(Toronto) The Ontario Cannabis Commission (OCS) announced Thursday that it will reduce the markups imposed on its prices in an effort to help cannabis retailers compete in the illicit market.
The provincial cannabis distributor said the change in its margins would be implemented in September.
The SCO estimates the move will put $35 million in the hands of licensed cannabis businesses in this fiscal year and $60 million in fiscal year 2024. The commission expects these amounts to increase each year in the coming years. following years as the legal cannabis market develops.
The margin reduction will come from a fixed mark-up for each product category that will be standardized across all growers and applied as a percentage on top of each product’s in-store costs, which already factor in grower markups and processing fees. excise.
The decline in margins is largely attributable to the strength of the illicit cannabis market, which still accounted for 43% of the cannabis market in Ontario last March.
The average price of cannabis was $11.78 per gram at the start of 2019, shortly after legalization, but fell to $7.50 per gram in 2021, according to a November report from Deloitte Canada and research firms. cannabis research Hifyre and BDSA.
The average price of vape cartridges also fell 41%, from $32.02 per gram around legalization to $19.00 per gram a year later.
Cannabis producers, who are mostly unprofitable, have blamed illicit sellers, as well as excise taxes and OCS markups, for a series of cuts they have made in recent years. . Several of them have laid off hundreds of employees, closed facilities, decided to rationalize their product line and launched restructuring initiatives aimed at reducing costs.
To fight the cuts and stay competitive with the illicit market, licensed producers have cut prices, but complain the cuts are eating away at their profits.
With prices falling and profit targets under pressure, some licensed growers and retailers were thrilled to hear of OCS’s shrinking margins.
However, the changes will not come into effect until later in the year. The OCS explained that this delay was intended to give it and licensed producers time to consider changes to existing products and their release schedules.