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Part of cannabis and small business and retail

Canada’s groundbreaking cannabis experiment is going off the rails. I know exactly who can fix the problem – a 90-year-old Vancouver billionaire.

Despite the long run-up to legalization of recreational marijuana last October, demand for legal cannabis is outstripping supply and the retail system is a mess. How bad is it? If you want to buy legal pot in Quebec, don’t go shopping on Monday, Tuesday or Wednesday. Stores are only open four days a week, owing to lack of product. In Vancouver, where most downtown street corners sport an unmistakable aroma, they only got around to opening the first licensed cannabis outlet in December. The Ontario government held a lottery last Friday to award licenses for its first 25 stores, which aren’t expected to open until April. Experts say the nascent industry’s nation-wide logistical issues will take months, if not years, to fix.

Who wins out of this chaos? Criminals. Removing the social stigma from cannabis without ensuring robust cultivation and retail networks are in place opens the door to black-market suppliers, the folks the federal Liberals were trying to put out of business when they started down the path to legalization. Consumers already have a compelling reason to patronize the black market. The current price of a gram of legal dried cannabis – that’s two to three joints worth, depending on how you roll – is $9.75, according a report last week from Statistics Canada. The same amount of weed from illegal sources costs $6.51.

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Who can set things right, by getting cannabis into the hands of those who want it at prices the black market will be hard pressed to match? How about Jim Pattison, along with the Weston and Sobey clans and the folks running Metro Inc. Provincial governments should be looking to the national grocery and drug store chains to deliver on the federal Liberals' promise of a modern approach to marijuana sales.

Mr. Pattison, who runs the 45,000-employee Jim Pattison Group, has been showing shoppers the love for six decades. Think about what greets you when you walk into one of the former car salesman’s Save-On-Foods grocery stores in Western Canada, or a large-format Loblaws, Sobeys and Metro outlet.

There’s likely a pharmacist in one aisle who already sells far more potent drugs than marijuana. (Keep in mind that Loblaws owns Shoppers Drug Mart and Metro is parent to the Jean Coutu chain.) In most provinces, the stores offer a selection of beer and wine; their cashiers are trained to check ID. And there’s a produce department that stocks fresh raspberries and hot-house tomatoes through the depths of a Canadian winter. Adding dried cannabis, oils – and when they’re legal – THC-infused beverages and edibles to the shelves is no challenge to chains that already run the country’s most sophisticated logistics networks.

Inviting Mr. Pattison and his rivals to the legal pot party would tilt the economics of the industry in favour of consumers, and against organized crime.It doesn’t cost much to grow cannabis: Producer Aphria Inc. said on Friday that its “all-in cost” of production per gram is $2.60. The remainder of the price consumers pay reflects costs such as tax and retail markup. If stores take a smaller cut, the price of cannabis falls.

The highly competitive grocery business runs on razor-thin margins and huge sales volumes – stores target a few cents of profit for every dollar of sales. In contrast, existing cannabis chains are relatively small and can only make money by marking up prices. Alberta’s emerging market leader in marijuana is liquor store chain Alcanna Inc., which opened five Nova Cannabis stores last year alongside its existing 227 booze outlets. Alcanna’s profit margin, historically, is 25 cents on every $1 of revenue.

Welcoming deep-pocketed grocery chains to the cannabis industry would also make it far easier for producers to raise the money needed to increase supply, by building greenhouses or converting industrial space. A long-term supply contract with Mr. Patttison or his rivals would open the door to debt financing from banks that are currently leery of cannabis clients. Better access to capital should in turn translate into lower cannabis prices for consumers.

The moral debate around recreational cannabis ended with legalization last October; government policies should now be aimed at efficiently providing a product to adult consumers, while eliminating illegal suppliers. That’s best achieved by selling pot through a proven, well-regulated national network of grocers and drug stores.

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Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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