Ontario Cannabis Store (OCS) is changing its pricing structure starting in September. The changes will reduce most wholesale markups that OCS puts on cannabis products it sells to retailers, lowering its profit margin.
OCS has come under fire in the past for its outrageous profits. It is hoped that these changes will help the industry have an opportunity to be profitable, but it is still unclear what impact the reduction will have on prices consumers pay or on the bottom line for cannabis companies. The reduced margins are also expected to help the legal sector compete with illegal operators.
New Markup Rates
OCS establishes wholesale prices for cannabis sold to retailers. The wholesale prices also inform end-consumer pricing on OCS.ca. In Ontario, retailers have the discretion to determine retail pricing.
Currently, OCS establishes wholesale prices under a cost-plus framework, using a fixed markup rate for each product subcategory. The wholesale markup adds an average 31% to the landed cost of cannabis, the price that licensed producers charge OCS.
OCS is moving to new markup rates of 25% on most cannabis products and 23% on dried flower. The new prices will go live September 11. The Crown agency says these changes will give retailers the ability to establish retail prices that are competitive with OCS.ca.
Minimum Wholesale Pricing
As part of the new pricing model, OCS has established minimum wholesale prices (also known as a ‘cost floor’) for dried flowers, pre-rolls, infused pre-rolls, and vapes. Each of these categories will have a different cost floor as they each have a different fixed wholesale markup.
The minimum wholesale price (excluding HST) for dried flower is $2.28, for pre-rolls and infused pre-rolls it’s $2.27, and for vapes (1 g) it’s $19.06.