Ontario is lowering its markups on pot, as cannabis companies struggle to stay afloat
CBC
Cannabis retailers and producers hope an upcoming move by Ontario's pot distributor to lower its price markups will help an industry still struggling to compete with the illicit market.
Ontario Cannabis Store, the Crown agency that has a monopoly on legal distribution in the province, is changing its pricing structure starting in September. The changes will reduce most wholesale markups that OCS imposes on cannabis products it sells to retailers, lowering its profit margin.
What remains to be seen is the impact the reduction will have on prices consumers pay for pot or on the bottom line of cannabis companies.
Lowering the wholesale markups is a good first step by OCS, says George Smitherman, president and chief executive of the Cannabis Council of Canada, the industry group that represents licensed producers.
"There is no doubt that the reduction in markups at the Ontario Cannabis Store is beneficial to the cannabis industry," Smitherman said in an interview. "We'll be looking forward to celebrating future steps."
The cannabis sector in Canada has had little to celebrate recently. It's going through a grim year of financial trouble, especially among producers.
The business environment for cannabis producers is quite challenging and many are struggling to be profitable, says Smitherman.
"The scenario for a lot of companies is that they just can't find enough, after fees and taxes and markups, to be able to pay their bills and to justify what was a many, many, billions of dollars of capital investment," Smitherman said.
He says the OCS markup accounts for "a very significant proportion of the end cost that the consumer pays" for pot.
Currently, the OCS wholesale markup adds on average 31 per cent to what's called the landed cost of cannabis. That's the price that licensed producers charge OCS, which includes the federal-provincial excise tax of $1 per gram.
OCS is moving to new markup rates of 25 per cent on most cannabis products and 23 per cent on dried flower.
The agency has reviewed its pricing policies over the past year and believes the time is right to make these changes, says David Lobo, president and chief executive of OCS.
"With this pricing approach, we will be much more in line with a number of other jurisdictions," Lobo said in an interview. "We've been able, with the size of our market, to really put a competitive product out to consumers and I think that's going to continue to be the case."
OCS estimates the changes will save the industry $60 million next year.
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