Retailers and producers say the industry is going through ebbs and flows right now as large scale producers falter and more retailers open
Author of the article:Bonno
Publishing date:May 21, 2022 Join the conversation
Alex Kratz, CEO at Western Cannabis, stands inside the company grow room. Kratz spoke about the growing pains and changes in the industry in recent years.
Alex Kratz, CEO at Western Cannabis, stands inside the company grow room. Kratz spoke about the growing pains and changes in the industry in recent years. PHOTO BY Bonno
Within an 8,500 square foot grow room at the Western Cannabis operation in Regina’s industrial neighbourhood, hundreds of cannabis plants of varying strains bask in an orange glow from tungsten lights. Inside the warm room with golden lights and green plants, the smell is similar to fruity hops common in craft beers, of course with a distinct hint of pungent cannabis.
Four years into the nascent cannabis industry, the question is whether or not all that green growth is actually money in the bank.
With booms come busts, and while the local cannabis market is far from failing, it is experiencing some growing pains as it tries to find an equilibrium.
“As far as the number of stores and producers’ capacity we might have, I think people might have gotten a little carried away in the euphoria,” said John Thomas, a retailer who got in on the ground floor.
When cannabis became legal on Oct. 17, 2018 the government, through the Saskatchewan Liquor and Gaming Authority (SLGA), limited the number of cannabis retailers allowed to operate in any given city or area. This led to a lottery for permits to open cannabis retail locations.
Many who won held onto those permits and are still in the business, while others sold their licences to larger, national retail chains, a dynamic present in the province since the first days of legalization.
Thomas entered the market in the first days of legalization, eventually selling his licences to Fire & Flower before getting involved with Farmer Jane Cannabis Co. Four years on, he’s watched the concrete start to set on cannabis markets as old issues fade and others linger. One thing that hasn’t been eradicated is the black market.
“It’s still a bit of a unique industry where not all the sales are still legal sales,” he said.
Director of plant science and master grower, Joel Campbell stands for a portrait around cannabis plants in the early vegetation stage during a tour of the Western Cannabis facility.
Assessing the full scope of the cannabis industry, above and below the board, is difficult.
Thomas said Farmer Janes has gone from 10 employees to approximately 120 across operations, but that includes in Regina, Saskatoon and Winnipeg.
“It’s an interesting market. I think it definitely has significant customer demand, but I think it has been both overbuilt on the retail level and the producer level,” said Thomas.
“I think in the next year, we’re gonna see numerous closures. And especially on the retail level, we’ve seen a couple of producers go down.”
Closures have already occurred.
The province saw the acquisition of licensed producer (LP) Agro-Greens Natural Products Ltd. by Shelter Market, a company which has since shuttered.
Jim Southam, vice-president of the Sask Weed Pool or Saskatchewan Independent Cannabis Retailers Network (SICRN), said the market is somewhat depressed in 2022. “Just look at the stocks,” he said.
SICRN works like this: Approximately 40 independent cannabis retailers act as a wholesaler, getting better prices for its members through bulk buys distributed amongst the co-op.
Speaking for the co-op, things have taken a bit of a dip. “Sales doubled when COVID hit in 2020 for us, so it’s a bit of a shock to the system to have your sales drop,” said Southam.
“Sales could be better,” he said with a laugh, reticent to discuss specifics.
Jim Southam, owner of Prairie Cannabis and vice-president of the Saskatchewan Independent Cannabis Retailers Network, is concerned that cannabis and liquor retailers were only informed this week that they would be required to obtain proof of vaccination from anyone who wants to enter.
Alex Kratz, CEO and one of the owners at the LP Western Cannabis, said looking at publicly traded companies, he wonders how long many will stay afloat. Scanning quarterly earnings reports, Kratz notes, “they’re just bleeding money every quarter and it’s, you wonder how long that can last before investors pull out.”
Kratz said under Saskatchewan’s current model, you can only sell to so many retailers since it is up to individual LPs to go and sell their wares, as compared to Manitoba where cannabis purchasing is run through that government.
The Manitoba system has its pros and cons.
“Saskatchewan is nice, because I can call up a retailer today and if I can make a sale, if I have a product they like, I can ship it out tomorrow,” said Kratz.
It’s meant a close-knit community where local products appear to be favoured by consumers, according to both Kratz and Southam who say local producers have continuously posted the best-selling products in the province.
But it also means LPs are something of a free-for-all when it comes to getting their product to market. Kratz said LPs can talk to distributors which leads to many connections and partnerships in the industry. But in a field where exclusivity is a major selling feature, not every store wants the products it sells to be available for purchase elsewhere, Kratz explained.
“If we sell to one store, on one side of Albert Street, then one on the other side of the street might not want to buy from us,” he added.
In Manitoba, a list of products is sent to all retailers, which then decide what they want to buy and what they want to carry. Kratz said that limits his company’s reach, about 60 per cent of stores in Saskatchewan versus all stores in Manitoba.
And since Saskatchewan has large-scale and publicly traded LPs operating and selling at a local level, it tends to drive down costs, regardless of product quality.
“It’s a little bit of a race to the bottom because any LP from anywhere can get there can get into Saskatchewan and sell their product and discount their product and it kind of was a little bit of a dumping ground for old product,” said Kratz.
“It makes it tough when those producers are losing money every quarter, discounting their product.”
That environment makes it hard to survive in one market, be it specifically Regina or Saskatchewan as a whole. As such Western Cannabis has started selling in the Territories, Manitoba, Alberta and British Columbia. Kratz said they had to look outside of the province “otherwise we wouldn’t have made it, for sure.”
Coming from construction, the Kratz family had a steep learning curve to get into the growing business. One key difference is the aura of secrecy among retailers and producers as they discuss business dealing, financials and logistics.
Kratz attributes it in large part to big firms looking for any leg up on the local competition
