Ontario Cannabis Store to reduce margins to better combat illicit trade

The Ontario Cannabis Society (OCS), the cannabis regulatory body for the Canadian province of Ontario and the exclusive wholesaler and distributor to private cannabis stores in the province, plans to reduce its profit margins starting next month in order to better compensate both producers and distributors and to compete more and more with the black market.

According to George Smitherman, CEO of the Canadian Cannabis Council—the organization that represents licensed producers—«reducing wholesalers» profit margins is a step in the right direction and will benefit the industry.”.

«The business environment is challenging, and many producers are unable to turn a profit,» he points out. «After expenses, taxes, and surcharges, many companies simply don’t have enough money to pay their bills and justify billions of dollars in capital investments.»

Approximately 1,700 stores now sell cannabis in Ontario.

The wholesale margins imposed by the OCS account for a significant portion of the final price paid by consumers. Currently, the OCS adds a margin of approximately 31% to the price that licensed producers charge it. The agency will now implement new rates of 25% on most cannabis products and 23% on dried flower.

«The provincial agency reviewed its pricing policy over the course of the year and concluded that the time was right to implement these changes,» explains David Lobo, CEO of the OCS. «This pricing is more in line with what other governments charge,» he adds. «Given the size of our market, we’re able to offer consumers a truly competitive product, and I believe that will continue to be the case.»

«I believe these changes will save the industry $60 million next year.»

L’The public company, for its part, reported revenue of of $1.18 billion in 2021–2022 and posted a profit of $184.4 million. The agency has not yet released its financial report for fiscal year 2022–2023.

As for the price paid by customers, it is not yet clear what the actual impact of these price changes will be. Producers and retailers may choose to keep a portion of the additional profit margin for themselves before passing it on to consumers.

«I don't think consumers will see a difference in retail prices,» says through CBC Cameron Brown, communications manager for the retailer The Hunny Pota, which has about 20 stores in southern Ontario. «I think most of the products consumers buy in stores today will remain at roughly the same price.»

Nearly five years after legalization, the legal market accounts for nearly 60% of sales in Ontario, according to estimates from the OCS and the Canadian Cannabis Council.