2019 has proven to be a highly volatile year for Canada’s cannabis industry. As the euphoria of legalization began to wear off, many licensed producers have struggled to achieve profitability given the slower than expected rollout of cannabis retail storefronts in large provinces like Ontario, Quebec and British Columbia. In fact, it now appears that despite earlier worries about a national cannabis supply shortage, there are now too many producers holding too much product that cannot make it into the hands of consumers due to supply chain challenges.
In Ontario, the few licensed retailers have also struggled to compete with the illicit market. This is because to date, very few licenses have been granted. Further, those that have been granted have been done through a lottery system which has resulted in some licensees who lack retail experience not being able to get up and running in a timely manner, and due to an inability to compete with a proliferation of illegal delivery services. In short, those who have chosen to play by the rules have been increasingly vocal about how difficult business conditions have become under Ontario’s current regulatory framework.
The Ford government appears to have received the message. In today’s annual Fall Economic Statement (FES), Finance Minister Rod Phillips outlined several changes designed to help the legal market effectively compete. The measures outlined today include:
- A commitment to move towards an open allocation of retail licenses, where the number of stores will only be limited by market demand.
- Allowing authorized private retailers to offer online and phone reservation and pick up services.
- Permitting Licensed Producers (LPs) to offer point-of-production (farmgate) sales on their premises.
As of 4:00pm Wednesday the government had not yet posted online companying legislation which will provide more detail to the governments proposed approach. H+K will provide a detailed analysis of the legislative language once it is in the public domain.
Some in the industry will likely argue that today’s measures do not go far enough. For example, the government is not yet allowing for private e-commerce platforms and delivery services and has not yet outlined a timeline to move towards open licensing. Despite this, today’s announcement made it clear that there are more changes to come as the Ontario Cannabis Store (OCS) has concluded consultations with the province’s LP’s and retailers to explore an alternative provincial wholesale delivery framework for product. It appears likely that these changes will be rolled out alongside additional changes to the retail distribution framework in the coming weeks, as the document released by the government today states that these consultations “will help inform the government’s approach to the ongoing development of the provincial retail and distribution system”.
In short, the measures announced today are an important step towards ensuring a healthy legal marketplace for cannabis sales in Ontario. More must be done if Ontario is truly to eliminate the illicit market, but today the Ford government demonstrated that it is willing to listen to industry stakeholders and institute necessary policy changes.