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Given a Monopoly on Ontario Store Product, Licensed Producers Push for Online Sales

October 3, 2017

The Ontario government’s recently unveiled framework for distribution and sales of recreational marijuana has come under fire from dispensary owners and other stakeholders who will be marginalized by it. But even stakeholders who stand to benefit the most from the framework see room for improvement.

On September 8, the province announced that the Liquor Control Board of Ontario, a government-run corporation, will have a monopoly on the distribution and sales of recreational cannabis when it becomes legal next year, selling it at dozens of standalone storefronts and online.

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In his response, the head of Aphria, one Canada’s biggest licensed producers, acknowledged that the framework will be a boon to the profit margins of big producers. “Selfishly, I’m really glad to see that the supply chain through the Ontario brick-and-mortar stores, and online, is coming from licensed producers across the country,” CEO Vic Neufeld told the Financial Post.

“From an organizational perspective, it’s now simple for us; we’ll be dealing with one Ontario retailer rather than many. We don’t have to focus on the retail side of our business in that province.”

“We now have the guidance and clarity we need to move forward,” Jordan Sinclair, spokesperson for Canopy Growth Corporation, a big licensed producer, told Leafly. “From an organizational perspective it’s now simple for us; we’ll be dealing with one Ontario retailer rather than many. We don’t have to focus on the retail side of our business in that province. We can focus instead on the production side—work out how we’re going to get our product onto store shelves.”

But Canopy Growth and some other big producers believe the plan could be better; they want to be able to sell recreational cannabis to consumers directly, just as they already do with medical cannabis.

Canopy Growth has enhanced its online sales operations in the hopes of doing just that. When the province unveiled its plan, the Ontario-based producer issued a statement calling on the government “to consider allowing existing licensed producers to continue their e-commerce sales if [that would] allow for a more cost-effective, expeditious, and varied sales model for Ontarians.”

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“We have established ourselves as an e-commerce business. We can [sell cannabis] in a responsible way and we would like the province to take that into consideration,” Sinclair told Leafly. “This has been our message all along.” He said he is hopeful because the province’s framework “leaves some wiggle room” when it comes to online sales.

His thoughts are echoed by the head of Cronos Group, which owns and operates two licensed producers. “I would like to see Ontario licensed producers have the ability to make direct e-commerce sales to Ontarians,” CEO and chairman Michael Gorenstein told Leafly. “Given these producers’ demonstrated ability to safely and compliantly handle e-commerce distribution under the medical framework, it would be a low-cost and natural transition that would supplement the [province-run] store fronts.”

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The Cannabis Canada Association, which represents the majority of the country’s licensed cannabis producers, released a statement calling for “the expansion of e-commerce mail-based distribution and retail of medical cannabis by licensed producers to include adult-use cannabis.” That would support the “immediate logistical problem” of providing adequate supply and access for Ontario adults, said the association, “and it would support a smooth and rapid transition to legalized cannabis.”

Ontario plans to have 40 cannabis stores open when legalization hits next July, and many industry insiders and analysts say that won’t be enough to meet demand.

Ontario plans to have 40 standalone cannabis stores operational when recreational marijuana becomes legal next July, and many industry insiders and analysts say that won’t be enough to meet demand. (The province plans to have 150 stores up and running by 2020.)

Some producers have also expressed an interest in selling to consumers at retail outlets that are not run by the province in much the same way beer, wine and liquor are.

Smaller cannabis producers have greater misgivings about the province’s framework, claiming that it gives an unfair advantage to big corporations that have financial resources, lobbying power and expertise to win supply contracts with the LCBO. “It’s [possible] that smaller producers will experience more pressure in an environment with fewer independent retailers,” Dan Sutton, the founder of Vancouver-based marijuana producer Tantalus Labs, told The Canadian Press.

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But nothing is set in stone, says Sinclair. “Cannabis regulations will have to undergo constant evaluation. If the system isn’t working after 18 months, changes can be made,” he said, adding that craft growers could eventually gain a foothold in the Ontario market much the same way craft brewers have in recent years. “You can’t always get it right on the first pass.”

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Randi Druzin

Randi Druzin is an author and journalist in Toronto. She has worked at several major media outlets, including the National Post and the CBC, and has written for dozens of publications, such as The New York Times, Time magazine, ESPN The Magazine, and The Globe and Mail.

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