November 13, 2019

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Weed a $2.4M loser in Manitoba

One-time legalization costs blamed for negative net revenue

A licensed cannabis store in Winnipeg. (Daniel Crump/Winnipeg Free Press)</p>

A licensed cannabis store in Winnipeg. (Daniel Crump/Winnipeg Free Press)

Provincial cannabis wholesaler Manitoba Liquor and Lotteries earned nearly $27 million in cannabis revenue during the 2018-19 fiscal year ended March 31, according to the Crown corporation's newly-released annual report. But that wasn't enough to deliver positive net cannabis revenue to the province, which says it lost more than $2.4 million on cannabis during the same period.

The government's total gross profit from cannabis sales, which includes MLL's wholesale cannabis markups and a six per cent tax on cannabis retailers' annual revenues called a Social Responsibility Fee, exceeded $5.3 million during the 2018-19 fiscal year according to the province's latest public accounts. But that profit was outweighed by costs of nearly $7.8 million, including annual costs surpassing $3.6 million and one-time costs totalling more than $4.1 million.  

 

 

 

"Manitoba's experience shows that legalization has not resulted in material revenues," says the public accounts report released September 26.

Without the one-time costs related to cannabis legalization, Manitoba would have reported a profit of nearly $1.7 million from cannabis. Manitoba Finance said those one-time costs included policy development and planning, health and safety considerations, enforcement and policing, public awareness campaigns and training. In a statement, the finance department said it doesn't know whether cannabis will turn a profit in the 2019-20 fiscal year.

"The upcoming legalization of edibles and related products may generate new and different one-time and ongoing costs," said the statement. "These costs could erode some of the potential gains in revenue."

Legal cannabis in Manitoba is sold by private-sector retailers who may only sell cannabis purchased from MLL. The provincial wholesaler marks up cannabis prices by nine per cent, plus another $0.75 per gram markup that represents the province's share of the federal cannabis excise tax. (Manitoba is the only province that's not participating in Ottawa's cannabis excise tax regime, which imposes a tax of at least $1 on each gram of legal cannabis and gives 75 per cent of that revenue to the provinces. Manitoba collects an amount equivalent to its share of the excise tax through MLL's $0.75 markup.)

MLL's annual report was delivered to the government at the end of July, but wasn't released by the government until Friday afternoon before the Thanksgiving long weekend. The report says MLL's $26.9 million worth of cannabis revenue during the fiscal year ending March 31 was achieved with a $22.4 million cost of sales, leaving about $4.5 million. After adjusting for operating expenses, MLL netted about $3.4 million in cannabis income.

The wholesaler only received about 30 per cent of the cannabis it expected from suppliers between legalization on October 17, 2018 and March 31, MLL's report says. By now, that situation appears to have been mostly resolved.

"For the most part, supply volumes are meeting what Manitoba's existing cannabis retailers are ordering at this time," wrote an MLL spokesperson in an emailed statement.

Also released Friday was the annual report from the Liquor, Gaming and Cannabis Authority of Manitoba, which is responsible for licensing and regulating legal cannabis stores. As of March 31, LGCA said it conducted 293 cannabis store inspections and found stores compliant with regulations in 98 per cent of cases. LGCA brought in $21,667 in cannabis retail licence fees through March 31, a drop in the bucket compared to the agency's annual haul of gaming licence fees ($6.2 million) and liquor licence fees ($1.7 million).

LGCA has issued 26 cannabis store licences to date, a figure that includes 14 licences in Winnipeg, four in Brandon and two in Thompson. The provincial government's goal of giving 90 per cent of Manitobans access to a licensed cannabis storefront within a 30-minute drive from home has nearly been achieved, according to the newly-released annual report from the Ministry of Growth, Enterprise and Trade. As of March 31, the report says, 87 per cent of Manitobans could access a cannabis store within a half-hour drive.

Growth, Enterprise and Trade Minister Blaine Pedersen said Tuesday that he expects the 90-per-cent goal to be achieved after the next set of seven rural cannabis stores begin operating. One of those seven rural stores, a Fire & Flower Cannabis Co. location in Swan River, has already been licensed by LGCA.

Pedersen said his government's ultimate goal is to open up Manitoba's cannabis store licensing process, but he couldn't provide a timeline as to when that might happen. He said the PC government is still considering how the store licensing process might look in the future, deciding whether or not to open licence applications to all comers or continue with a "controlled release" of new stores.

"Where we are, and where we progressed in a year, we're quite happy with," said Pedersen. "We still hear that from other provinces, that we are the model that other provinces look to, and wish they had done as we had. So we'll continue to move along on this."

solomon.israel@freepress.mb.ca  

 

@sol_israel

Solomon Israel

Solomon Israel
Cannabis reporter

Solomon Israel is the full-time cannabis reporter for the Winnipeg Free Press and its national cannabis news website, TheLeafNews.com. He covers the social, legal, medical and scientific aspects of marijuana legalization in Manitoba and the rest of Canada.

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