Ontario Cannabis Store plans to overhaul wholesale markups

Did you miss the webinar “Women Leaders in Cannabis: Shattering the Grass Ceiling?” Head to MJBiz YouTube to watch it now!

The Ontario Cannabis Store (OCS) says it is reforming markups on wholesale marijuana at the expense of its own margins in a move meant “to help enable a vibrant cannabis marketplace.”

The OCS, which is owned by the Ontario government, has a monopoly on supplying licensed recreational marijuana stores in Canada’s largest provincial cannabis market.

“Reduced margin levels are expected to help enable a vibrant marketplace so that it is better positioned to compete with illegal operators,” the OCS said in a Thursday announcement.

The OCS told MJBizDaily in September that it was reviewing its markups.

MJBizDaily has reported that the wholesaler in Canada’s most valuable adult-use market was cumulatively the most profitable cannabis business in the country.

In December 2021, Ontario’s auditor general knocked the OCS for its value-based pricing approach for cannabis products, saying it was “not based on sufficient analysis and is not transparent to licensed producers.”

The monopoly wholesaler estimates the change will:

  • Contribute roughly 35 million Canadian dollars ($26 million) to the legal cannabis market during its 2023-24 fiscal year, which begins April 1.
  • Contribute CA$60 million in the next full fiscal year.
  • Compound “annually in years thereafter as the market grows.”

The OCS said the new markup structure will be in place in September.

It will involve fixed markups for each different cannabis product category, “applied as a percentage above the landed cost (includes producer margin, excise duty) to arrive at the wholesale price,” according to details published by the wholesaler.

The specific markups will be made public, with an OCS spokesperson telling MJBizDaily they will be published at “a later date” before the change takes place.

“Consistent with its commitment to social responsibility, OCS will reduce its margins to encourage consumers to purchase safer forms of cannabis, such as edibles and topicals,” the OCS said.

“However, the margin on dried flower will be the lowest of any product category to compete effectively with the illegal market.”

Omar Khan, chief communications and public affairs officer of major Canadian cannabis retail chain High Tide, said in a statement that the margin reduction “will help Ontario’s legal cannabis retailers and producers re-invest in their businesses and better compete with a well-entrenched illicit market.”

However, Khan said, “much more needs to be done, especially by the federal government, to ensure the sustainability of Canada’s legal cannabis sector.”

The regulated Canadian cannabis industry is seeking reforms to federal excise taxes and regulatory fees in light of recent job cuts.