New Brunswick looks for cannabis retail reset as future of 20 established stores uncertain

New Brunswick aims to hit the reset button on how adult-use cannabis is sold, and the province might be willing to pull the plug on at least some of the 20 existing government-run stores under any new retail system.

If a private company is chosen to run the new system, it will not be required to maintain all 20 outlets. That would mean a number of the stores face potential closure in 2020, little over a year after New Brunswick spent millions establishing the chain.

New Brunswick issued a request for proposals (RFP) for a single operator to run a cannabis retail system in the province starting next year.

New Brunswick expects to get better offers from industry by allowing applicants to choose which – if any – of the 20 stores to include in their bids, an official with the provincial government confirmed to Marijuana Business Daily.

“This is not a sale of the existing business, Cannabis NB, but rather the sale of the rights to operate recreational cannabis retail, wholesale/distribution and e-commerce in the Province of New Brunswick on an exclusive basis over a period of 10 years with two five-year renewal periods,” according to the RFP document.

Cannabis NB currently has store leases that expire in 2033.

All 20 stores are leased.

A spokeswoman for New Brunswick’s Finance and Treasury Board said it is too early to comment on the future of the leases.

“We have learned many prospective retailers would have an interest in taking on many of these leases (stores),” the board’s Vicky Deschênes wrote in an email to Marijuana Business Daily. “This will be considered in due time.”

The province conducted a nonbinding expression of interest in the summer to gauge private-sector enthusiasm. One of the findings was that private industry would rather start from scratch than buy Cannabis NB and its assets outright.

The province will decide whether to follow through with the private-model plan only after assessing the bids.

“While government has expressed a desire to see the private sector take the lead role in the retail sale of cannabis, in doing so, we are sensitive to the fears and concerns of the employees currently working for Cannabis NB,” Deschênes noted.

“In consideration of the welfare of this talented and hardworking workforce, government will work with the private operator to transition existing retail staff. In our consultations with the private sector to date, we heard they would plan to employ Cannabis NB staff even if they were not required to.”

The process

The deadline for applicants to submit questions is Dec. 13, 2019, and the deadline to file an application is Jan. 10, 2020.

Stage 1 of the process consists of a mandatory requirements check, criteria evaluation and then an initial ranking of offers.

Offers will be evaluated using a points system, including:

  • 40 potential points for the financial offer.
  • A maximum of 30 points for a proponent’s experience and qualifications.
  • 30 points for proposed market pricing.

In the second stage, applicants will be asked to produce further documentation, deliver a presentation and engage in a “concurrent dialogue” with representatives of the province.

This RFP process is intended to identify prospective suppliers for the purposes of negotiating a potential “Agreement for the Deliverables.”

An important part of Stage 2 will be business plan validation, which will include, among other things:

  • A demonstration that bidders understand the New Brunswick market.
  • An analysis of the variables, sensitivities and risks affecting the ability to succeed.
  • An analysis of forward-looking financial statements for the 10-year period under consideration, including detailed sales figures for each major category (flower, oils, edibles, accessories, etc.).
  • Pricing assumptions per gram/unit.
  • Anticipated margins, cost structure and startup and operating costs per outlet.

The province also wants to see a detailed store rollout strategy, showing geographical coverage, including:

  • A map and listing of store locations, other distribution points and a timetable for implementing the plan.
  • Strategies for the retail network showing the proposed store formats and types – such as stand-alone stores, flagship stores, limited stores, a store-in-a-store, agency stores, etc.

In addition, regulators want to see any plans that an applicant develops to partner with local entrepreneurs, businesses and First Nations. Those relationships can incorporate subcontracts, affiliates, strategic alliances or other business combinations.

Another important aspect of the evaluation will be strategies for both e-commerce and distribution.

Regulators will weigh applicants’ approaches to transitioning existing Cannabis NB employees to the new system, where applicable.

The proposals should provide a detailed explanation about how the province’s bilingual language needs will be met.

Below are key dates in the process, although they are tentative:

  • Deadline for questions – Dec. 13, 2019
  • Submission deadline for original proposal – Jan. 10, 2020
  • Anticipated initial ranking – Feb. 14
  • Due diligence, dialogue – Feb. 17-March 13
  • Second submission deadline – March 27
  • Anticipated final ranking – April 10
  • Agreement negotiation period: 80 days

At the end of the application process, one bidder will be chosen to enter into negotiations with the province to finalize an agreement.

New Brunswick anticipates executing an agreement on July 3.

Read the RFP document at this link. However, the province asks interested parties to register their interest at on its Strategic Procurement Division portal to receive the most up-to-date information.

Matt Lamers is Marijuana Business Daily’s international editor, based near Toronto. He can be reached at [email protected].

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