Sask. pot plan could put big biz at advantage over smaller outfits, says economist

Saskatchewan's plan for the impending legalization of marijuana doesn't do enough to ensure smaller businesses don't get shut out and the black market is stymied, according to a University of Regina economics lecturer.

George Hartner says Saskatchewan's regulatory framework for cannabis, released Wednesday, takes a free market approach that could allow major pot producers to take control of the commercial supply chain all the way down to the retailers. That's largely because there aren't restrictions on producers also being retailers, or selling their own product.

Saskatchewan is approaching legalized cannabis with a private wholesale/distribution model (as opposed to the Saskatchewan Liquor and Gaming Authority being the distributor). Those distributors purchase pot from federally licensed producers. Then, they supply retail stores that are selected through a pre-screening process, followed by a lottery system. Retailers will also be able to buy directly from producers.

Hartner said this approach could lead to large cannabis firms — like Aurora, which bought out Saskatoon's CanniMed  — also owning retail outlets in Saskatchewan. The potential result: large firms with increasing market power. 

​"Most of the economic benefit or the potential profit in this market is going to be captured by the very large cannabis producers," Hartner told CBC Radio's The Morning Edition on Thursday.

"Producers having a foothold in this market are also going to be highly incentivized to keep out local production, keep out craft producers. They'll be able to squeeze them out so at the end of the day it's not going to do a lot to generate small business in Saskatchewan."

Free market could be good for black market: Hartner

That could, Hartner said, have an effect on cannabis prices and the variety of products in stores: less competition equals less incentive for competitive prices and products.

Hartner said Saskatchewan's cannabis framework is missing measures similar to that of British Columbia or Alberta, where the provincial governments will regulate and distribute product to businesses — a move the Albertan government says "will ensure a level playing field for large and craft producers."

If the province is not going to distribute weed itself through the Saskatchewan Liquor and Gaming Authority, Hartner would like to see a limited number of distributors licensed instead. But Saskatchewan has not placed a limit on distributors.

In addition to potentially keeping prices competitive with the black market, Hartner said by keeping the number of distributors low, the likelihood of untested, illicit and potentially unsafe marijuana from the black market making it into the supply chain is reduced.

Limited distribution licensing could create a monopoly, but that could be remedied by regulating the mark-up price of products, he added.

If there was an SLGA-type model, where all marijuana coming to Saskatchewan would have to go through the government and then to retailers, Hartner said producers would not have "undue influence on retailers to try to capture more profit."