Ontario cannabis retailing: modern quality, 1928 sobriety

Confusing retail approach will make it tough for legal cannabis growers to build brand reputations

Thespec.com
April 28, 2018
Michael J. Armstrong

The Ontario Cannabis Retail Corporation grabbed attention recently by identifying its first outlet locations. But it was the accompanying call for product suppliers that caught my eye. That seemingly dull document hinted at OCRC's future relationships with cannabis growers and consumers.

Toronto's initial store will be in a retail plaza across from housing. The disclosure initially triggered some not-in-my-backyard anxiety and political foot-stomping. Calmer heads later agreed the site is reasonable given the city's high density.

OCRC's supplier call was largely ignored but more informative in several ways. First, it shows Ontario doesn't have any confirmed cannabis supplies yet. Growers have until May 2 to submit offers. Shipments could begin June 1, optimistically leaving just four weeks to negotiate contracts.

By contrast, Quebec last week signed six supply contracts. Ontario lags in securing product, despite being months ahead in passing legislation.

The lateness could pose problems. Some observers expect cannabis shortages initially. If OCRC doesn't lock down supplies soon, its shelves may look bare.

Quebec's news also suggests potential financial challenges. Its largest supplier expects to receive $5.40 per gram wholesale. Meanwhile, Statistics Canada estimates illicit retail prices at $6.96.

That modest retail-wholesale difference indicates OCRC will lose money if it tries competing with black markets. Suppose it charges $6.96 per gram while paying $5.40. After subtracting $1.80 of excise and sales taxes, it'll lose $0.24 per gram. That's even before paying operating costs.

Speaking of prices, OCRC wants suppliers to suggest a retail price for each product. That implies different prices for different brands, with growers competing partly on price. Just as fine wine costs more than basic plonk, premium cannabis will cost more than entry-level weed.

Suppliers also must specify products' tetrahydrocannabinol (THC) and cannabidiol (CBD) content. All product shipments will require chemistry lab reports confirming those numbers.

That's a good start toward improving cannabis quality and consistency. It'll help legal products develop reliable reputations with consumers and marketing advantages over street weed.

Unfortunately, OCRC apparently won't test cannabis itself. That's a missed opportunity to further promote quality. It should instead follow the LCBO's example. Its quality lab analyzed 28,000 alcoholic beverages last year.

On the retail side, a split-personality experience awaits shoppers. OCRC outlets will have the modern flair of Apple computer stores and Vintages wine shops. But they'll possess a 1928 temperance mentality.

We already knew the outlets will feature computer screens displaying product information. This apparently won't just include brand name, THC content and price.

The product call requests more winelike descriptions, too. Would you prefer "an earthy product with citrus notes and a subtle hint of eucalyptus?" Or one "hand trimmed & sorted" instead?

What customers won't see, touch or smell before purchase is cannabis. As with liquor stores of 90 years past, customers will be screened in a lobby before entering the sales area. There they can order unseen products that employees fetch from the stockroom.

(Customers presumably then will slink out shamefacedly, with their sinful purchases in federally required plain packages.)

This confusing retail approach will make it tough for legal cannabis growers to build brand reputations. That weakens their competitiveness with black markets.

That said, I sympathize with OCRC's predicament. It's provincially mandated to build an entire distribution system from scratch before the federal government's July deadline. I wish the newly appointed president, Nancy Kennedy, good luck -- she may need it.

 

Michael J. Armstrong is an associate professor in the Goodman School of Business at Brock University.