales to use for public education, safety, health and addictions associated with cannabis legalization. The bill, which has not passed yet, would repeal the social responsibility fee starting Jan. 1, but retailers say that's not enough fees and taxes need to be reviewed so the market can find some stability.

Cannabis businesses call for changes to help them survive in competitive market

1 year ago

Duration 1:48

Some cannabis store owners say the current retail structure works against businesses and they want changes to help them survive in what's become an ultra-competitive market in Manitoba.

"For a new business to get off the ground, often you're not seeing profitability in the first two years ... and then it might be a little modest going beyond that," said Mistik Cannabis Co. co-owner Melanie Bekevich.

The heavy fees imposed on cannabis retailers are having a huge impact on the store Bekevich and her husband, Othmar Joos, opened in Winnipeg last year, she said.

"It [makes] it very difficult to compete against the illicit market, who are not subject to any of those licensing fees or taxes," she said.

Bekevich said along with the social responsibility fee, cannabis retailers are charged a licensing fee, excise tax and a wholesale markup fromManitoba Liquor & Lotteries. This is in addition to taxes imposed on cannabis producers, which affect prices before retail stores even order product.

"If stamping out the illicit market is a priority for the government, they absolutely need to review those fees and taxes," Bekevich said.

Finance Minister Cliff Cullen said the province is in negotiations regarding the excise fee and how it's being split with Ottawa.

He said he's optimistic the repeal of the social responsibility fee will allow stores to lower their prices and help drive cannabis sales away from illegal sources.

"We think [eliminating the fee] will be another tool for [retailers] to increase their market share," he said.

Tom Doran, who owns Jupiter Cannabis with his wife, America Fernandez, said he's concerned for independent businesses that are shouldering additional constraints that don't apply to bigger businesses.

"There's just some things that I think need to change in terms of creating a level playing field," he said.

Doran said larger brands can negotiate discounts directly with suppliers because they're purchasing big quantities for multiple stores.

"We don't qualify because we don't purchase enough inventory," he said. "We're just one independent location."

Orders are managed through Manitoba Liquor & Lotteries, but the Crown corporation doesn't set prices those are decided by suppliers and retailers.

A spokesperson for Manitoba Liquor & Lotteries said there is no ability within its ordering system for retailers to benefit from volume-based discounts or other supplier benefits, but Doran said it's happening in negotiations separate from the Crown corporation's system, and it needs to be addressed.

He said these "predatorial business practices" are making it difficult for small businesses to compete in an already ultra-competitive and oversaturated market. He wants to see changes to the cannabis agreement between Manitoba Liquor & Lotteries and private cannabis retailers to address supplier discounts.

"I would ask that there is a clause developed and added so that no longer is allowed."

Retailers said they're also having logistical issues with getting orders from out-of-province suppliers.

John Arbuthnot, CEO of Delta 9, said orders can take three to five weeks to get to the store, but retailers have to pay for their orders right away, which often leaves them with neither the money nor the desired inventory for long periods of time.

"We need to ensure that retailers are accessing the full suite of cannabis products from the industry's leading suppliers, and that lead times for those retailers to access those products are as short as possible," he said.

The solution is simple, Arbuthnot said Manitoba can start allowing distributors to warehouse inventory so they have it in stock when they need it. He's petitioning the government for new licences to allow them to do so.

"We are ready to take the steps to full distribution at our facilities," Arbuthnot said.

Manitoba Liquor & Lotteries, which is in charge of distribution licences, said it aims to make changes so retailers can access products faster but did not say when or what changes can be expected.