This post is presented by our media partner Grow Opportunity
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In the six years since Canada legalized recreational cannabis in October 2018, Ontario’s cannabis retailers have had a wild ride. Long waits for store licensing were followed by several years of rapid expansion and then a struggle for profitability.
Last year was tough for many store owners, and the next one might be worse. But the provincial treasury is doing fine.
Ontario’s legal recreational cannabis sales totaled $2.1 billion between April 2023 and March 2024, according to Statistics Canada. That’s up 12 percent from 2022-2023. The provincially-owned Ontario Cannabis Store (OCS) handled 2 percent of those retail sales online, while private-sector stores made the other 98 percent.
On a per-store basis, sales rose only 5 percent, because the province had 7 percent more licensed stores than the year before. Data from the Alcohol and Gaming Commission of Ontario indicate the province averaged about 1,750 licensed stores during 2023-2024.
That small store-count increase, however, masked extensive retail turmoil: while some stores opened, others closed or changed owners. Of the 2200-plus shops that have opened since April 2019, one-fifth have already shut down. That’s challenging, though not unusual for small business.
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The increasing store competition likely explains why Ontario’s retail cannabis prices averaged 5percent lower last year. The decrease made life better for consumers but tougher for retailers.
It appears 2024-2025 will be tough too. Total sales to date are down 9 percent from the same period last year, whereas the average store count is up 4 percent. So, a typical store’s revenues this year could be 13 percent lower.
Retailers did get some modestly good news last year when the OCS trimmed its wholesale markups.
During 2023-2024, the prices it charged retailers averaged 29 percent above what it paid producers, versus 31 percent the year before. That gave stores a slightly larger share of each sales dollar.
OCS meanwhile left its online retail prices unchanged. So, the prices that consumers paid on the OCS web site were about 75 percent more than what OCS paid producers for those products.
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Meanwhile, estimated prices at private-sector stores averaged only 66 percent above what the producers received. It seems shopkeepers are surviving on thinner retail margins than the OCS, despite paying the higher costs of operating brick-and-mortar stores. (For context, retail prices in Quebec were just 48 percent more than what producers got paid.)
Despite the price adjustments, OCS remained highly profitable. Earnings rose 4 percent in 2023-2024 to $244 million, thanks to rising wholesale revenue and interest income. And for the first time since legalization, OCS shared its profits by transferring $365 million in dividends to the provincial government.
That still left OCS with $437 million cash. When asked last year how it would use that money, OCS declined to specify. They might be planning to spend that money on non-profit “social impact” projects, but those project grants totaled only $500,000 last year.
By contrast, they earned $30 million in interest. The OCS strategic plan says the projects will continue, but so far this year none seem to have been announced.
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In addition to receiving OCS dividends, the Ontario government collected cannabis excise and sales taxes estimated at around $514 million. The federal government’s corresponding share was about $205 million.
Altogether, these figures imply that for each dollar Ontario consumers spent on recreational cannabis last year, the Ontario government and the OCS together got about 37 cents. The federal government received 9 cents, leaving 35 cents for producers and 19 cents for retailers.
So, while cannabis revenues are booming for the provincial government, retailers might feel they’re going bust.
Michael J. Armstrong is an associate professor at Brock University. He studies the economic aspects of cannabis legalization, including its impact on medical cannabis sales.
This post was originally published by our media partner here.