Retailers and producers say the industry is going through ebbs and flows right now as large scale producers falter and more retailers open

From the street, behind a fence and gate, you can still catch the scent of the plants.

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.

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.

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.

“Producers, even smaller ones, are very reluctant to talk to each other,” said Ralph Kratz, co-owner of Western Cannabis.

Southam said part of why he plays his cards close to his chest is that times are tight, and every national chain which can operate once approved by SLGA looks for a leg up, a way to underprice or eke out more of a market share.

“We’re a co-operative. We don’t have to publicly announce our finances,” said Southam.

“And, you know, it’s pretty cutthroat right now for competition.”

A cannabis producer has to become licensed by Health Canada, which is the licensing body for producer retailers. Once licensed, they can apply to the SLGA to sell cannabis in Saskatchewan.

Saskatchewan is unique, said Thomas, because the retailers can buy either directly from the producer, or third-party wholesalers.

“The other provinces have government wholesalers,” said Thomas.

But actually growing cannabis is not as simple as other crops, according to master grower Joel Campbell at Western Cannabis.

“There’s a lot of overhead, so the only way to make it pay is to make it super productive,” he said. Early in the industry, big players started to grow huge quantities of cannabis in anticipation of Oct. 17, 2018.

“There was a lot of really big players at the start, that kind of tried to monopolize the whole scenario,” said Campbell.

“They didn’t do well at that, because growing cannabis is not as easy as a lot of other crops.”

Campbell studied at the University of Saskatchewan for a bachelor’s degree in agriculture with a major focusing on horticulture. Having been in the industry for years, previously growing cannabis for licensed medical producers pre-legalization, he said a lot of products from larger producers hitting store shelves now were actually grown in 2019.

“A lot of the big operations, at the start, were producing a lot of weight in terms of poundage across Canada,” said Campbell.

“But the quality was so low that a lot of that is still sitting in storage.”

Standardized packaging, mandated by Health Canada, means LPs have a hard time setting themselves apart. Markers such as THC or CBD content, when it was packed — but not grown — are a part of the packaging.

“There’s a lot of competitors on the market, there’s a lot. It’s a sea of products. So it’s really hard to distinguish yourself right now,” said Campbell.

What’s more, producers are flooding the market with products, and by Thomas’ understanding, “they grow much more cannabis than Canada could ever use.”

And that leaves the market in a balancing act between larger growers who, some argue, produce an inferior product, and micro or small producers who turn out a better but more expensive product.

Campbell compared it to craft breweries versus large-scale companies like Budweiser or Molson.

“There’s a lot of that really low-end quality product, which is bringing a lot of the pricing down,” he said.

“Right now we’re all trying to find the sweet spot.”