For years, Ontario has issued tax breaks to medical marijuana producers who are authorized to sell cannabis through the country’s first recreational market, believing that this would lead to heavy demand and tremendous profits. But that strategy seems to have backfired.
The province’s Auditor General has reported that growers cited “low demand” in 2017 for products that actually caused more than $100 million in losses in the Ontario pot industry. Moreover, growers in other provinces say that some Ontario cannabis products often sold out because of problems such as higher-than-expected prices and limited inventory.
The bottleneck and shortage of supply are driving up prices of cannabis in Ontario, forcing buyers to look elsewhere. In response, Ontario is looking to train local workers in up to a thousand of the province’s more than 600 pot shops.
But a local worker shortage is only one reason for the poor forecast, the report says. The Ontario Cannabis Licensing Agency, the agency that vets and regulates the province’s 40 licensed pot producers, was overwhelmed with cases of improper retail sales, destroying marijuana and giving out fines for cannabis products that were improperly labelled or under the legal limit of potency.
More evidence came from the Auditor General’s audit of retailers this past summer. It found that some stores flouted the province’s rules by selling more than 10 grams of cannabis a day, while many lacked adequate sales records.
Producers sometimes booked millions of dollars in losses—more than $120 million in the case of one company, according to the report.
The root of the problems stems from questionable assumptions about consumer demand. The Auditor General’s report, for example, cited a news report in which a nurse who tried to buy marijuana through the board’s online portal said she received only an e-mail response, with no phone number to call.
Read more on the Financial Post.