Day 6: How Saskatchewan took the lead in private cannabis wholesaling

Saskatchewan is the only jurisdiction in Canada where government has no direct involvement in wholesaling recreational cannabis.

Everywhere else in the country, provinces play the middleman between licensed producers and retailers. In the “Land of Living Skies,” however, a handful of businesses such as Open Fields are allowed to exist.

The wholesale division of Edmonton-based retailer Fire & Flower is a relatively small operation. In an industry obsessed with touting scale, Open Fields occupies just 6,000 square feet of warehouse space in Saskatoon and operates with six employees.

Yet that is enough to supply all 36 licensed cannabis stores in Saskatchewan, said Isaac Watson, Fire & Flower’s vice-president of product development, while guiding Cannabis Professional around the facility.

Despite the seven-figure renovation cost – steel mesh was installed in the walls and ceiling, among other upgrades – the site now holds 450 SKUs collectively worth $1-million at any given time. The private wholesale model, Mr. Watson argues, has multiple advantages over a public system.

“We are not necessarily looking to cut out taxes or revenues from the government,” he said. “We are just looking to cut out the inefficiencies caused by the large operations that they were forced to implement. We don’t need to do it that way.”

Open Fields is not the only wholesale cannabis operation in Saskatchewan either. There is another private company called Running Leaf and several of the independent retailers in the province are in talks to form a co-operative-style “weed pool” that would be the first of its kind.

As Ontario mulls an exit from the wholesale cannabis business, Mr. Watson offers five key reasons why the Saskatchewan model should go nationwide:

More conducive to craft

Generally, governments negotiate very large contracts with very large licensed producers, so they are not able to get to a lot of the smaller licensed producers, because they need the time and the budgets to go out and travel to those facilities. On the other side, when a product lands in the [Alberta Gaming Liquor and Cannabis] warehouse in Alberta, for example, all the 280-plus retailers in the province all jump on it, so craft growers can’t really deliver that level of quantity.

Here, we can still bring in all of those large, licensed producers, but we can also be nimble and go and support the smaller, local growers. Over time [government-owned distributors] will slowly get there as well, but we are able to go there right out of the gate. We will see customers demanding certain things, whether from one of our retail partners or our own location, we know what the customers want and within a day or maybe two days we can make a call and get out there and start sourcing that product.

Inventory cycles faster

In terms of things such as carrying costs of inventory, we can turn very quickly. That refers to the number of times you can cycle your inventory in a year, so conventional retail might be four times but here we can turn upwards of nine times. The throughput is extremely rapid and that works for everyone because as new product comes in we are immediately selling it back out. That is obviously beneficial to the licensed producers, our shareholders and, ultimately, consumers. We are just making it more efficient.

Cutting up to $3-per-gram from consumer prices

Right now, we are negotiating better costing than most of the provinces, and that means cannabis in Saskatchewan generally is less expensive than elsewhere in Canada - the conventional $10-per-gram standard. I think some of the provinces are enabling lower-quality products that you might be able to retail at a reasonable margin that allows you to pay your staff and show a little bit of profit at the end of the day - so maybe the best [retailers] can do is about eight bucks. Here in Saskatchewan we have had opportunities to bring down those prices closer to $5 or $6 per gram at times.

Up to 4x faster reaction time to retail trends

For all the provinces, we report on our inventory and our sales as part of our compliance reporting. That happens monthly. The assessment of that sales information is what eventually informs the buyers in those provincial cannabis corporations. That means everything is delayed for at least a month. For us, we are looking at it weekly, so we are about four times faster than they are in terms of reacting to trends.

Keeping product from expiring on store shelves

One of the big issues in other provinces is the inability to transfer inventory between locations. So, if [a retailer] makes a commitment, it comes into your store, then no matter what, that inventory dies there. What that means is, whether it is our location or one of our partners, essentially this product is going stale. [Product returns] is a level of complexity that the [government-run] systems do not accommodate today, whereas for us we can absolutely do that in Saskatchewan. And we are still reporting against our sales and inventory levels to the Saskatchewan government so they can reconcile and we can reconcile where all the product is going so we can ensure nothing is leaking out into an illegal market stream.

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