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.
Other provinces – including Quebec, New 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 mattl@mjbizdaily.com
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