Associate Professor of Operations Research in Brock’s Goodman School of Business, Michael Armstrong, wrote a piece recently published in the Ottawa Citizen about Ontario’s fragmented cannabis retail system, which he says will lack competitiveness against existing black markets and future foreign rivals.
Armstrong writes:
An Ontario government lottery last Friday picked 25 initial candidates for cannabis retail licensing. It was great news for those chosen from among the 17,320 applicants. But it’s another step toward creating a fragmented, inefficient retail system that will face established illegal suppliers and future foreign rivals.
Many winners likely celebrated their one-chance-in-693 good fortune by dining out, giving new meaning to the term “potluck dinner.” For now, their only legal rival will be the website for the Ontario’s Cannabis Store. Their real competition will be black markets, which Statistics Canada estimates attract 52 per cent of buyers.
Those buyers say illegal pot’s primary advantage is price: $6.51 per gram on average, versus legal weed’s $9.70. Legal growers, wholesalers and retailers must therefore get efficient to shrink that difference.
Many growers are doing exactly that. Larger greenhouses provide economies of scale, while automation trims labour needs. Off-shoring production to warmer climates could cut costs further. Consequently, production costs could trend downward from around $2 a gram toward $0.20.
But Ontario’s pot retailing approach shows no such emphasis. To begin with, repeated rule changes have hindered business planning. In August, the government announced plans for unlimited cannabis stores. But in October, it restricted growers to one outlet each. In November, it limited other retailers to 75 stores apiece. And in December, it capped initial licences at just 25.
Continue reading the full article here.
