News Hit:

Bud buy-back complicates farm-gate sales in Ontario

Cannabis consumers have been dreaming of farm-gate sales since the moment the word ‘legalization’ was uttered by Justin Trudeau. We all want to purchase bud at the source, but it’s not something any province has been able to implement just yet.

A Global News report published yesterday (January 28) announced the emergence of farm-gate cannabis retail in the province of Ontario, supposedly coming this spring. While beer and wine can be sold by a brewery or winery directly to the consumer (as long as the Liquor Control Board of Ontario, or LCBO, is not undercut and reports are filed with the provincial liquor wholesaler for each sale), it looks like cannabis producers and consumers won’t be so lucky. Farm-gate sales for cannabis will require an extra step.

Ontario’s provincial cannabis legislation stipulates that producers must first sell cannabis intended for farm-gate sales to the Ontario Cannabis Store (OCS), the monopoly wholesaler responsible for cannabis distribution. Then the OCS will sell the product back to the producer before it is sold to the consumer, no doubt with some sort of markup attached. (This applies even if the retailer and producer are operated by the same company.)

Thankfully, the transaction won’t have to occur physically, as in, producers won’t have to transport their cannabis to the province’s wholesale facility and then back to the LP. But in a nascent regulated industry already forced to compete with lower prices and (arguably) easier access on the illicit market, increasing the price even further has the potential to create additional financial barriers.

The amount of the markup has not yet been determined.

Kevin Benson is the former Ontario regional coordinator for NORML Canada, as well as a patient, advocate, and grower. While he says his self-contained patient collective requires little need for legalization, he recognizes the way the extra step might harm smaller producers.

“The government is stepping on what could be a lucrative endeavor across the board,” he told Inside the Jar.

“The high bar for entry and heavy tax burden serve to keep the underground under the radar and outside the tax scheme. Farm-gate and micros [micro-cultivation] are an opportunity to fix that, but all those fingers in the pie at the beginning of the line will stifle the growth at the consumer end.”

Nathan Woodworth, CEO, president, and founder at James E. Wagner Cultivation (JWC) in Kitchener, told ITJ that the move by the province isn’t unexpected, but is something his company is prepared to deal with in order to provide local consumers with the option of farm-gate retail.

“In terms of a paper transfer, the government wants to safely regulate all of these products, and so they are insistent that they play the role that they have designed the system for them to play,” he said.

“I feel that that’s not an inappropriate act... Our goal here is not to short-circuit the normal process of things, but rather, for us, the draw to participate in the farm-gate setup is to really engage with the community.”

Woodworth grew up in Kitchener, where his company renewed a large established commercial structure for cannabis cultivation. He added that engaging with the community by selling JWC’s products directly, “is something which is in itself very enticing to us.”

He pointed out that if the province were to skip the farm-gate buy-back, it could create an unfair advantage for producers selling products directly to consumers, and cause frustration for retailers who might operate stores in the same area.

“I think we can find ways to nonetheless still benefit the community in a variety of different approaches, including being more competitive in pricing, despite working through those normal channels,” he said. “One of the struggles we have as an industry is to get this product to people when it’s fresh.”

This article is available under a Canadian Creative Commons licence.