Opinion: If the policy objective is to get consumers to choose the legal channel, the marijuana has to be available widely. It doesn’t seem it will be
How many retail stores will Ontario need to meet the demand for cannabis, which is set to become legal for sale in less than three months?
Ontario’s previous Liberal government committed to opening 150 government-monopoly Ontario Cannabis Stores (OCS) over the first three years, warning that they would most likely lose money in the early years. The latest information suggests the OCS is readying 30 to 40 stores for recreational sales upon legalization in October. That dramatically underestimates demand.
Ontarians currently enjoy access to alcoholic beverages through a retail system comprised of about 660 Liquor Control Board of Ontario (LCBO) stores, 210 privately run agency stores and 450 Beer Stores. That’s at least 1,320 retail locations across the province where Ontarians can purchase beer, wine or spirits outside of the grocery and restaurant channel. And the new Doug Ford administration has announced that it is going to further expand beer and wine retail. Assuming there will be perhaps 1,500 locations to buy liquor going forward, a number approaching what Alberta offers in private-sector liquor retailers (with a third of the population).
Including retailers, restaurants and bars, Ontarians today have thousands of points of sale for alcoholic beverages and, even then, consumers still want better access to wine, beer and spirits. For cannabis, there are at least 1,000 black-market “points of sale” in Ontario today. Quite apart from the tax revenues to be had — Statistics Canada data from 2016 suggest profits in the area of $5 billion from cannabis-consumption sales — if the policy objective is to get consumers to choose the legal channel, it has to be available widely and in your hometown.
Under Ontario’s current public model for alcoholic beverages, the population per liquor store is approximately 90,000. That is 2.6 times the Canadian average of approximately 35,000 people per store based on retail licence commitments made by other jurisdictions. At that rate, Ontario should have at least 390 retail cannabis stores to get to the national average. In legal U.S. states, the population per store hovers at just above 20,000 — four times the Canadian average, suggesting perhaps that Ontario needs closer to 600 cannabis stores.
Looking at other public-private cannabis retail models in Canada, Alberta has committed to 250 stores out of the gate, Saskatchewan to 51, while Manitoba and B.C. have set no limit to the number of retail licences they will issue. According to a new report by Marijuana Business Daily Canada, Alberta has an estimated 526,000 consumers, Saskatchewan 125,300 consumers and Ontario 1.7 million consumers. Using this data, Alberta will have one store for every 2,100 consumers, Saskatchewan one store for every 2,456 consumers and Ontario one store for every 11,333 consumers. Ontario would be severely out of whack with the rest of its private-retail-model sisters at 150 stores by a factor of four to five.
In Year One, in other public-only retail models, Newfoundland’s 70,100 consumers will have 24 stores (2,920 consumers per store), Nova Scotia’s 125,000 consumers will have 12 stores (10,416 consumers per store), P.E.I.’s 19,400 consumers will have four stores (4,850 consumers per store), New Brunswick’s 101,000 consumers will have 20 stores (5,050 consumers per store) and Quebec’s 1.1 million consumers 20 stores (55,000 consumers per store). Excluding Quebec, an outlier, from the math, on average in the government-run monopolies, 315,500 consumers would have access to 60 stores, or approximately 5,258 consumers per store.
The overriding objective of legalizing recreational cannabis across the country was to eradicate the black market and move cannabis consumption to legal (i.e., safe) channels, but while there are countless black-market cannabis “points of sale” in Ontario today, if the policy objective is to get consumers to choose the legal channel, it has to be available widely.
And while that may remain the driving force for policy-makers, the tax revenue opportunity should not be overlooked. StatCan data from 2016 suggests there are approximately $5 billion in cannabis consumption sales “below the line,” so a tax revenue opportunity is abundantly clear. Now imagine a scenario in which a thrifty provincial government can take its piece of the upside with little execution cost.
Any way you look at it, Ontario’s current 150-store plan over three, likely money-losing, years isn’t going to cut it. Given the new Ford government’s priorities for savings, it should call on the private sector to step in and help fix the problem.