Tag: ontario

On August 5th a third-party distribution center in Ontario, Canada named Domain Logistics was subjected to a cyber attack that essentially crippled the company’s ability to deliver cannabis products to licensed retailers. Domain Logistics contracts with the provincial government in Ontario where all licensed outlets are required to purchase their cannabis from the government (Ontario Cannabis Store).

Had the cyber attack occurred in most other legal cannabis markets, it would have largely been an isolated incident and the fallout from the attack would have only affected a small percentage of cannabis businesses. However, being that every retailer must go through the Ontario Cannabis Store, and by extension, its vendors, the fallout from the cyber attack on August 5th spread across the province.

A Broken Monopoly Model

It is estimated that Ontario is home to roughly 1,333 licensed retailers. Some of the licensed outlets are part of large store chains while others are small, family-owned operations consisting of only one store. Of course, there are also cannabis companies that fall somewhere in between.

Regardless of their size, as previously mentioned in this article, every single licensed retail outlet has to go through the Ontario Cannabis Store since it has a monopoly on supplying inventory. Monopoly models rarely work, especially when the entity having the monopoly is the government and the product is cannabis which has to compete with an unregulated market.

In a monopoly cannabis model, it only takes one hiccup anywhere in the supply chain to largely bring the regulated cannabis industry in that market to a grinding halt. That is on full display in Ontario where licensed retailers received no cannabis product deliveries for roughly a week. Even with deliveries finally resuming, many retailers are still experiencing bare shelves.

The Need For Further Reform

The main lesson from this latest cyber attack in Ontario is that there need to be further reforms to help ensure that the regulated industry can effectively compete with the unregulated industry. The current model will always be vulnerable to all types of issues, not just cyber attacks, and it only takes one major issue to cause enormous damage to the regulated industry.

How many consumers and patients sought out unregulated sources for cannabis due to the halt in deliveries in Ontario? We may never know the actual number, however, it’s a safe bet that it was a considerable percentage of people that would have otherwise made their purchases from regulated sources, and that is unacceptable.

Regulated outlets have a hard enough time competing with the unregulated market being that the unregulated market requires considerably less overhead to operate. After licensing fees, facility rental fees, security costs, and everything else that goes into running a legal cannabis business regulated outlets are already at a distinct disadvantage compared to unregulated sources. Ontario keeping its current model, and the hiccups and issues that come with it, all but ensure that the unregulated market in Ontario will continue to thrive, and that’s unfortunate considering that things don’t have to be that way.

The main motivation behind legalizing cannabis for adult and/or medical use should always be based on it simply being the right thing to do. No one should ever be penalized for using/possessing a plant that is 114 times safer than alcohol.

With that being said, the reality of the situation is that creating a regulated industry for the purpose of generating public revenue is a driving force behind support for legalization around the globe for better or worse.

Taking the profit away from criminal enterprises and essentially re-routing it to a regulated system in which some profits benefit society is a winning political message, and if actually achieved, a great thing. However, it’s predicated on people actually making purchases from regulated sources rather than unregulated ones, and the transition is far from automatic.

Surveys and polls have consistently found that cost is a major factor for consumers and patients, which is not exactly shocking because that is basically true of any product. But unlike most products, there are a lot of unregulated options when it comes to cannabis, and in most cases, unregulated cannabis is significantly cheaper than regulated cannabis.

Various reports have been published regarding the average price for regulated and unregulated cannabis in Ontario and other parts of Canada, and while the price for regulated cannabis seems to be pretty consistent being that it can be easily tracked, the price for unregulated cannabis often seems to be inflated in my opinion.

I spend an ungodly amount of time online talking to consumers all over the world, and I have yet to find someone in Ontario that pays the prices for unregulated cannabis that are being reported for what that is worth.

It’s a safe assumption that for every extra dollar that gets added to the price of regulated cannabis a certain chunk of the consumer base then gets lost to the unregulated market. With that in mind, the fact that roughly half of the price of regulated cannabis products in Ontario is due to taxes and provincial mark-ups is obviously a problem and will always hinder the legal industry.

This is not to say that there should be no government profit at all. Regulatory oversight is not free, so there needs to be enough money to safely administer sensible industry regulations, and to some extent, put cannabis industry revenues to work helping society in various ways.

However, there needs to be a balance struck to help ensure that regulated cannabis is truly competitive with unregulated cannabis. Regulated cannabis will never be as cheap to produce as unregulated cannabis, but it needs to be close enough that consumers feel comfortable paying a little extra for a product that they know is tested and safe.