When Mike Babins opened his legal cannabis shop on Jan. 5, 2019, he had a vision of where he’d be in five years — even if it was admittedly pie in the sky.

“I kind of thought I’d be on my private island in the Caribbean with people feeding me grapes, but that was a bit of a pipe dream,” he told CBC News from his Evergreen Cannabis shop in Vancouver’s Kitsilano neighbourhood.

Evergreen Cannabis was one of Vancouver’s first two legal pot shops to open that day. There was a lineup around the block and no shortage of enthusiasm from customers.

“It was the first time we had to get a velvet rope to hold the crowd back, and I felt the significance of the velvet rope as a big deal to me,” he recalled.

But times have changed. Many cannabis shops in B.C. have come and gone throughout the course of the first five years of legalization. Owners like Babins say competition is fierce, with many shops fighting over market share.

Many private retailers complain they’re being undercut by government-operated B.C. Cannabis Stores (BCCS), which offer razor-thin, unsustainable margins.

A 15-per-cent wholesale markup on cannabis products charged to retailers by B.C.’s Liquor and Cannabis Regulation Branch (LCRB) continues to eat away at profit margins.

“Five years is tough to do that in any business — especially this one,” said Babins. “It’s been ups and downs, ups and downs, lots and lots of work, and lots of people gunning for us competition-wise.

“But we keep on going on.”

Mike Babins says competition has been fierce in the Kitsilano neighbourhood, where he owns and operates Evergreen Cannabis. (Gian-Paolo Mendoza/CBC)

Mounting markups

Babins says the days when he was one of the only shows in town are long gone. There are 83 licensed cannabis shops in Vancouver, and about a dozen in the Kitsilano area.

“There are more private stores, and there are ones closer to us, and they all happen to be chains with deep pockets and deals with their producers to have really good pricing, and we don’t make deals like that,” he said. “So we just have to do the best we can. So we keep our prices low, but it also means our markup is low.”

Babins says what’s helped his store stand out is the customer experience. He says he focuses on offering products from craft producers.

He often order products through the province’s farm-gate program, which allows retail stores to receive deliveries directly from licensed small-scale farms rather than the province’s wholesale warehouse. He says it ensures fresher cannabis.

He says even though products are delivered directly from the farm, he still has to pay the 15 per cent markup to LCRB, which significantly cuts into profits.

“They aren’t even involved yet we still have to pay them,” Babins said.

He says he’d like to see markups removed, or even reduced, for direct deliveries.

Ehren Richardson opened Sunrise Cannabis in 2021, not far from a B.C. Cannabis Store. (Gian-Paolo Mendoza/CBC)

Ehren Richardson, co-owner of Sunrise Cannabis, agrees.

“It’s been largely a failed policy because there’s been no financial incentive to take it on,” said Richardson. “We pay the same … even though we’re not using their warehouse, their trucks, their personnel, their admin.”

Competition with provincial retailers

Richardson opened his shop on Kingsway in Vancouver in 2021. Shortly after, a B.C. Cannabis Store opened up the road, and he said he instantly began to lose business.

“They’ve got about four times the square footage. They’re able to display a lot more product, and their prices, when they opened, undercut basically every independent retailer in the area,” he said.

“They had prices that were just not sustainable. Obviously it was a strategy to capture market share, and since then they’ve had to increase prices because they weren’t making money.”

CBC News asked B.C.’s Ministry of Public Safety and Solicitor General, which regulates the cannabis industry, whether provincially-run stores have been profitable, and if it would consider a change to markup rates. The ministry has yet to respond to the request. 

Interior of BC Cannabis Shop after legalization, products and menu on display. (Chris Corday/CBC)

Municipalities waiting for tax share

Questions also remain over the federal excise tax on cannabis.

As of May 2022, the province said it has received $112.74 million in federal excise duty payments. CBC News has asked for updated figures.

Despite federal expectations for the tax revenue to be shared with local governments, municipalities have yet to receive a dime from the province.

The Union of B.C. Municipalities previously called for a 50-50 split, estimating that the legalization of cannabis and the opening of dispensaries would cost local governments $11.5 million per year in incremental costs.

Coun. Pete Fry says municipalities are growing frustrated by the lack of excise tax revenue sharing from the province. (Gian-Paolo Mendoza/CBC)

A Vancouver city councillor says municipalities are still waiting on a plan from the province, but points to other jurisdictions like Colorado — where excise tax is used to fund public schools — as a potential model.

“Vancouver’s a very cannabis-friendly town, it has been for years,” Coun. Pete Fry said. “So it stands to reason there’s probably a lot of money that’s been left on the table that we’re obliged to.”

 Hefty markups and competition are among the challenges plaguing shop owners five years into legalization. Municipalities have yet to see promised tax revenue, and businesses hope to provincial and federal governments will ease regulations.  Read More