Ontario Cannabis Store to Reduce Margins to Support Producers and Compete with Black Market
Ontario Cannabis Store will lower wholesale margins to support producers and compete with the black market, potentially saving the industry $60 million annually
Key Points
- 1OCS to reduce wholesale margins to 25% for most products and 23% for dried flower
- 2Move aims to better compensate producers and compete with the black market
- 3Industry savings estimated at $60 million annually due to margin reductions
- 4Retail price impact remains uncertain, with potential minimal changes for consumers
- 5Legal cannabis market in Ontario represents about 60% of total sales
The Ontario Cannabis Store (OCS) has announced plans to reduce its wholesale margins starting next month. This move aims to better compensate producers and distributors while also enhancing competitiveness against the black market. As the sole distributor for private cannabis stores in Ontario, the OCS currently imposes a margin of approximately 31% on products, which will be lowered to 25% for most cannabis products and 23% for dried flower
George Smitherman, CEO of the Cannabis Council of Canada, which represents licensed producers, has expressed support for the reduction in margins, describing it as a positive step for the industry. He highlighted the challenging business environment where many producers struggle to achieve profitability due to high costs, taxes, and markups. Smitherman believes that this decision could help address these financial challenges, allowing producers to better manage their expenses and investments
According to David Lobo, CEO of the OCS, the decision to adjust pricing policies was made after a thorough review over the past year. Lobo stated that the new pricing structure aligns more closely with other governmental policies and is expected to save the industry around $60 million annually. He emphasized that the OCS's market size enables it to offer competitive products to consumers
Despite these changes, the impact on retail prices remains uncertain. Cameron Brown, communications lead for retailer The Hunny Pot, which operates numerous locations in southern Ontario, suggested that consumers might not see significant changes in retail prices. He anticipates that most products will remain priced similarly, as retailers and producers might retain some of the additional margin
Since the legalization of cannabis nearly five years ago, the legal market in Ontario accounts for approximately 60% of sales, according to estimates by the OCS and the Cannabis Council of Canada. The reduction in wholesale margins is part of broader efforts to strengthen the legal market's position against illicit sales and ensure sustainable growth for the industry