Ontario Cannabis Store halts store deliveries after cyberattack on contractor

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(This story has been updated with quotes from an additional retailer.)

The Ontario Cannabis Store, the monopoly wholesaler of adult-use marijuana in Canada’s most valuable market, suspended deliveries to stores after a cyberattack on the parent company of contractor Domain Logistics, which operates the OCS distribution center.

The attack occurred “late on Friday August 5,” according to an email the OCS sent Monday night to Ontario retailers. The email was obtained by MJBizDaily.

Citing “an abundance of caution,” the OCS said it decided “to shut down Domain Logistics’ operations until a full forensic investigation could be completed.”

OCS said it would still take orders during its daily order window, “as this will allow us to have orders ready to fulfill once the system is back online.”

The email also noted that:

  • A scheduled launch of new cannabis products will be delayed as a result of the delivery shutdown.
  • The OCS will waive delivery fees through Sept. 30 as well as the processing fee “for one emergency order per store between September 1 and March 31, 2023.”

It is unclear when deliveries will resume, although a media update posted on the OCS website said all “orders this week will be delayed by at least 24 hours.”

The wholesaler added that there is “currently no indication that OCS systems or its customers’ information was targeted or in any way compromised as a result of this incident.”

Earlier this year, the OCS suffered from a major breach of its client retailers’ sensitive business data.

The OCS said the data, which included sales figures for individual retail locations, was “misappropriated” and that a criminal investigation was underway.

Stephen Verbeek, president and CEO of Ontario retailer Hello Cannabis, is concerned that data may have been exposed in the cyberattack against the OCS delivery contractor.

As for the delivery delay, Verbeek said some Ontario stores carry more than a week’s worth of cannabis.

But others may need their weekly order to avoid “almost bare shelves” and unhappy customers.

“That’s happened to us once or twice before, with many other instances where deliveries were delayed, or delivery dates were changed.”

Ontario retailers react

The delivery delays caused by the cyberattack on the parent company of Domain Logistics could have serious fallout for some cannabis stores in Ontario’s competitive market.

“We don’t know how long this is going to last,” said Lisa Bigioni, co-founder of Stok’d Cannabis, which has two locations in the Scarborough area of Toronto and one in Niagara Falls.

Bigioni said her stores “essentially order enough product to get us through the week with some buffer, of course, before we can order more.”

With new products scheduled to come out this week, Bigioni said, she had been trying to sell out of older products to make space.

“For any retailers that have been doing that,” she said, “we’re now challenged because we were actively trying to reduce inventory before bringing in new stuff.”

For now, Bigioni said she’s trying to transfer inventory between her stores to cover the gap.

Meanwhile, she’s concerned that the grand opening of a new Stok’d franchise in Scarborough this weekend might have to be rescheduled.

Bigioni called for better communication from the OCS to the stores it supplies and questioned why retailers didn’t hear about the Friday cyberattack until late Monday.

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Mark Phillips, owner of two Island Smoke cannabis stores in Trenton and Hamilton, Ontario, told MJBizDaily he didn’t expect much of an impact from the delivery delay in the short term because his stores stock more than one week of inventory.

“But if the deliveries are delayed for any real long, extended period of time, yes, it’s going to have a negative impact on business,” he said.

For his part, Phillips believes he has received sufficient information from the wholesaler.

“From what I can see, they’re dealing with it as best they can – this kind of thing, it’s not exclusive to them,” Phillips said.

“Every single company in the world is vulnerable with cyberattacks.”

Phillips added that he rarely has issues with the OCS.

“They get us our product in a timely manner, for the most part,” he said.

“When there are delays, they’re few and far between, compared to other industries that I’m involved in where delays are tremendous and ongoing all the time,” he continued, adding that the OCS always offers compensation for delivery problems.

OCS told to improve delivery oversight

A late 2021 report from the Office of the Auditor General of Ontario recommended the government-owned cannabis wholesaler should improve its oversight of Domain Logistics, and the OCS said it would work to do so.

Domain Logistics’ contract with the OCS was worth roughly 70 million Canadian dollars ($54.4 million) as of March 2021, according to the auditor’s report.

Ontario’s legal adult-use cannabis market was worth CA$151.6 million in May.

The province has issued more than 1,600 cannabis store licenses to date, amid worries that some stores will have to close in the face of intense competition in some areas.

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.