David George-Cosh

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Ontario’s provincial cannabis retailer will soon stop carrying products that don’t meet certain sales targets and introduce a "craft designation" to boost smaller licensed producers.

The strategy, which was outlined in a webinar Friday for Canadian cannabis producers, will see products sold through the Ontario Cannabis Store (OCS) be required to meet weekly sales targets consistently or face delisting from store shelves. 

The move is likely to cause further write-downs for cannabis companies that can't meet sales targets, exacerbating an existing inventory problem that has accelerated over the past year. Several cannabis companies, notably larger producers like Canopy Growth Corp. and Aurora Cannabis Inc., have reported sizable inventory write-downs on unsaleable products in the first two years of legalization. 

"To take another step towards maturing the Ontario cannabis marketplace, the OCS is establishing a core assortment of products that will further drive the stability of supply for cannabis consumers," said Daffyd Roderick, senior director of communications at the Ontario Cannabis Store, in an email. 

The OCS said during its webinar products will be flagged for delisting if sales per store fall below 0.5 units of the product per week, or if the product is consistently out stock in spite of having been on the market for more than six months. Roughly 200 products have already met the criteria to be delisted in March, the OCS said. 

David Klein, chief executive officer of Canopy Growth, said in an interview that culling products that don't sell will ultimately be healthy for the cannabis industry. 

"I'm used to dealing with large retailers in the U.S. and you getting listed and delisted happens all the time," he said. "It's incumbent upon the suppliers to create that partnership with our customers and create those products that have velocity coming off of their shelves." 

The OCS is also creating a new craft designation to help retailers in the province sell products made by "small batch" pot producers, similar to how craft beer is sold in liquor stores. The designation will apply to firms that produce up to 10,000 kilograms of cannabis a year and use special "artisan handcrafted processing methods". 

Lisa Campbell, chief executive officer of Mercari Agency Ltd., a cannabis sales and marketing firm, said the new craft rules will help entice consumers to the legal market. 

"Over the next quarter, we expect a huge power shift, which will ultimately lead to greater product diversity. Some of the bigger players in cannabis will see a huge reduction in the market share they promised to their shareholders in 2020," she said in an interview. ​

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the ongoing growth of the Canadian recreational cannabis industry. Read more here and subscribe to our Cannabis Canada newsletter to have the latest news delivered directly to your inbox every week.