Ontario’s cannabis business plans take root

Province only has until July to develop a full-scale pot retailing plan

Last week the Ontario government issued draft regulations to support its recentlyadopted recreational cannabis law. From wholesale to retail, it clearly puts government control before customer convenience. This approach facilitates some policy goals but complicates others. It will also reduce consumer satisfaction.

The Ontario Cannabis Retail Corp. (OCRC) is the centrepiece of the province’s plans. It created that crown corporation in December. Last week it appointed exbanker Ed Clark to run it.

OCRC will have a monopoly on recreational cannabis wholesaling. This centralized approach gives government direct control of product flow. That could help exclude black-market products and aid tax collection.

Last week’s regulatory proposals will allow Ontario growers to sell cannabis into other provinces. They don’t say whether OCRC will consider buying from growers elsewhere. Will cannabis enjoy interprovincial free trade? That could help Canadian growers gain scale and compete abroad.

Centralization also makes large-scale product testing feasible. The LCBO sets a good precedent here. Its Quality Assurance Lab tested 28,000 thousand beverages last year. It rejected 11 per cent for health or quality reasons.

Quality testing could give legal cannabis a marketing edge over the black market. Investigative journalists have repeatedly found pesticides and mould in street weed. Even legal medical cannabis suffered recalls last year.

OCRC will also handle all retailing. Ontario’s Liberals, like their eastern counterparts, are conservatively keeping retail public-sector. By contrast, the western provinces are liberally allowing private retailers.

Each approach has advantages. Private sector retailers will likely respond better to customer preferences. This could increase consumer (and voter) satisfaction. Public sector retailers might be better at consumer education and harm reduction.

Convenience is lacking in Ontario’s plan. It initially will have only a website and 40 stores. The count will grow to 150 by 2020.

By contrast, alcohol is sold in over 2,000 stores. Those include LCBOs, agents, beer stores, and wineries.

Cannabis won’t be as convenient. For perspective, consider Walmart. That company also has about 150 Ontario stores. Your future OCRC “WeedMart” will be about as convenient as your current closest WalMart.

That’s enough for planned weekly shopping, but not for last-minute buyers seeking instant gratification. Nor for tourists unfamiliar with shop locations. The black market will have an advantage there.

Canopy Growth has asked to run a “greenhouse outlet” store in Smith Falls. If grape growers can sell their intoxicating wares on site, why not grass growers? But so far, the government doesn’t seem interested.

Inside the shops there’ll be no alcohol or tobacco, only cannabis and related products. That focus could slow the spread of cannabis use. But it also limits stores’ revenue sources. Long-term, it will restrict the number of economically viable locations.

Prices will be uniform across the province. That predictability may offer an advantage over the black market.

However, products will be “behind-thecounter … similar to how tobacco is now sold.” That doesn’t sound promising. Customers will have trouble reading product labels.

If shelving conceals the packages, as with tobacco, then customers won’t even see the labels. It will be hard for growers to establish brand reputations, and for consumers to educate themselves.

The province also seems very cautious about cannabis lounges, where consumers could smoke when not at home. Countless Ontario bars and restaurants serve alcohol. Toronto has supervised opioid injection sites. Supervised cannabis consumption sites seem logical. They would also give tenants living in non-smoking buildings someplace to legally light-up.

The government is thinking ahead in some ways. It’s got tentative plans for edibles, like cannabis brownies and cannabis beverages. The latter may flow from Constellation Brands’ investment in Canopy Growth.

In fairness, the province is being forced to make many decisions quickly. It has only until July to create a wholesale-retail network from scratch.

So, view this as a work-in-progress. You’ve got until Feb. 7 to submit comments on the draft regulations.