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opinion

Michael J. Armstrong is an associate professor in the Goodman School of Business at Brock University.

Statistics Canada last month released new estimates of provincial cannabis retail sales and prices. The figures show legal cannabis is making progress, but still has far to go to surpass black markets. So, it’s worth examining what some provinces are getting right and what others could learn from.

Stores represent one obvious success factor. Canada’s cannabis consumers have shown they prefer buying in-store rather than online. So, more licensed stores generally mean more legal sales.

November’s retail sales data include an example of that. The respectable 5-per-cent growth in total sales was mostly owing to British Columbia. Its sales jumped 47 per cent, presumably thanks to the 36-per-cent increase in store licences there the month before.

However, Alberta remains the store-count leader. It now has more than 400 licensed shops, greater than all other provinces combined. Not surprisingly, its sales total and sales per capita are both among the highest.

Alberta also wisely gives retailers freedom regarding their size. It forbids any company from controlling more than 15 per cent of all licences. But it doesn’t otherwise favour either independent shops or large chains. Nor does it cap total store numbers.

This hands-off approach avoids problems that occur when governments play favourites. Saskatchewan and Ontario both tried to prioritize independent shops over large chains. But many such “independents” quickly partnered with, or sold-out to, larger chains.

Competitive pricing is another key retail ingredient. Sadly, legal cannabis mostly lacks this. Statscan’s ballpark estimate puts Canada’s average legal dry cannabis price at $10.30 a gram. That’s 80 per cent above the black-market average.

Only Quebec offers (almost) competitively priced legal products. Its $7.88-a-gram average is far below what other provinces charge.

That’s because Quebec’s cannabis agency charges consumers just 29 per cent more on average than it pays producers. Its value-priced products start at just $4.49 a gram including taxes.

Other provinces’ agencies set much higher markups: 54 per cent in New Brunswick, 77 per cent in Ontario, and 90 per cent in Newfoundland. They earn more revenue, but make legal products less attractive.

Fortunately, that’s beginning to change. You can now find legal online prices starting at $5 a gram in Ontario and $5.33 in New Brunswick.

Quebec’s agency can offer low prices partly because it has relatively few stores serving its large population. That lets each outlet generate high revenues to cover its costs. Unfortunately, it also limits consumer access, making its per capita sales merely average.

Nova Scotia and Newfoundland control costs differently. Instead of running stand-alone shops, Nova Scotia mostly sells cannabis within its government liquor outlets. Newfoundland similarly lets some businesses sell cannabis alongside other goods.

This store-within-a-store strategy particularly suits small communities. New Brunswick should give it a try, instead of creating a privately owned monopoly.

Provinces can further help legal cannabis sales by shutting down unlicensed dispensaries. But that’s best done with a carrot-and-stick approach. First, offer consumers enough legal sources, then close illegal ones.

For example, some B.C. communities initially let unlicensed dispensaries get by with warnings. Police raids started only after licensed stores opened.

It also helps if provincial cannabis agencies communicate well. Prompt status updates and openness about operating procedures can build taxpayer trust and consumer loyalty.

Quebec’s cannabis agency, for instance, posted its 2018-19 annual report seven months ago, far ahead of other provinces. And New Brunswick’s report offers unusually detailed information. By contrast, Ontario’s agency hasn’t even posted one.

All things considered, most provinces have some strengths. But each also has weak areas to improve. And that’s really my main point.

When Canada legalized recreational cannabis, no government knew the best retailing approach. Each jurisdiction created its own version.

But it’s time to consider what’s working and what needs work. By learning from each others’ successes, provincial governments can show the world how to make legalization work.