By / August 2, 2023

Ontario Cannabis Store (OCS) to Margins to Combat Illicit Trade

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

Support for OCS from the Canadian Cannabis Council

According to George Smitherman, CEO of the Canadian Cannabis Council, the organization representing licensed producers, “the reduction of wholesalers’ profit margins is a step in the right direction and will benefit the industry.”

He points out, “The business environment is challenging, and many producers are struggling to achieve profitability. After fees, taxes, and markups, many companies simply don’t have enough money to pay their bills and justify billions of dollars in capital investments.”

Currently, around 1,700 stores are selling cannabis in Ontario, including OCS.

New Pricing Structure and Impact on the Industry

The margins imposed by OCS wholesalers represent a significant portion of the final price paid by consumers. Currently, OCS adds a margin of approximately 31% to the price charged by licensed producers. The company will now move to new rates of 25% on most cannabis products and 23% on dried flowers.

“The provincial agency has reviewed its pricing policy over the year and has concluded that the time has come for these changes,” explains David Lobo, CEO of OCS. “This pricing is more in line with that applied by other governments,” he adds. “Given the size of our market, we are able to offer a truly competitive product to consumers, and I believe that will continue to be the case.”

“I estimate that these changes will save the industry $60 million next year.”

Financial Performance of OCS

The public enterprise recorded a revenue of $1.18 billion in 2021-2022 and achieved a profit of $184.4 million. The agency has not yet published its financial report for the 2022-2023 fiscal year.

As for the price paid by customers, it is not yet known what the actual effect of the OCS price changes will be. Producers and retailers may choose to retain a portion of the extra margin for themselves before it impacts consumers.

“I don’t think consumers will see a difference in retail prices,” says Cameron Brown, communications manager for the retailer The Hunny Pota, which operates around twenty branches in southern Ontario. “I believe that most of the products consumers are currently buying in OCS stores will remain at roughly the same price.”

Legal Cannabis Market Growth in Ontario

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

(Featured image by RDNE Stock project via Pexels)

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