In praise of government cannabis monopolies

It’s become a pastime for LPs, retailers and pundits to take pot shots (pardon the pun) at provincial government wholesalers (GW), the mandatory resellers and gatekeepers in their respective markets (save Saskatchewan which allows private sector wholesaling).

After all, who wants their products marked up (frequently 30+ points in some categories and provinces), curated (often subjectively, and not market-driven) and vulnerable to single-point supply chain disruptions (the OCS and BCLDB this past summer)?  

Is all this criticism justified?   

Let’s begin the old maxim:  don’t throw the baby out with the bath water.

GW’s do play an important, necessary though expensive role in the Canadian cannabis economy. Here’s why:

1. LPs benefit from dealing with a single GW by province.  

Though not perfect system, it is much easier and cost-effective selling to one wholesaler in each province than selling to thousands of cash flow challenged retailers and small wholesalers.  Furthermore, private wholesalers (PW) would also apply mark ups for their vital roles, though the percentages would likely be lower.  Fact is that when an LP adds up selling and service costs plus bad debts, you may end up with comparable cost structures with both systems - plus a lot more hassle and fulfillment complexity going the private route.

2. The GW system is the same for each LP and retailer

Though the government’s rules and policies often appear opaque or unfair, there is generally a level playing field for all LPs and retailers (at least for the ones dealing with the GW in the province they are based in). In a PW-based model, every LP will not be treated the same. Bigger LPs and retailers will be able to extract larger discounts and better terms.  Moreover, PWs are not required to deal with everyone, nor will they dispense with arbitrary product curation. Not surprisingly, many LPs will find themselves shut out of many markets.

3. Jettisoning GW does not eliminate risks. In fact, it could magnify them.

PWs experience the same risks and operational environment as GW’s do.  To wit, PWs are not immune to labour strife, cyber-attacks and mismanagement. Most PW’s won’t have the resources and wherewithal to respond as a GW is obliged to do.  And in some cases like ransomware PWs may be even more predisposed to attacks than GWs. 

A GW mandate goes well beyond being a responsible industry reseller. Their existence is more about politics, government control and revenue generation.  This is the reality.

However, that doesn’t mean they shouldn’t be more efficient and effective partner to industry. LPs should lobby forecfully for their reform (especially around mark-ups, new product gatekeeping and rules) not elimination.

#OCS #retail #supplychain #wholesale #reseller #Canada