Ontario Government Announces Bizarre Cannabis Retailing Law

The provincial government in Ontario has opened up a new avenue for cannabis retailing with one hand. But with the other hand, it has undermined its potential for success.

Cannabis companies and industry observers had become cautiously optimistic that the Ontario government had (finally) adopted a constructive approach to cannabis legalization.

The province’s previous – and totally dysfunctional – “lottery system” for awarding cannabis licenses has been scrapped. A new “open allocation” system is now in place. This could (should?) result in the number of cannabis retail stores in Ontario multiplying by nearly a factor of ten in 2020.

Now the province has announced “direct” cannabis retailing from cannabis producers to consumers. This farm-gate cannabis retailing will allow Ontario pot consumers to buy from growers much like vineyards and breweries are allowed to sell directly to consumers.

The problem? It’s not direct sales.

Unlike direct producer-to-consumer sales of beer or wine, Ontario cannabis producers first have to sell their cannabis to the provincial government monopoly. Then they have to buy back their own cannabis – with a provincial mark-up added – before it can be legally retailed to consumers.

Crazy? Yes.

Inefficient? Yes.

Doomed to failure? Yes.

Note that cannabis producers don’t actually have to ship their cannabis to the provincial government’s cannabis warehouse (and then ship it back). That would be too crazy.

They just have to sell it to the provincial government, then buy their own cannabis back (at a mark-up) before selling it “directly” to the consumer.

This comes in a cannabis market in Canada where the black market still controls 70 – 80% of cannabis sales. And the biggest reason why the black market still dominates is price.

With black market producers having cut their prices, legal cannabis in Canada still generally retails for nearly double the price of black market weed.

Injecting this artificial transaction into “direct” cannabis sales just to add a government mark-up is sheer idiocy – and greed on the part of the Doug Ford government. It also dooms this initiative to failure. Most consumers will balk at the inflated prices.

Direct producer-to-consumer cannabis sales in Ontario could have been a win/win proposition for consumers and cannabis companies. Instead, it’s just another failed pot policy from Ontario’s Conservative government.