Pot producers implore Ontario to open more stores

Canadian cannabis producers are stepping up pressure on the Ford government to speed up the distribution of retail licences in Ontario as poor sales continue to dog the industry.

"Our ability to continue to invest and sustain the jobs that we have created is being severely challenged by the province's current retail cannabis policy framework," states a letter to the premier from the Cannabis Council of Canada. The letter is signed by the CEOs of eight producers.

"Premier Ford, Ontarians and their families employed in the cannabis sector need your support to create retail points of sale for the products they make."

Ontario is home to nearly half of Canada's 243 licensed cannabis producers, and the lack of retail outlets has already been flagged as one of the most serious challenges facing the burgeoning industry.

Poor sales

Canadian producers are poised this week to release their third-quarters sales figures, and they're expected to be poor as the companies continue to struggle to push product out the door.

There are currently just 24 legal retail outlets open in Ontario, with a 25th set to open soon. Another 42 licences have now been issued, plus 26 granted exclusively to Indigenous communities. By comparison, Alberta, with less than one-third of Ontario's population, has already issued 324 retail licences, 72 of them to Calgary operators alone.

Among the signatories to the Ford letter is the CEO for Hexo Corporation, which hemorrhaged 200 jobs in October, or a quarter of its workforce, and suspended operations at its Niagara plant.

Another signatory, Cronos Group Inc., reported this week it failed to reach revenue estimates for the quarter.

Smiths Falls, Ont., producer Canopy Growth, whose CEO also signed the letter, is expected to release its latest sales figures Thursday. In an email to CBC, Canopy vice-president Jordon Sinclair called the sluggish retail rollout in Ontario "the number one headwind facing the industry today."

'Ridiculous' situation

Lanark–Frontenac–Kingston MPP Randy Hillier, whose riding includes Smiths Falls, called the situation "ridiculous."

"How much longer will the illicit trade continue to thrive because we can't get our act together in Ontario to figure out how to sell cannabis," said Hillier, who now sits as an independent.

The province limited store licenses over concern there wouldn't be enough supply, creating a lottery system for prospective retailers. The first two dozen stores opened in the spring, but a second round of openings has become bogged down in court challenges.

In a statement to CBC, Jenessa Crognali, a spokesperson for the Attorney General of Ontario, placed the blame on the federal government's "rush to legalize cannabis without bothering to ensure there was enough legal supply."

Province pulling plug on lottery

Now it's the industry that has a supply problem — a serious oversupply. In response, the province is abandoning its lottery system.

"Our government is working with the [Alcohol and Gaming Commission of Ontario] and Ontario Cannabis Store to return to our original plan to allocate retail store licences based on market demand," Crognali wrote. The revamped retail system will be modelled after Alberta's.

However the current cap on the number of retail stores doesn't expire until July 2020, according to the province, so it will be months before any changes takes effect.

Meanwhile, Alberta continues to hand out five to 10 retail licences every week, according to cannabis analyst Craig Wiggins, managing director of The Cannalysts Inc.

"Alberta is eating our lunch," Wiggins said. He's concerned the whole industry could face massive job losses and plummeting stock prices if producers can't get their product to market.

Hexo 'the canary in the coalmine'

Already, stocks have dropped nearly 60 per cent since March, and Wiggins calls the job cuts at Hexo "the canary in the coalmine."

Wiggins estimates Ontario revenue from pots sales could have reached $510 million by the end of August — instead of $185 million — if it could capture the same per capita sales as Alberta.

That would have generated an additional $51 million in excise and sales taxes for government, he said.

"That's what's frustrating about this," Wiggins said. "Here we are trying to balance budgets, but there's money to be made if we got out of the way and allowed the stores to open."