While the Federal government has left a lot of things up to the individual provinces perhaps it should take a step back and correct for the wrong decisions that the provinces are making. After all, the Feds have had a lot of time to discuss their simplistic plan which took the approach that yes, we will make it legal but let’s offload the major decisions and the success or failure of the program to regional provinces.
As a resident of Ontario – I’ll concentrate on this plans that Kathleen Wynne is leading with the provincial liberal party no relation to the federal liberals).
Setting a price level
With an estimated tax windfall of over $100 million dollars a year, the government needs to step out of the pricing debate and let market forces take control of the individual pricing. It’s nice to have a nice round number like $10 a gram as an ideal but like products in every other industry, cannabis is no different in terms of differentiated pricing.
LCBO (Liquor Control Board of Ontario) has a social responsibility mandate in their formation that tries to discourage the patterns and use of alcohol
When the government announced this pricing strategy, comparisons to the control of liquor and the different track they are taking with cannabis became apparent. In terms of selling and controlling alcohol in the province, the LCBO (Liquor Control Board of Ontario) has a social responsibility mandate in their formation that tries to discourage the patterns and use of alcohol by setting a minimum price. This in effect, creates fixed pricing and a mechanism to guarantee profits and limit pricing wars. The CCBO does not have a social mandate to reduce the usage – only to restrict it’s use to those over the provincially mandated age and to get rid of the black market. By artificially regulating the price of cannabis the government will reduce the choice available to end users. The market has room for entrants at many levels.
In publicly available numbers, most of the licensed producers in Canada are producing cannabis at the cost of about 2.10-2.60 (there are some outliers to this data). This number fluctuates a great deal based on strain (some strains flower for 4-6 weeks while others take 8-10 weeks) and curing time (fast cures within 24hrs or longer multi-week curing processes). These variables will result in a very different bottom line and costs.
I want a premium product. Another user may not care but I want the choice to be there.
Allow the market to price itself in order to foster competition and product differentiation. Allow producers to offer discounts based on quantity.
Number of dispensaries
The government also took the opportunity to announced their plans of opening 50 dispensaries in Ontario in year one. Increasing to 150 in 4 years.
Let’s look at these numbers in the context of another jurisdiction that has recreational sales.
In Colorado, a population of 5.5 million there are currently 698 dispensaries – a distribution of 1 for every 7900 residents or one every 350 km2
In Ontario, those numbers will be 1 dispensary for every 272,000 residents or 1 every 20,000km2.
That does not seem to be a recipe to curtail the black market, provide choice and access to the market.