Former Nova Scotia Premier Darrell Dexter says the future of legal cannabis is online

Darrell Dexter was the Nova Scotia Premier from 2009-2013, and is now the vice-chair at Global Public Affairs, Canada’s largest privately held government relations firm. As vice-chair, Dexter will be taking on the firm’s cannabis industry clients, offering advice on navigating new rules as they roll out.

Lift spoke with Dexter recently on his thoughts on how the provinces may be managing the legalization ticket over the next year or so, and what distribution and retail options will be available to them. The former NDP Premier says he sees online sales playing a key role in allowing provinces to implement sales in a timely manner, especially in more remote, rural areas, and predicts a ‘patchwork’ of regulations that are best suited to each region’s own cultural differences.

Dexter will also be speaking at the Lift Expo in Toronto this weekend as part of our Retail Cannabis Panel, featuring Andrea Dobbs of the Village Dispensary, Abdullah Al-Kazaz, Licensed pharmacist at Cadence Apothecary, Ivan-Ross Vrana, industry consultant and lobbyist, and will be moderated by Jenna Valleriani.

What are some concerns that provinces may have in terms of retail settings?

“I don’t see it so much as concerns as options, really. From a public policy perspective, the federal government has made a decision with respect to the question of legalization and it’s going to be implemented, and so there are a number of different options that the provinces will have. You know the kind of off the top of my head assessment is that you’ll likely see a patchwork of different kinds of approaches across the country. I think over time what will happen is a kind of best practices will emerge, so that way the approaches will, over time, likely start to resemble each other as they do in other sectors today. But initially I think there will be some differences.”

What about Nova Scotia, specifically? What’s going on there?

“Right now the province is in the middle of an election campaign so they’re avoiding saying exactly what they’re going to do, they don’t want it to become an issue during the campaign. But right now I think it’s officially under study and they are looking at it with the other Atlantic provinces to try and coordinate what they’re doing here in the region. My gut is that in the end I think we’ll probably see some combination: they may choose to use the infrastructure they already have, through the Nova Scotia Liquor Commission, so that’s a possibility, but I think it’s probably going to have to include some online component with whatever model they chose.”

“Likely what you will see is a combination of an online approach that exists today for medical marijuana, and you will likely see some sort of use of existing infrastructure that we already have. I don’t think you’re going to see it all at once. -Darrell Dexter

“In our modern society in which we live, consumers are already comfortable with that model, and they look for all kinds of purchasing already. I’m an age group where that was not a usual kind of approach, but I shop online and I think most people do now, so I would be very surprised if some component of some part of the profile of distribution is not likely to contain some online component.”

What are the retail models provinces are looking at? Online sales, pharmacies and dispensaries.

“In terms of whether they’re going to have private dispensary style locations, I think that some of the provinces will look very closely at that when it comes to the question of being able to dispense for medical purposes, that’s my bet.

“In a province like Nova Scotia, the way the alcohol distribution happens now, is they have government locations and in smaller communities where people will have to travel in the winter, they put in some small, private locations.

“I think the problem for the argument for that is they’ll simply want to have more security. This is the stated goal of this current legislation and I think ultimately the distribution models will need to be consistent with the notion of legalization, not normalization. So they’re going to want distribution profiles that protect that kind of view of how this is going to be rolled out.”

“I think the reality of the online ecosystems we’ve got, from the provinces’ perspective, it’s an easy adaption because there’s not bricks and mortar, the financial reporting and tax reporting is very easy in the sense that the system’s already set up and able to respond to those kind of concerns.” Darrell Dexter

What might online sales look like?

“Well, I think it’s a failsafe mechanisms for the federal government, in the sense that they have said that they are going to be ready to go by a certain day and where the provinces are not ready to go they will provide an option through online to supply those people who wish to purchase what is going to be a legal product.

“I think the reality of the online ecosystems we’ve got, from the provinces’ perspective, it’s an easy adaption because there’s not bricks and mortar, the financial reporting and tax reporting is very easy in the sense that the system’s already set up and able to respond to those kind of concerns.”

