Cannabis NB blames lack of profit on illegal, black-market competitors

The head of Cannabis NB is refusing to set a target for when the Crown corporation will turn a profit, blaming what he calls the ongoing "saturation" of the market by illegal dispensaries.

Chief executive officer Patrick Parent said Tuesday at the legislature that the sheer volume of black-market cannabis sales is making it hard for the government-owned legal retailer to dominate the market and make money. 

"I do not see ourselves being profitable this year," he told reporters during a break in his appearance at the all-party standing committee on Crown corporations.

"There's no doubt there's challenges from the pressures, the revenue pressures, coming from the illicit markets. They're growing on a regular basis." 

One premise of the federal government's legalization of marijuana in 2018 was to cut into illegal sales, driving some dealers out of business and making it harder to obtain for children.

But Parent said so far there's no indication that legal sales are shrinking the number of illegal vendors.

"At this point I'm not seeing a lot of evidence of it," he said, adding that every province is different. "I haven't seen a whole lot of impact to reduce the proliferation and expansion of the illegal markets.

"That's why we focus on what we can control." 

Parent said Cannabis NB is aware of at least 50 illegal cannabis sales operations, more than double the 20 legal Cannabis NB stores. Many of the illegal sellers are full retail stores operating openly or advertising online.

Given the province's small population, that means the market is saturated and it's more difficult for the Crown corporation to hit its sales targets, Parent said.

He said he hopes the introduction of edible products later this year will turn things around, but he wouldn't promise profits in the upcoming 2020-21 fiscal year. 

"There's no doubt it will still be a challenge, given the number of illegal dispensaries around," he said. 

"Ultimately, our hope is we keep improving our position so that in [the next fiscal year], we get to a break-even place."  

Cannabis NB was supposed to turn a profit in its first year of operation.

But it lost $12.5 million in 2018-19, a fiscal year in which it operated for less than six months, from its Oct. 17 launch to March 31.

We need to understand the extent of illegal selling.-  Stewart Fairgrieve, Progressive Conservative MLA

So far this year, it has reported losses of $2.2 million in the first quarter and $1.5 million in the second quarter. 

Parent inherited the bad financial news when he took over as CEO in September. He had been vice-president of operations and human resources at Moosehead Breweries until taking over NB Liquor and Cannabis NB from Brian Harriman.

Cannabis NB laid off about 60 employees in January in an effort to reduce losses, but Parent told the committee that "we're not going to get there through cuts only."

He said new contracts with suppliers have led to lower prices that are "very competitive with the black market … and in some cases, more affordable than the black market."

But a perception remains from early months of sales that legal cannabis is overpriced, he added. 

He would not comment on what should be done about the illegal dispensaries, saying that is a question for the provincial government. 

"We don't have the authority to manage the illegal market. That's the authority of other departments. Our focus is to offer better products at better prices to combat the illegal market."

Some dispensaries operate on First Nations reserves but Parent would not discuss their legal status.

"We don't control the laws and we don't want to legitimatize or illegitimatize different practices. We follow the law, so that would be a great question, perhaps, for government." 

Parent also wouldn't comment on an ongoing review of legal, retail cannabis by the Progressive Conservative government of Premier Blaine Higgs and wouldn't say if he would have designed the existing system differently. 

Committee member and Liberal MLA Andy Harvey said the government should give Cannabis NB more time to turn things around before opting to change the model for legal cannabis.

"You've got to let things unfold," he said. "They're showing progress." 

Progressive Conservative MLA Stewart Fairgrieve agreed it would be "unfair" to expect the operation to become profitable overnight. 

"We need to understand the extent of illegal selling. We really don't have a measurement of the black market and a better understanding of the grey market." 

Several MLAs on the committee asked Parent asked about the long-term leases signed for the 20 retail stories around the province. The 15-year leases are "longer than what my experience has been" in the private sector, said Parent. 

He said Cannabis NB had limited flexibility in signing leases because of the rush to open in time for the federal legalization date and because of strict rules, including not allowing stores near schools.

That reduced the supply of available properties, which drove up the price, he said.