EDMONTON—Profit margins will be tight for cannabis retailers next month, an Edmonton business professor says, after the Alberta Gaming, Liquor and Cannabis Commission released its list of wholesale prices.
All legal retailers will have to buy through AGLC, and the commission recently sent them a list pegging their average price per gram at $8.90 including federal excise duty, provincial duty and GST.
“I think it’s a little higher than we expected, but it’s in the ballpark,” Kyle Murray, vice dean at the University of Alberta’s business school, said Wednesday.
“If they are going to try and sell it (to consumers) for $10 or $9.50 (a gram) it’s going to be a pretty tight margin. I think for a lot of stores this means it’s probably going to be more in the $10 to $12 range.”
According to the Statistics Canada Cannabis Economic Report from January, Albertans currently pay an average of $7.67 a gram, compared to a national average of $7.48.
That could present a problem pulling pot smokers away from the illegal market who already have a reliable dealer or an online source.
“It makes it a lot harder to get rid of the black market if the legal market is 30 to 50 per cent more expensive, at least in the short-term,” Murray said.
“If you’re trying to sell a product that’s 50 per cent more expensive, you’re going to have to add a lot of other value to make that compelling.”
Part of that added value could come from the comfort of buying the product in a safe environment, without having to worry about the quality of the drug or getting busted by police.
Murray said some stores might try to sell cannabis at cost and try to make up the money by selling accessories — the AGLC has not set a minimum price for weed — while others might consider charging dispensing fees like pharmacies do.
He said prices could drop in the future, once all parties involved have figured out more efficient ways to operate, and especially if governments find the black market is continuing to thrive.
“It’s expensive to set up a brand-new, possibly multibillion-dollar market that’s provincewide. There’s a lot of costs that go into creating the distribution system, the buying systems, the online market that the government’s going to run, all those things. So I think they’re being a little bit cautious, making sure that they’re not losing a whole bunch of money every time they sell an ounce,” Murray said.
“They have actual costs, they have benefits to pay, they have facilities and taxes and other things that the illegal producers don’t have. So the wholesalers want to get a good price. In between that is the government, who doesn’t want to lose money.”
Without taxes, the average wholesale price for retailers would be $6.40 per gram. GST adds 42 cents, while the federal tax adds $1 and provincial tax adds $1.08.
Prices also vary widely depending on the type of product.
Seed will cost the most per gram, averaging out at $12.04, while milled flower will be the cheapest at $4.96.
AGLC spokesperson Kaleigh Miller said the commission is in constant contact with licensed producers and has a warehouse ready to stock weed at a location that will not be disclosed to the public.
Miller said the price was arrived at following conversations with various levels of government.
“There will be various prices available for different products and different price points,” she said.
“It was high-level discussions, research into the current industry that is out there, and trying to come up with an average that was fair and competitive with the illicit market that is out there today.”
Kevin Maimann is an Edmonton-based reporter covering education and marijuana legalization. Follow him on Twitter: @TheMaimann