“In fact, from a tax perspective, the provinces will have a very easy way of monitoring what the performance is in the sector, quarter by quarter, simply because if you can do it online you’re able to generate those reports very quickly.”

One idea raised has been a separate location within an existing liquor store, that is separate but under the same roof. How likely is that?

“The key question on that is simply, that it does take time to be able to put in place. You literally have to amend existing structures and that also has cost associated with it as well. The reality of those stores is they have personnel who are in place who are already trained in appropriately monitoring how the product is distributed currently. For example, with alcohol, they have training programs, not only for their employees, and on the security side but on the actual product side. You can go into a store here in Nova Scotia and ask about a product and the staff will be able to help you to find what brand best fits your preferences. They do that as their own internal training of their employees. And one would assume that there would be a similar process in the [cannabis] sector. Some simply might find that an attractive option is to physically see what it is that the are buying, and I think that’s the argument on that side. But nowadays, with the savvy technical nature of our country, of our population, people have a pretty good idea of how to sort through that in any kind of online catalogue.”

“First of all you have to put the regulator in place, you have to come up with the regulations and standards, those places would have to be built, they would have to be inspected by somebody on the regulator’s side, so all of that would take some time and one of the things, especially if that’s done on the private side, you would have to have a high degree of confidence in the fidelity of the vendor, and that’s common in some other sectors as well. They would be only purchasing from licensed providers, they would be under the same kind of strict guidelines the online vendors would be under and there would also be the question of the profit margin for those vendors.”

“In every sector the most effective and least costly supply chain is the one that tends to be the most successful. And although people see this as kind of creating a new market for this product, the fact is there is already a sophisticated market with a sophisticated supply chain, so when you start to look at all the elements that go into the cost, there will inevitably be some kind of federal excise tax, there will be a provincial tax, there will be a harmonized sales tax or GST and that will be a kind of a cascade where what happens if you have the product prices and then you have the excise tax and the provincial tax and then the HST goes on top of those, so it not only taxes the product, but it taxes the tax.

“So they’re going to want to be very careful with what their price point becomes, because at some point the existing supply chain—and I don’t think that kind of underground supply chain is going to give up easily—I think they will respond, but at some point in time you give a great advantage to that existing market.

“One of the stated goals is to take this industry out of the shadows, out of the underground and legalize it and therefore be able to control the quality of the product and security and … what that price points looks like because everything that causes that price to go up, including what the profit margins are and how do you distribute it and the cost of distribution, that’s all going to be folded into the price. So that’s certainly something that the provinces will be looking at because ultimately they want to ensure as part of this overall program that they are able to deal with the market and distribution system that’s already there.

“For me, I would probably look at some sort of phased-in approach, and I would want to try and figure out what the best practices are across the country. Different bureaucracies have different capacities to do this work and so really, the departments of health and finance and various bureaucracies of Nova Scotia… we’re a small province…so you know we would be certainly  looking to the models that would be established in other provinces… to know if there’s some kind of innovation there in terms of different ways to establish a distribution system.

“Likely what you will see is a combination of an online approach that exists today for medical marijuana, and you will likely see some sort of use of existing infrastructure that we already have. I don’t think you’re going to see it all at once. I don’t believe the province would sort of go into all of the outlets across the province and simply make changes to every location. You might see some in Halifax and Sydney and some of the larger places, and maybe we can see how that market would absorb that kind of distribution model.”

“I think the one thing, despite the fact that if you look at some of the surveys that have said on a per capita basis, Nova Scotians are some of the largest consumers of cannabis in Canada. I think there’s going to be some skepticism of what that kind of looks like in smaller towns, for example.

“I think they’ll look at how they perform and I think it’s likely that there will be this online option because it’s so easy for them to kind of flip the switch on. I wouldn’t even rule out that it might initially be just be online then over time they’ll roll it some kind of program for bricks and mortar.”

“All of the provinces are going to want to implement a system that fits their population. That’s why I think there’s going to be a patchwork system.”

Featured image by Benjamin J. DeLong.