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Report: Ontario Might Abandon Wholesale Cannabis Sales

By Eric Volkman - Oct 2, 2019 at 7:03AM

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An announcement could come as early as next week, sources say.

The Canadian province of Ontario is considering the elimination of its wholesale cannabis sales operation, according to a report published Tuesday in Bloomberg BNN.

The article, citing several people familiar with the matter, implies that such considerations are at a late stage and that an official announcement on the subject could be made as soon as next week.

Gloved hand holding marijuana leaf in front of Canadian flag

Image source: Getty Images.

At the moment a province-owned entity, Ontario Cannabis Retail Corporation is the only company legally permitted to sell wholesale product in the province. Additionally, the OCRC controls the Ontario Cannabis Store, the sole online retailer allowed to sell recreational cannabis to the public.

But the provincial market has apparently grown too large for the OCRC. It has only one warehouse in which to store product, and future expansion could be prohibitive financially and fraught politically -- the organization lost 42 million Canadian dollars ($32 million) in its last fiscal year.

The article's sources said that officials from the province would consult with the cannabis industry to come up with alternatives to the government-owned wholesale model.

One possibility is to effectively throw the market open to private wholesalers, and/or have growers connect directly with retailers and producers in a "cut out the middleman" system.

Ontario is by far the largest Canadian province in terms of both population and gross domestic product. Not coincidentally, it also has the largest cannabis market in the country. Finally, it's home to Canada's largest city, Toronto, and the capital, Ottawa.

The province is also home to many known cannabis companies' headquarters, including top names in the sector like Canopy Growth (CGC -12.50%) and Cronos Group (CRON -13.69%).  

If Ontario were to change its wholesale regime, retailers and consumers might end up with more coin in their pocket from the savings. At the moment, according to per-gram prices cited by Statistics Canada, cannabis in Ontario costs over 6% more than the average national price. 

The OCRC has not yet commented on its potential exit from wholesale. And although locally headquartered marijuana stocks theoretically stand to gain from a possibly more liberal wholesale regime, neither Canopy Growth or Cronos Group has weighed in publicly on the matter.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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