Alberta
Cannabis companies weigh pricing strategies after OCS margin cut
TORONTO — Canopy Growth Corp. will hold its prices as licensed pot producers weigh whether to pass along to consumers the savings from the Ontario Cannabis Store’s forthcoming margin decrease.
The Smiths Falls, Ont. cannabis company behind the Tweed, Ace Valley and 7Acres brands isn’t budging on what it will charge because the pot market is already “highly competitive,” chief executive David Klein said in a statement to The Canadian Press.
Canopy declined to say more about the pricing decision, which comes after it laid off 800 workers and the company reporting a $266.7 million net loss in its third quarter.
The decision comes after the OCS, the province’s pot distributor, said last week that it would reduce the margins it makes on weed sales this September in a move expected to put $35 million back in the hands of licensed pot companies this fiscal year and $60 million in the 2024 fiscal year.
Companies aren’t required to pass along the savings to consumers by lowering their prices, so many observers believe licensed producers will adopt a range of pricing strategies when the new margins come into effect.
“It’s reasonable to think that some cannabis producers and retailers may decide to decrease their prices after the OCS announcement just to be more competitive, provided that they have the wiggle room in their market margins,” said Sherry Boodram, chief executive of CannDelta Inc., a Toronto cannabis consulting company.
“But certainly in other cases, some producers and retailers may not want to decrease their prices.”
Making that decision is no easy task when many licensed producers are awaiting details about how deep the cuts will be.
However, two industry sources told The Canadian Press the average mark-up will decline to 25 per cent from 28 per cent, though the amount will vary across product categories. The biggest margin reductions will come in the vapes, edibles and beverage categories with more modest decreases to flower, pre-rolls and concentrates.
The Canadian Press is not identifying the sources because they were not authorized to disclose the information.
“At this point, it’s too early for us to comment on pricing,” said Rick Savone, senior vice-president of global government relations at Aurora Cannabis Inc., which makes the Daily Special, San Rafael ’71, Greybeard and Drift products.
“We are waiting for explicit understanding from the OCS about how the pricing changes will be applied.”
Meanwhile, Moncton, N.B.’s Organigram Holdings Inc. refused to discuss its pricing model, but spokesperson Paolo DeLuca says it will ensure prices are attract to consumers and generate a reasonable margin.
Once companies understand the margin changes, Boodram said businesses will have to factor in production and distribution costs for each item, taxation, market competition, profitability and supply and demand.
“There are some businesses that are facing increased competition that have declining sales and that have excess inventory, so for them reducing prices can be a really effective way for them to attract customers and increase demand for their products,” she said.
But lowering prices can also weigh on profitability and the company’s ability to fund other ventures, and send a false signal to consumers that a product is cheaper because it is of lower quality.
“At the consumer level they’re not aware of this OCS announcement and the reasoning behind the price decrease, so they might wonder what’s going on here?” Boodram said.
Cannabis companies, which have endured rounds of layoffs and facility closures in recent years, are also in a particularly tough spot when making pricing decisions because they have already slashed their own margins several times in recent years.
“Several companies are already actively doing price drops, so price drops are very, very popular,” said Lisa Campbell, chief executive at cannabis marketing company Mercari Agency.
The average price for cannabis was $11.78 per gram at the start of 2019, shortly after legalization, but fell to $7.50 per gram in 2021, a report from Deloitte Canada and cannabis research firms Hifyre and BDSA said.
The average price for vape cartridges has similarly fallen by 41 per cent from $32.02 per gram around legalization to $19 per gram a year later.
“In some situations, to be competitive with illicit market prices will have to be reduced more, but I don’t think that that’s going to be the case for all products,” Boodram said.
By the OCS’s count, the illicit market made up 43 per cent of Ontario’s cannabis market last March.
While any margin decrease is helpful for licensed producers, Campbell doesn’t see it having a meaningful effect on the industry’s profitability because the cut isn’t big enough and OCS margins have steadily increased since legalization.
Shoppers are also unlikely to bat an eye.
“I don’t think the consumer is thinking too much about it,” she said.
“I don’t think it’s really going to be a significant change.”
This report by The Canadian Press was first published Feb. 22, 2023.
