Dec 1, 2021
Ontario watchdog finds nearly 1,800 legal pot products for sale
We're creating a customer experience: Toronto pot shop owner on standing out from competition
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In an annual report released Wednesday, the Ontario Auditor General found that there are 1,774 cannabis products available for sale in the province, nearly half of which (793) are dried flower offerings. The province also had 263 vape products on the market, as well as 246 extracts, 211 edible, and 58 topical offerings for sale. Dried flower represented the most popular product segment, accounting for 59 per cent of all cannabis sales in the province.
The sheer number of products on the market is a leading reason why so many Canadian cannabis players have struggled to reach profitability, although other factors such as overspending on production facilities and steep inventory write-downs have also weighed on licensed producers.
The Auditor General said there are 186 licensed producers that sell their pot products into Ontario, which represents the largest cannabis consumer market in the country. Of those, 10 producers were deemed to be "strategic partners" to Ontario's cannabis business and represent about 60 per cent of all sales.
A recent note by ATB Capital Markets Analyst Frederico Gomes said with so many products available on the market, licensed producers haven't been able to fully differentiate their offerings to customers, resulting in frail brand equity, a lack of consumer loyalty, and weak pricing power.
"With no built-in cost advantage, larger LPs easily lose ground to smaller ones," Gomes said. "Over the long-term, this is an unsustainable environment with unattractive economics; the market has to eventually consolidate. Over the mid-term, however, this unprofitable dynamic can endure as outside capital keeps flowing into the space."
Aphria Inc. was found to be the biggest seller of products in Ontario, representing 16 per cent of sales, in the last fiscal year. That grows to 18 per cent once you include legacy Tilray Inc. products prior to its merger with Aphria. Redecan Pharm, which was recently acquired by Hexo Corp., accounted for 10 per cent of all sales last fiscal year, alongside Aurora Cannabis Inc. and Canopy Growth Corp.
As the fight for shelf space amongst cannabis retailers continues in earnest, some industry executives were able to reverse decisions made by the Ontario Cannabis Store (OCS) to delist underperforming products by ringing up top OCS staff directly, according to the Auditor-General's report. While the Auditor General said that it didn't come across any examples of preferential treatment awarded to licensed producers, these "informal escalations" can create a perceived lack of fairness and the watchdog recommended the OCS conduct a formal appeal process to mitigate any further issues.