Cannabis industry pushes back against Ontario retail blueprint, but welcomes the clarity

cannabis rules

By Matt Lamers

Canada’s cannabis industry is pushing back against the Ontario government’s blueprint for regulating marijuana, urging the province to reconsider its plan to handle recreational cannabis sales while shutting the private sector out of the retail rec business.

While licensed producers welcomed the fact that the province provided clarity and made it easier to plan for the future, they hope Ontario will revise the proposed legislation when it’s introduced this fall and give private companies a retail role.

The Ontario government’s proposed regulatory framework calls for a state-run monopoly to sell adult-use cannabis online and in stores – a move more vocal critics say could spur consumers to seek product from the black market.

The plan also calls for a crackdown on existing cannabis dispensaries and limiting marijuana use to private homes rather than allowing public clubs or lounges.

Other provinces – including QuebecNew Brunswick and Prince Edward Island – also are eyeing recreational marijuana sales through government-run monopolies. So Ontario may presage what’s to come for the rest of the country.

Industry officials, however, noted that LPs already handle online orders and distribution of medical marijuana – so why not recreational cannabis in Ontario’s case?

“I was disappointed to see that they are looking to recreate something that already exists and is successfully operating,” said Greg Engel, CEO of New Brunswick-based Organigram.

“We distribute medical cannabis through mail order today,” he added. “So why would they recreate that? The federal government has said they are supportive of a national mail-order program run by licensed producers.”

Why reinvent the wheel?

Ontario’s government-run liquor board will oversee an online order service for recreational cannabis, disappointing licensed producers who had hoped to leverage their experience selling medical cannabis online.

But with mail order set to go to the hands of the liquor board, consumers fear the online system for cannabis could end up mirroring the province’s online system for alcohol, which comes with prohibitive costs, including a CA$12 delivery fee, CA$50 minimum order and “up to 4 weeks for delivery,” according to its website.

“If (the government’s website) doesn’t work smoothly, there’s obviously an incentive for people to continue purchasing from the black market,” said Anindya Sen, a professor of economics at the University of Waterloo who specializes in effects of government intervention in markets.

Brendan Kennedy, CEO of B.C.-based Tilray, wants the Ontario government to reconsider its proposal for a government-run platform.

“Most licensed producers in Canada are already serving patients very safely and very effectively directly online,” he said. “The Ontario government should consider formalizing this existing private e-commerce model ahead of recreational legalization, using existing LP platforms to safely distribute cannabis while doing so at a lower cost to government.”

“The task of establishing retail storefronts before July 1 is considerable. The government should consider leaving the existing commerce system, which is already working, in place.”

A black market boon?

While LPs have been restrained in their criticism, others have been more blunt.

Professor Sen said excluding private enterprise would be a boon for the black market.

“Any new approach should integrate the dispensaries which already exist and give them a chance to join the market,” he said. Failing that, private enterprise “has an incentive to continue as illegal operations, which will lead to a bigger black market.”

“The point of legalization is to shut down the black market,” he added. “I don’t see this happening in the short run by any stretch of the imagination.”

Abi Roach – director with the Cannabis Friendly Business Association, which represents a few dozen businesses in the marijuana industry, including dispensaries – said the province’s framework would fail to to service the needs of consumers’ “sophisticated” palates.

“If they stick to this plan, it is going to explode in their face. It’s doomed to fail,” she said.

Retail — government corners market 

Ontario’s plan to corner the market for recreational cannabis involves opening 40 government-owned stores next summer and 150 by 2020.

It’s unclear what kind of experience the stores will offer consumers, however, and some executives are concerned product could be “hidden” from view, similar to how tobacco is sold in Ontario, before a transaction is made.

Engel supports an age-gated “jewelry store-type” consumer experience, where customers are age-verified upon entry and products are visible, but under glass.

“What’s unclear from Ontario is whether the product will be behind cabinet doors. That wouldn’t make sense,” he said. “At the end of the day, there’s no reason to do that if you restrict access into the retail location. Secondly, that’s not what a consumer is going to be looking for. Why bother with a retail location?”

