David George-Cosh

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The Ontario Cannabis Store (OCS) will accept fewer incoming deliveries from the country's pot producers this month to help curtail the spread of COVID-19, a move that could lead to a steep revenue hit for cannabis companies dependent on sales in the country's biggest consumer market. 

"Like all operators in the retail sector, necessary public health measures in our warehouse facility to manage COVID-19 and keep workers as safe as possible have reduced the speed with which we are able to receive new deliveries from our licensed producer partners," said Daffyd Roderick, senior director of communications at the OCS, in an emailed statement. 

"We are still receiving orders from [licensed producers] on a daily basis, we are just not able to do the same volume as we can under normal operations."

He added that there are no current cases of COVID-19 among the staff of the agency's provincial distribution centre in Guelph but the facility is "taking all possible public health measures to support Ontario’s efforts to shorten the time of the lockdown in the long run." 

While the OCS isn't specifying how many incoming deliveries will be impacted, the slowdown will likely lead to a shortfall in some popular product categories as well as on the top line for Canada's pot producers. 

Rahul ​Sarugaser, managing director of equity research at Raymond James, said in an interview this move is likely to weigh on industry sales in the second quarter, and will push a sector-wide recovery toward the latter part of the year.  

"We thought this industry was going to get back on its feet in the second quarter, but this will likely be another blow to the sector," Sarugaser said. 

Licensed cannabis producers typically get paid once they deliver their products to provincial wholesalers, which then distribute products to retail stores. There are over 650 legal physical cannabis stores open in Ontario, the most of any province, which all rely on the OCS to be the middleman between producers and retailers. 

Cannabis sales in Ontario were up 0.7 per cent to $87.8 million in February, the only province in the country to report a monthly gain, according to Statistics Canada. Sales in Toronto, including online sales from the OCS, were down 1.6 per cent to $35.4 million in February. 

According to an online data tool that tracks daily cannabis sales on the OCS website, the province's top producers by sales over the past several days were Aphria Inc., Canopy Growth Corp., Auxly Cannabis Company Inc., and Village Farms International Inc.

Roderick said consumers will still be able to purchase products online and in retail stores that currently provide curbside pickup and delivery services, although they may see some popular products temporarily out of stock this month. 

"At this time, the OCS is seeing significantly reduced retail store ordering with in-store shopping currently closed," he said. 

However, one major cannabis retailer thinks the province's current supply chain issues could be fixed if it stopped centralizing distribution in one facility and allowed producers to ship directly to retail stores. 

"Continuity of supply chain is an important issue for legal cannabis retailers who continue to battle against an entrenched illicit market," said Omar Yar Khan, head of public and government affairs at High Tide Inc., which operates 18 stores in Ontario. 

"Until this issue is resolved we would hope that government would consider a temporary provision to allow retailers to source product directly from licensed producers."