Companies in this story: (TSX:WEED, TSX:ACB, TSX:OGI)
Tara Deschamps, The Canadian Press
Alberta
Fortis et Liber: Alberta’s Future in the Canadian Federation
From the C2C Journal
By Barry Cooper, professor of political science, University of Calgary
Canada’s western lands, wrote one prominent academic, became provinces “in the Roman sense” – acquired possessions that, once vanquished, were there to be exploited. Laurentian Canada regarded the hinterlands as existing primarily to serve the interests of the heartland. And the current holders of office in Ottawa often behave as if the Constitution’s federal-provincial distribution of powers is at best advisory, if it needs to be acknowledged at all. Reviewing this history, Barry Cooper places Alberta’s widely criticized Sovereignty Act in the context of the Prairie provinces’ long struggle for due constitutional recognition and the political equality of their citizens. Canada is a federation, notes Cooper. Provinces do have rights. Constitutions do mean something. And when they are no longer working, they can be changed.
Alberta
30 million contraband cigarettes valued at $25 million dollars seized in Alberta
New release from Alberta Gaming Liquor and Cannabis (AGLC)
Record setting contraband tobacco seizures result from AGLC investigations
Alberta Gaming Liquor and Cannabis (AGLC) recently concluded several investigations which netted two of the largest contraband tobacco seizures in Alberta history. The combined total of the contraband tobacco seized was 154,800 cartons of contraband cigarettes (30.7 million individual cigarettes). These seizures are a result of the work conducted by AGLC’s Tobacco Enforcement Unit with the assistance of provincial law enforcement agencies.
- In a January 2024 investigation, approximately 43,500 cartons (8.7 million individual cigarettes) were seized. This equates to $7 million in retail value with a provincial tax avoidance of $2.4 million. This included the seizure of 15,000 grams of contraband shisha.
- In April of 2024, 60 wrapped pallets were seized from a warehouse setting netting a total of 111,300 cartons of contraband cigarettes (22 million individual cigarettes) which equates to over $18 million in retail value with a provincial tax avoidance of $6.6 million.
- Criminal Charges are pending in both cases.
“These are significant contraband tobacco investigations involving individuals that are part of organized networks whose proceeds defraud Albertans millions of dollars in tax revenue. AGLC will continue to work with our partners to investigate and disrupt the individuals and organizations involved in these illegal activities as part our commitment to a strong contraband tobacco enforcement program in Alberta.”
- Gary Peck, Vice President, Regulatory Services, AGLC
“Contraband tobacco hurts law abiding businesses that follow the rules, and it costs Albertans millions each year from lost tax revenue. Our government is committed to keeping illegal tobacco off the streets and ensuring that the sale of tobacco products comply with the law.”
- Dale Nally, Minister of Service Alberta and Red Tape Reduction
Over the last nine months, AGLC’s Tobacco Enforcement unit has seized an estimated 35 million contraband cigarettes and 115,000 grams of contraband shisha from across the province. The total potential lost tax revenue is estimated to be more than $10.1 million.
Contraband tobacco:
- is any tobacco product that does not comply with federal and provincial laws related to importation, marking, manufacturing, stamping and payment of duties and taxes;
- comes from four main sources: illegal manufacturers, counterfeits, tax-exempt diversions and resale of stolen legal tobacco; and
- can be recognized by the absence of a red (Alberta) or peach/light tan (Canada) stamp bearing the “DUTY PAID CANADA DROIT ACQUITTÉ” on packages of cigarettes and cigars or pouches of tobacco.
In addition to lost revenues that may otherwise benefit Albertans, illegally manufactured products also pose public health and safety risks as they lack regulatory controls and inspections oversight.
Albertans who suspect illegal tobacco production, packaging and/or trafficking are encouraged to contact AGLC’s Tobacco Enforcement Unit at 1-800-577-2522 or Crime Stoppers at 1-800-222-TIPS (8477).
Under a Memorandum of Understanding with Alberta Treasury Board and Finance, AGLC enforces the Tobacco Tax Act and conducts criminal investigations related to the possession, distribution and trafficking of contraband tobacco products. In 2022-23, provincial revenue from tobacco taxes was approximately $522 million.
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