Cannabis Canada Association, a trade group representing LPs, hopes the province allows for private retail sales alongside government-owned stores.

“A competitive market model would provide the province with a predictable, low-risk revenue stream without the taxpayer burdens of upfront capital expenditure exposure and operational risk,” it said in a statement, adding that a “direct producer to consumer e-commerce can and should co-exist alongside any potential distribution and retail model, and not just as an interim measure.”

Tilray’s Kennedy wants the government to reconsider disallowing private retailers.

“In order to ensure access is maintained and the black-market shrinks, we urge the government to consider on-boarding more retail outlets in short order and to allow for private licenses in future phases of implementation,” he said.

LPs welcome clarity

While unhappy with the retail aspects of the government’s plan, industry officials representing LPs said it provided regulatory clarity and would make it easier to plan for the future.

Canopy Growth’s Jordan Sinclair said the clarity offered by the framework allows his company to focus on the production side to meet the demand of a new market.

“The bottom line is that we’re about to start serving millions of more people in Ontario and that momentum will continue in all other domestic markets,” he said. “We aren’t surprised by this structure. It’s exactly what we’ve been hearing from the Ontario Liberals for the last year.”

Darren Karasiuk, vice president of strategy of Markham-based MedReleaf, said a clear perspective of what the market is going to look like is important, regardless of what the details.

“It’s helps us prepare,” he said, also welcoming the government’s crackdown on illegal dispensaries.

Maricann CEO Ben Ward said the proposed system supports competition based on product quality.

“All LP’s will have to create quality differentiated products that customers demand,” he said. “That means consumers will choose products, not based on who paid the most for shelf space to push their brand, but what’s best for them.”

Matt Lamers can be reached at [email protected]

To sign up for our weekly Canada marijuana business newsletter, click here.

3 comments on “Cannabis industry pushes back against Ontario retail blueprint, but welcomes the clarity
  1. johnny on

    A number of years ago all governments were cost cutting which lead to Privatization of many services. This was done because the private sector could deliver better services, better products in a superior manner with less costs. Now the Ontario Government thinks they can do better than private enterprise , what has changed ? I still see governments with no sense of business practices screwing up everything they touch and its costing tax payers dearly. They should NOT be allowed (nor should any government) to do any job better serviced by private enterprise. So that would mean stay out of any business . Leave business to people who know what they are doing. I hope they change their ways and clearer heads prevail. When they screw this up and they will, private enterprise will be looked upon to FIX it guaranteed. Just do it right to start with and save us time, money and aggravation. By leaving it up to private enterprise will show the world that they have learned their lessons from years ago and still remember that outcome.

  2. Robert Villeneuve on

    You can’t give the LP’s the right to sell online.

    For one that is the beginning of their monopoly and complete vertical integration.

    Two they cannot verify the end user. Logging on with FB or using the trust based model of the Fido Alliance will guarantee hacks and minors will be getting cannabis. Then the government will have enough reason to completely take over the industry.

    To learn about the problem of end-user authentication, you have to follow the US military DOD, DHS Homeland Security and the NSA tests. Over the past 6 years they have been working with the OEM’s Samsung, Apple, LG and software firms to develop a digital ID, using derived Certificates. The OEM even altered the hardware of their phones for this.

    They thought they had it last years until the NSA found 4 critical faults in the PKI, Personnel Key Interface.

    Even the Canadian Banks gave $25 million to Securekey to try and harden their mobile connections.

    So when the LP’s who we all know are only out for themselves, tell you it’s safe and secure BS.

    Write your MP’s, you have to stop the LP’s
    Look at what New Brunswick did with Canopy and Origam…made them the only suppliers for the province. Monopoly. All the little guys got locked out.

    Now look up the political connections Canopy has the the Liberal party.
    This whole system is bogus

Leave a Reply

Your email address will not be published. Required fields are marked *