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White paper reveals issues with OCS operations and shares recommendations for improvement

Sep 29, 2022 | Grow Opportunity, Media Partners

This post is presented by our media partner Grow Opportunity
View the full article here.

The Retail Cannabis Council of Ontario (RCCO) has released a new white paper, “Ontario Cannabis Store (OCS) Retail Recommendations.”

The paper is intended for OCS decision-makers and contains findings from a survey of the RCCO membership across the province.

The Ontario Cannabis Retail Corporation, operating as Ontario Cannabis Store (OCS), manages a legal monopoly over the province’s current cannabis online retail and wholesale distribution. Recent OCS crises such as the cyber attack, which completely halted business for many retailers, highlighted a need to address operational issues.

The RCCO and its members have previously expressed concerns about OCS operations. An itemized list of actionable recommendations has been shared in the  white paper. The goal of the recommendations is to ensure the sustainability of legal recreational cannabis retail in Ontario as well as the livelihood of the owners, operators and employees who work in the industry.

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RCCO White Paper — OCS Retail Recommendations 

As the Retail Cannabis Council of Ontario (RCCO), the council represents Ontario’s 1500+ licensed cannabis retailers. As such, we strive to support the industry, helping it grow and evolve. To that end, we are grateful to be working with the Ontario Cannabis Store (OCS) by sharing retail needs and concerns from a retailer’s perspective. The Board of Directors of the RCCO is advocating for improvements that benefit the client/wholesaler relationship while taking out the guesswork from OCS’s intended changes and revisions for Ontario retailers. 

While some issues have been long identified by both the OCS and membership of the RCCO, others have percolated to the surface as demonstrated by the recent OCS data breach, and cyber-attack on OCS partner, Domain Logistics. These attacks resulted in a complete shutdown of delivery and a crippling of retailer businesses across the province. The recent BC Liquor Distribution Branch (BCLDB) strike effectively shuttering the retail cannabis industry in British Columbia, it is imperative that we ensure there are practices in place to keep our province from experiencing any additional future business closures. 

The RCCO recently surveyed membership and discovered the following findings. The RCCO presented the top three issues to the OCS in a meeting on Friday, August 25th, 2022, but would like to share a more comprehensive slate of cannabis retailer concerns and needs. 

1. Back-up Plan – Diversified Supply Options 

As the OCS is the only cannabis supplier, there should be a back-up plan for the supply chain to ensure retailers are never left without cannabis products or access to ordering replenishment. Retailers require assurances that the OCS is committed to resolving and avoiding all supply chain vulnerabilities. A lack or complete halt in supply is extremely detrimental to business and undermines the work we do to educate consumers and move them from the illicit to the licensed market. We need consumers to feel confident in the authorized recreational retail stores’ reliability and dependability in carrying products consumers have come to expect. 

We recognize and appreciate the service and competitive parity that the OCS provides to Ontario cannabis retailers of all sizes and want to ensure the OCS retains its position as our wholesale partner. We would, however, like to ensure that logistics aren’t limited to one source that can be cut off without warning. The flowthrough model that the OCS has established is an ideal starting place. Putting direct delivery into place, with the OCS still managing the product, would create a secondary source without creating competition. This hybrid model approach has been implemented in BC with positive results thus far. Our expectation is that OCS uses this framework as a proof of concept for an updated flowthrough plan in Ontario. 

2. Remove Same-Day Delivery from OCS 

As the only wholesale supplier of cannabis, the OCS is both wholesaler and retail competitor to cannabis retailers in Ontario. While retailers understand that the OCS has an obligation to ensure all Ontario residents have access to cannabis, most towns and cities are serviced with brick-and-mortar licensed retailers that offer delivery. These storefront retailers are requesting the OCS level the playing field by stopping same-day delivery and ceasing the use of Pineapple Express. By limiting delivery to Canada Post, which offers a three-to-five-day delivery window, the OCS would effectively remove unfair competition between OCS and the licensed retailer. At the same time, this action would continue to ensure access to cannabis in more remote areas of the province, and still provide access to the security that some people require of dealing with a Crown Corporation instead of a private retailer to fulfill their cannabis needs. 

3. Retailer Support 

Retailers are asking that the OCS transition from competing with the retailers in areas that are serviced by licensed stores by not providing online sales in those areas and, instead, providing referrals from the OCS website to the licensed stores. In areas that are serviced by licensed retail stores, customers should be directed to purchase from a retailer. OCS.ca should link to store websites, facilitating and simplifying the transition for the consumer. A key objective of the OCS, as the wholesaler, should be to promote retail partners as effectively as possible. Linking to retail websites would ensure that when a consumer finds something on the OCS website that interests them, they’re able to find it locally. This direct connection will also help consumers stay in the licensed market instead of executing their own search, where they can potentially get lost to the illicit market. It can be extremely difficult for the average consumer to differentiate between licensed and illicit websites online. Direct links would enable customers to discuss and learn from local retailers directly and be a safeguard against unknowingly shopping in the illicit market . 

