The Ontario Cannabis Store‘s (OCS) CEO is out to lunch.
It’s a common theme in Canada lately. A new poll shows a vast majority of Canadians are concerned with Chinese interference in our elections.
So what does Justin Trudeau do? He hires a family friend – former Governor General David Johnston – with connections to China and the Trudeau Foundation. He “investigated” the interference and found nothing.
Parliament was obviously unhappy with this result, no doubt stemming from Johnston’s conflict of interest. So the House of Commons voted in a clear majority to have Johnston step down as a “special rapporteur” and open a public inquiry.
But Johnston refuses to step down. He says his mandate is from “the government,” not Parliament. In other words, he’s out to lunch. Parliament is the government. Canada is built on the Westminster system, which recognizes parliamentary supremacy.
“The government” is not the ruling party. You would think a former Governor General would know this.
Likewise, the only person who can end Trudeau’s Chinese tyranny is the leader of the NDP, who holds the balance of power. He said Johnston is “tone-deaf” for not listening to Parliament. But this Rolex-wearing BMV-driving “hero” of the working class is also out to lunch.
I only bring this up because it helps contextualize what the OCS CEO told an audience at Toronto’s Lift conference this past week. This entire country is out to lunch.
OCS CEO Out to Lunch
On the surface, David Lobo, Ontario Cannabis Store president and chief executive (OCS CEO), said nothing controversial.
He said a “race to the bottom” was happening with cannabis prices that may hurt the cannabis industry‘s future.
“Once you condition consumers to certain prices, it may take a generation to change perceptions and price tolerances,” he said. “In an economy where inflation has impacted every other consumer good, we can’t keep pushing lower.”
Of course, this “race to the bottom” didn’t begin at baseline. In anticipation of legal cannabis, investors poured in with millions. Companies like Aurora saw their stock expand and inflate beyond fundamentals.
Many of us saw this coming. A correction was inevitable. Only the people who believed this hyped-up market was real are experiencing the shock.
We’ve covered the covid-inspired cannabis bubble before. Since people are no longer under house arrest and getting blasted with ‘end-of-the-world’ propaganda every second, their frequency of cannabis consumption has slowed.
But what the OCS CEO is driving at is something more fundamental. “We are no longer in the early days of legalization anymore. That dank new car smell of legal cannabis has worn off,” he said.
But even here, there are other factors to consider.
Take cell phones. The first ones were the size of bricks and came with a hefty price tag. Over time, as competition increased, manufacturing processes became more efficient, technology improved, and prices dropped.
The price of cell phones (or any electronic) from the last forty years appears to be a “race to the bottom.” But in reality, this is how markets are supposed to work.
A Race to the Bottom?
The OCS CEO is adamant that they are doing their part to fight this “race to the bottom.”
But the OCS has a monopoly on cannabis distribution. Producers do not deal directly with stores. They have to go through the government’s OCS bureaucracy first.
Does the OCS CEO not see the connection?
The OCS has the power to manipulate prices and drive competition out of the market. The OCS admits that offering lower margins to producers will allow these companies to pass savings to consumers, thus lowering prices.
Likewise, disconnected from competitive pricing, the OCS arbitrarily sets its margins. Are they putting people out of business or discouraging new products? How extensively have they manipulated the market?
Fortunately, we can compare Ontario to Saskatchewan.
Cannabis retailers in Saskatchewan purchase their inventory directly from producers. The Saskatchewan Liquor and Gaming Authority (SLGA) acts as the regulator for cannabis in the province. But it does not operate as a monopoly distributor.
Saskatchewan’s official reason for this is:
- Protecting public health and safety, including keeping cannabis away from children and youth;
- Eliminating the illegal market;
- Minimizing taxpayer exposure to risk; and
- Incorporating regulatory best practices and building on experiences from other jurisdictions.
The Saskatchewan government listened to feedback and concluded that the above goals “are best served by a competitive private model for the wholesale/distribution and retail sale of non-medicinal cannabis in Saskatchewan.”
Additionally, “This model minimizes the upfront cost to taxpayers.”
Meanwhile, Saskatchewan has some of the lowest rates of cannabis use in the country. Yet, the other provincial governments tell us there would be chaos and predatory pricing without a monopoly distributor.
Yet, the reality is the opposite. Strikes, shortages and hacks are all too common.
Like Ringo Starr said, “everything government touches turns to crap.” And that includes cannabis distribution.
In addition to the actions of monopolistic tax-funded distributors, other factors contribute to this perceived “race to the bottom” that has the OCS CEO so worried.
OCS CEO Out to Lunch
Initial high prices after legalization, in addition to regulatory costs, high taxes, zero tolerance on advertising and marketing, and monopoly distribution, have led to market chaos.
Botched legalization results from government interference, not some intrinsic aspect of the free market. The cannabis market in Canada was freer before Justin Trudeau inserted himself.
But the OCS CEO isn’t interested in this kind of analysis. He told the audience at Lift, “We don’t yet know how fragile consumer trust and social license with Canadians truly is.”
He asks, “What happens if we have a major recall resulting from adverse product reactions, negatively impacting the health of many Canadians?” As if that hasn’t already happened.
The OCS CEO says the cannabis industry could be impacted by a “lapse in judgment” from a few people.
“How large of an impact can a few unfortunate events have on the moral high ground we have in positioning legal cannabis as a better alternative to illegal?”
The OCS CEO is out to lunch.
Legal cannabis in Canada never had the moral high ground. Provincial governments gave large, well-connected producers exclusive deals with monopoly distributors while “illegal” B.C. Bud had to fight for their existence.
Legalization was never about bringing British Columbia‘s cannabis community up from the shadows. They were re-branded as “organized crime” as soon as Justin sat in the PMO. Even now, they are handicapped by “micro-licenses” and excise taxes.
Canada’s cannabis consumers continue to purchase from these underground “illicit” markets for various reasons.
They could know and trust their local grower more than these large pharmaceutical-style producers. They could want an edible that authorities don’t arbitrarily cap at 10mg for faux “public health and safety” reasons.
Canada’s connoisseurs recognize that cannabis is a vegetable. It belongs in your farmers’ market, not sterile pharmaceutical-grade facilities.
OCS CEO Doesn’t See the Crash Coming
The OCS CEO is out to lunch. What’s happening is a correction. Cannabis in Canada is returning to its economic fundamentals.
But market chaos and bankruptcies are only beginning. The best thing governments can do for cannabis in Canada is follow Saskatchewan’s example: get out of the way.
As for the “race to the bottom,” – when did lower prices become a bad thing? Last I checked, cannabis consumers can get more for less.
Some may argue that “deflation” or lower prices harm the producers. But this is economic illiteracy.
If lower consumer prices are negatively impacting cannabis producers, it’s because the costs of business have been inflated due to “public health” policies and central bank inflation.
The OCS CEO addresses a real problem. But he is out to lunch on the solutions. Which isn’t surprising.
As Upton Sinclair once wrote, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”