The cost of recreational marijuana in Ontario (and every province) is an elephant in the room that never seems to leave. But with the excise taxes tacked onto regular sales tax model introduced by the Liberals, high prices are a natural consequence.
But while simply reducing the taxes seems to be out of the question, Ontario is considering overhauling its current cannabis wholesale model to a more direct one. Colloquially, we might refer to this as “cutting out the middle man,” which, according to BNN Bloomberg, is precisely what our government is thinking.
Ontario’s Proposed New Cannabis Model
Unnamed “sources” close to the Ontario government say that there are potential changes coming – and very soon:
“Ontario…will begin consultations with various industry members to pursue a Saskatchewan-like distribution model where licensed cannabis producers will ship directly to retailers, the sources said. An announcement could come as early as next week, the sources added.”
More importantly for the average consumer, BNN Bloomberg points out how scrapping wholesale is “…a move that could substantially lower prices of legal pot in the province.”
Theoretically, this might be the shift we need to get more individuals on board with legal marijuana and improve cannabis revenue from 2020 onward.
However, price reduction was not the motive behind this sudden procedural review. BNN Bloomberg explains that it is a matter of space.
Ontario’s cannabis supply is stored in a single warehouse run by 200 employees. Its inventory capacity is 100,000 square feet. But space is reportedly running out – something that could be a real problem once edibles, concentrates and other new products hit store shelves in December.
Major Financial Losses
Much like the decision to end prohibition, the proposal to shift Ontario’s cannabis distribution framework came from the simple fact that it is not working.
The Ontario Cannabis Retail Corporation – who oversees marijuana distribution and runs the government-owned Ontario Cannabis Store – had sour financial news for 2019. According to BNN Bloomberg:
“The OCRC lost $42 million in the last fiscal year, a shortfall attributed to outsized costs in establishing the province’s new pot business.”
We are very well aware that the Ontario cannabis rollout was a long and costly process, but a lot of that $42 million could have been supplemented had more customers flocked to the legal market.
Of course, prices remain an obstacle and are a huge factor in the black market’s prominence and legal cannabis’ rather mediocre performance so far.
The Fate of the OCS
While sources indicate a possible end to the current model, representatives from the Ontario Cannabis Store say it will be business as usual.
OCS spokesman Daffy Roderick told BNN Bloomberg via e-mail that the current wholesale and e-commerce system will still be in place.
Roderick also says:
“OCS is in constant communications with licensed producers and industry partners to ensure that distribution capacity is in place as the Alcohol and Gaming Commission of Ontario issues new retail store authorizations. OCS continuously considers how to improve operations and services in order to effectively serve Ontarians while supporting the government’s commitment to combatting the illegal market and protecting children and youth.”
We apparently have two contradicting stories, which will be confirmed or disproven in the coming weeks.
BNN Bloomberg points out the difference eliminating wholesale could make. One of the sources mentioned out eliminating the wholesale system chips away at small overhead expenses, like extra shipping costs.
Saskatchewan stands firmly behind their model that Ontario seeks to emulate. Saskatchewan’s website states:
“This model minimizes the upfront cost to taxpayers. It has been successful in other jurisdictions in combating the illegal market.”
Saskatchewan’s system, however, adds one more bureaucratic step. The private sector can handle distribution to retailers, but they require a special license to do so.
WeedAdvisor Makes Change Simpler
Whether dealing with an established system or moving to an entirely new one, there will always be blind spots, inefficiencies and potential legal risks.
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