4. Payment Terms 

Most retail businesses have payment terms with suppliers and wholesalers ranging from 15 to 120 days. The OCS cash-on-delivery model hinders cash-flow from mid-to-low-velocity stores and limits purchasing power. The OCS has payment terms with its licenced producers (LPs) suppliers and our expectation is that the OCS would similarly offer 30-day terms to wholesale clients. As a result of the recent delivery shutdown, many retailers were sold out completely and shuttered for a period, resulting in a significant loss of revenue. A 30-day term would go a long way to helping these businesses recover and recuperate by making it easier and faster to restock. 

Retailers believe this is a realistic request as the OCS, itself, has 90-day payment terms with licensed producers and, furthermore, the OCS can safeguard itself through insurance. 

5. Store Brand Identification 

Independent retailers are requesting that any product connected with a retail brand be clearly identified on the portal. The OCS once utilized a ‘Store Brand’ banner at the top of applicable products and ‘Store Brand’ was a defined category, making it recognizable. That indicator is no longer utilized. 

Many independents don’t want to support the “competition” by buying other retailers’ cannabis products. Current website layout and design makes many store brands non-identifiable without significant research by the consumer. The RCCO is requesting that the OCS reintroduces the category identifier for all retail-related brands. 

6. Pricing Margins 

Retailers would like insight into pricing margins and request transparency in the markup that the OCS adds to products submitted from licensed producers (LPs). Retailers realize setting prices is the prerogative of the wholesaler, but as a monopoly stakeholder in the position of a government agency where the mandate is to combat the illicit market, retailers are lowering margins in efforts to be marketable. The RCCO is requesting that the OCS share insights into margin setting so that retailers can feel confident that pricing practices are within the purview of the entire supply chain. 

7. Gate Keeping 

Retailers want the market to include all licensed products, not just the ones that pass the OCS product submissions. The more products available to retailers, the more they can differentiate shop menus from one another. The ‘core’ vs ‘flowthrough’ would action this request. Any product approved through Health Canada would be available for order. The SKUs with the most velocity would be ‘core’ through the OCS portal and the slower SKUs would be accessed through flowthrough and/or direct delivery, enriching the selection available to retailers. This would require a fix to flowthrough; retailers need assurance that the cadence of flowthrough won’t be disrupted, as many have been finding with the current system. If a significant reliance on flowthrough is to be created, retailers need guarantees that the complete order they’re expecting will arrive, and not create a shortfall of product because flowthrough doesn’t show up. The onus would be on stores to manage orders in the two-week cadence vs the same-week cadence, but it can only be done if flowthrough is reliable. 

8. Delivery Windows 

With stores having varying hours of operation within the regulated 9am to 11pm operational window, it should be incumbent on the OCS to ensure delivery times are acceptable to the stores receiving shipments. It is onerous on a receiving store to have to schedule enough staff for a delivery within a window outside of the store’s operational hours. This adds expense in terms of significant payroll hours each week by staffing a closed store. In addition, many retailers have very real security concerns for deliveries being made outside of operational hours and/or in the dark. Some communities have an inherent safety risk that becomes heightened after dark, which is inappropriate to download onto both store employees and delivery employees. This becomes increasingly problematic in autumn and winter as darkness falls much earlier. 

9. Emergency and Supplemental Orders 

Retailers request added access to product supply. Part of managing a business includes being able to pivot and supply as the market dictates. A short order window once a week does not satisfy this operational process. Sometimes retailers run short unexpectedly; sometimes it is because there were products removed from their baskets after order submission, sometimes it’s because of an unanticipated uptick in business. Though retailers understand the OCS is working on a reorder process — and would appreciate a timeline for its implementation — that solution doesn’t allow for agility in the business for other shortfalls. Without the exorbitant emergency order fee, retailers would like to be able to access products as needed, with the option to pick up or send a courier to pick up directly from the distribution centre as opposed to waiting for the OCS to arrange delivery. 

The RCCO appreciates the OCS’ willingness to work together in reviewing and implementing steps that the retailers see as important steps to improving the industry in a fundamental and impactful way. We are available to discuss, offer additional input and respond further at your convenience. We rely on the OCS and hope that our partnership and support will enable Ontario to continue to be a world-class model for licensed and legal cannabis. 

This post was originally published by our media partner here.