After receiving a lot of complaints about the outrageous profits made by the Ontario Cannabis Store (OCS), and following a review of its current pricing structure, the OCS announced that it will be transitioning to a fixed mark-up pricing model and will be reducing margins. It is hoped that these changes will help the industry have an opportunity to be profitable.
The high profits were highlighted in Ontario’s Auditor General’s report last year and the excessive mark-ups were reported in an EY Parthenon report commissioned by the Cannabis Council of Canada (C3).
Greater Transparency
The OCS states that the fixed mark-up model will create greater transparency and consistency for licensed producers (LPs). This announcement follows a lobbying event on Wednesday from the C3 that has been fighting for pricing reform for some time. George Smitherman, President and CEO, was very pleased with the announcement saying, “We appreciate and applaud the OCS’ commitment to transparent mark-ups and the reduction in its mark-up rates. These changes will provide much needed breathing room for an industry drowning under perilous economic headwinds.” He adds, “Minister Bethlenfalvy and the Ford government are to be credited for supporting this step by the OCS.”
Competing With the Illicit Market
Reduced margins are expected to help the legal sector compete with illegal operators who work with much slimmer margins and sell products substantially cheaper.
Rick Savone, C3 board chair and Aurora’s Senior Vice President of Global Government Relations, echoes the enthusiasm of many across the legal cannabis sector for the move. “Transparency and stability are exactly what our sector needs right now. It’s a relief that the Government of Ontario has acknowledged that it takes healthier companies to compete with the entrenched illicit market. This will make an important difference for our work,” notes Savone.
With this change, it is estimated that OCS margin reductions will contribute approximately $35M into the marketplace in 2023-24, with a full fiscal year reduction in 2024-25 estimated at approximately $60M.
Supporting a Vibrant Sector
“As the exclusive wholesale distributor for legal recreational cannabis in Ontario, OCS is doing its part to support a vibrant cannabis marketplace that helps to displace illegal operators, while promoting social responsibility in connection with cannabis,” says David Lobo, President & CEO, OCS. “The OCS is pleased to use its growth in scale to establish a more balanced share of product margins to help enable a vibrant cannabis marketplace.”
Pricing changes will be implemented for September 2023, allowing adequate time for OCS to work with licensed producers to consider changes to existing products and products scheduled to launch in upcoming 2023 releases.