The fact that the Ontario Cannabis Store (OCS) is the most profitable cannabis company in Canada has many private retailers upset, and rightfully so.
The OCS’ pockets only got fatter in 2022, reporting a staggering profit of $184.4 million for its fiscal year 2022 with the addition of 935 new stores. That’s a 162.68% increase in profit over last fiscal year’s figure of $70.2 million. According to the OCS, there are over 1,600 retail stores in the province at present.
The OCS disclosed that it would be undergoing a pricing review this fall. “As Ontario’s retail marketplace continues to grow, the OCS is undertaking a holistic review of its approach to pricing, from structure to margin, to assess whether changes are needed to support illegal market capture objectives, provide licensed producers with greater transparency, and ensure the corporation continues to provide a meaningful return to the province,” says Daffyd Roderick, OCS’ Senior Director, Communications & Strategic Engagement in a statement to Cannabis Retailer.
Concerns Over Markups Persist
This summer, Cannabis Retailer reported on a study by EY Parthenon that discovered Ontario government taxes and provincial mark-ups represent 46.6% of the price of a basket of legal cannabis products, including 1g flower, 1g pre-roll, 750mg vape, and 10mg edible. This fall, we reported on the Office of the Auditor General of Ontario’s annual report where unaddressed concerns remained over the effectiveness of the Ontario Cannabis Retail Corporation (OCRC), calling into question what the role and the mandate of the Ontario Cannabis Store should be.
“Similar to other provinces in Canada, Ontario has a mark-up structure that helps facilitate activities to support the legal marketplace,” says Roderick. “This includes weekly distribution of products to over 1,600+ authorized retail stores, providing in-depth product information to help retailers navigate an assortment of over 2,500+ SKUs, and educating consumers on socially responsible consumption.”
While this data takes into account all of Canada, it was recently revealed in the Canadian Cannabis Survey 2022 that half (51%) of all Canadians have not seen any public education programs about cannabis. Only 28% indicated they’d been aware of TV/radio education campaigns, with significantly fewer witnessing campaigns through social media, public posters/billboards, in health care settings, or inside/outside cannabis retail stores.
Policy & Pricing
The aforementioned report by EY Parthenon recommended policy considerations if governments truly want to eradicate the illicit market and promote safe supply. These recommendations included reducing federal and provincial excise taxes, reducing taxation on Cannabis 2.0 products to incentivize the public toward healthier consumption formats, and revisiting marketing prohibitions so LPs can better communicate the characteristics and effects of their products.
“Before this review is finalized, policy guidance and formal procedures on pricing will be looked at for decision-making consistency,” says Roderick.
Despite OCS’ extreme profitability for fiscal year 2022, data by Headset recently revealed that the average item price for flower has declined in Ontario by 17% over the period of October 2020 to October 2022, yet in Ontario, pricing compression on flower is beginning to slow.
The OCS did not indicate when they expect the pricing review to be complete.