Ontario plans to allow the private sector to handle distributing cannabis from producers to retailers, a sign that the provincial government is beginning to reduce its legal pot exposure.

According to an email sent by an Ontario Cannabis Store (OCS) executive to Canadian licensed producers late Tuesday that was obtained by BNN Bloomberg, the new measure to allow for a “third-party centralized distribution” system comes following feedback the government-run agency solicited last month after it engaged with the industry to determine whether it should get out of its wholesale cannabis business. It is unclear when the OCS plans to let a privately-run company handle product distribution.

“It is expected that these activities will continue to drive cost efficiencies for the industry and result in ongoing expansion of product assortment and service levels, thereby supporting future product development and innovation by producers,” according to the email sent by Denny Palarchio, vice-president of supply chain and customer excellence at the OCS.

The email also stated that the OCS is seeking further consultation with industry participants interested in “direct-delivery” services where cannabis can be shipped directly from a cannabis producer to a retailer, sidestepping a wholesale operator entirely. Those discussions will take place over the next week and the OCS will “share specific terms, conditions and capabilities by which any producer interested in direct-delivery would be required to adhere to,” the email stated.

Daffyd Roderick, a spokesperson with the OCS, confirmed in an emailed statement the government-owned agency is moving ahead to expand its plans to let the private sector operate its distribution network. He also said the OCS will work with cannabis producers interested in taking on direct delivery for their products.

The OCS’s move comes two months after BNN Bloomberg first reported that the government-run agency was exploring the possibility of no longer running the province’s wholesale cannabis distribution business.The Ontario Cannabis Retail Corporation, a crown corporation that operates the Ontario Cannabis Store’s online retail business and sells wholesale cannabis to the province's private retail stores, lost $42 million in the last fiscal year.

Ontario, Canada’s largest cannabis market, only has 24 cannabis stores operating in the province as well as the government-run online store. Another 69 stores are currently involved in the licensing application process as well as several court-sanctioned delays. The lack of retail stores in the province was repeatedly cited by some Canadian cannabis companies last week as one of the main reasons why revenues declined on a sequential quarterly basis.

News of the OCS email was first reported by the Financial Post.

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