Independent Sask. pot shops worried new rules won't put dent in black market

Geoff Conn says he was a little shocked by new marijuana regulations recently announced by the Saskatchewan government.

On Tuesday, the province announced its plans to open up the market for new marijuana stores. Where a lottery system had previously been used to select a total of 51 stores in 32 communities, the capped system will be phased out starting next year, allowing an influx of new stores.

"I'm kind of expecting a drop in sales," said Conn, owner of Saskatoon's The Pot Shack. "I just have to fight harder and bring my brand up, as do the other stores in the province."

Gene Makowsky, the minister responsible for Saskatchewan Liquor and Gaming, said the decision was made to bring in more stores to help meet consumer demand.

At the same time, the province hopes the new stores will help discourage any competition from unlicensed stores.

Conn isn't convinced the move will help, saying he believes only 20 per cent of consumers are currently buying marijuana from legal sources.

"Adding more stores doesn't bring the black market smokers or users to the stores, because they'll just continue to go to their guy," he said. 

"I mean, that's obvious."

Jim Southam, owner of Prairie Cannabis in Prince Albert, agrees with Conn. He worries the changes will mean legal stores will be fighting over a relatively small part of the overall market.

He believes the answer is to reach out to black market growers and get their product onto legal store shelves.

"We need to be more inclusive of legacy market players like microgrowers and be inclusive of the illicit market players and get those products into the legal market," said Southam.

"That's what will bring the consumers that are supporting the black market today into the legal market," he said.

In April 2020, SLGA will start to accept applications for stores in communities with fewer than 2,500 people.

In September, the province will start accepting applications for the entire province.

Municipalities will still be able to decide how many cannabis stores they will allow in their jurisdiction.

Jason Childs, an associate professor of economics at the University of Regina, believes the legal market's high price point is a large factor for the black market's popularity.

"It is the elephant in the room, and it's not going to do a whole lot for it," said Childs. 

However, he said prices have been dropping steadily since legalization last year, driven in part by a sharp increase in marijuana supply available from producers.

Still, he isn't sure how much lower prices will be able to drop.

"Pretty soon, they're going to start hitting that sort of production and overhead cost mark," he said. "We're going to hit that lower bound of pricing pretty soon unless we start squeezing retail margins or seeing something change in the production side."

He said larger companies that paid more than a million dollars for pot licences last year are experiencing some buyer's remorse right now.

"I think the message is, 'You chose poorly.'" he said.