On Thursday afternoon, representatives from various sectors of Ontario’s legal cannabis industry will gather in Toronto to commiserate, and it’s hard to blame them.
A flyer promoting the event says the discussion will focus on issues such as the thriving illegal market for pot and the “miserable margins” the industry is dealing with.
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The industry has been complaining about the government’s role in the cannabis industry for some time now, and in some cases, it’s not without merit. They point to the high mark-up — just over 30% on average in Ontario — charged by the government wholesaler, Ontario Cannabis Store (OCS), noting it’s much lower elsewhere.
In other provinces, especially in Western Canada, government mark-ups can be much lower from as little as 6% in Alberta to 15% in British Columbia. In Saskatchewan, the government regulates the sales but allows the producers and other private companies to act as wholesalers to retailers.
That means lower prices for consumers.
A review of prices at major retailers with a presence in several provinces found a wide discrepancy in price. Someone buying 28 grams of HEX OS.Reserve Sativa in Ontario would pay at least $107.47, compared to $92.42 in Saskatchewan, $81.47 in Alberta and $81.38 in British Columbia.
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Retailers blame the more than 30% mark-up the OCS charges while operating as both an online retailer and the government monopoly wholesaler. It’s quaint that the cannabis industry is worried about the government taking 30% when on alcohol it’s 50% and up for products sold through the LCBO.
“Booze doesn’t have an illegal market to contend with like we do,” snapped one retailer when asked why they were complaining with relatively low government mark-ups compared to beer or wine.
Many in the industry want to see the OCS dismantled; they don’t want a government store competing with them, and they’d prefer to see the Saskatchewan model of wholesale. If they can’t get that, they at least want the OCS, which made $520 million for the government last year, to cut back on its take.
George Smitherman, president and CEO of the Cannabis Council of Canada, said that the Ontario government needs to reform the OCS to help the industry thrive.
“Their margins are ridiculous. The combined impact of the taxes and mark-ups work against the idea of eliminating the illicit market,” Smitherman said.
Beyond government regulations and mark-ups driving up prices, Smitherman also noted a recent hack of the OCS as an example of why having just one monopoly wholesaler is a bad idea. While it’s rich hearing old Liberal cabinet ministers like Smitherman call for less government regulation and lower taxes now that they are in the private sector, I’ll still take a conversion on the road to Damascus.
Other industry sources aren’t so sure the entire industry, or OCS needs reformed, that this might just be the growing pains of a new industry. The cannabis sector is saturated with retail players at the moment; at some point, some of them will close or be bought up by bigger players.
That’s how markets work, even if those in the middle of it end up feeling some pain.
“When times are good, they’re all Adam Smith, when times are bad, they’re all Karl Marx,” said one industry insider, referencing the father of capitalism and the father of communism.
Personally, I’d like to see more Adam Smith and less Karl Marx. The government should lower its take on cannabis, but they should also lower it on booze and other products they overregulate.
We should see more competition in areas like health care, something Smitherman fought against while in government. If free markets work to bring about innovation and lower prices for pot, they will do the same elsewhere.
Premier Doug Ford should cut the businesses trying to make a go in cannabis a break, but I’d say the same for other industries, as well.
