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In an effort to boost struggling retailers and combat the illicit market, the Ontario Cannabis Store (OCS) has announced a plan to transition to “a fixed mark-up pricing model” and reduce its margins.

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The OCS says it’s making the changes after completing a review of its pricing structure. In a news release, the OCS said the tweaks will “create greater transparency and consistency for licensed producers.”

The provincial wholesaler for private retail stores expects the changes to “enable a vibrant marketplace” that’s better positioned to compete with the illicit market.

“The OCS is pleased to use its growth in scale to establish a more balanced share of product margins to help enable a vibrant cannabis marketplace,” said OCS president and CEO David Lobo.

The changes will be implemented in September, allowing time for the OCS to work with licensed producers on any changes to existing products or products scheduled to launch in the fall.

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The OCS estimated that the reduced margins will contribute approximately $35 million into the marketplace in 2023-24, and grow to $60 million in the following fiscal year, while compounding annually in years ahead.

In an emailed statement, David Klein, CEO of Canopy Growth, applauded the moves.

“The OCS deserves credit for implementing these important changes which will accelerate industry sustainability and ultimately profitability as we intend to hold our prices due to the already highly competitive product pricing within the sector,” Klein said.

“This announcement demonstrates the potential for expedient and meaningful regulatory change, and we encourage the Federal Government to follow suit and take immediate action to crack down on the illicit market and to support a viable national cannabis industry.”

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In an emailed statement to The Canadian Press, Charlie Bowman, chief executive and president of Hexo Corp., said the changes will particularly help when it comes to dried flower.

“This is an important step in giving Canada’s cannabis companies the upper hand over illegal producers,” Bowman said.

Earlier this month, citing a briefing note from the Department of Public Safety, the Toronto Sun reported that 33 per cent of the cannabis market is still controlled by the illicit drug trade.

In Ontario, that figure jumps to 43 per cent, according to an OCS report from last March.

The price for regulated cannabis products has dropped significantly since the start of 2019, when the average cost per gram was $11.78, according to a market report from Deloitte Canada, market research form BDSA and Hifyre Inc., the technology subsidiary of Fire & Flower Holdings Corp.

Issued last November, the report found the average cost per gram had dropped to $7.50 in 2021.

The changes come amid a number of layoffs and restricting initiatives from Canadian licensed producers, including Canopy laying off 800 workers and shuttering its main facility in Smiths Falls, Ont.

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