By: Kate Bueckert | CBC News
The owners of some independent cannabis shops in Ontario are questioning how bigger chains can afford to offer deep discounts and a new campaign alleges it’s because some may be accepting illegal kickbacks.
Owen Allerton is the owner and CEO of Highland Cannabis in Kitchener, Ont., and started the Cancel Kickbacks campaign late in 2022.
The campaign says that the Ontario government changed the rules to permit cannabis shops to sell their sales data to producers. Now, Allerton alleges some of the larger chains are selling their sales data for way more than it’s worth and using the money to “fund predatory pricing.”
All retailers in the province have to buy their product from a government wholesaler. But some larger chains offer discounts of around 25 per cent for “members” or people who sign up to their loyalty programs.
“This sort of came to our attention as we questioned how are they possibly remaining feasible and selling at these low, low prices,” he said.
“We started to hear from industry insiders that what was happening is: these payments, these listing fees, inducements, whatever you want to call them — basically they’re deals that say we carry our products and push them on the customers that come through your door and we will pay you X dollars,” Allerton told CBC News.
Inducements are prohibited
The Alcohol and Gaming Commission of Ontario (AGCO) prohibits licensed cannabis retailers from accepting or requesting inducements — or payments to promote certain products over others — from licensed producers.
But as of June 30, 2022, the AGCO has allowed cannabis retails to sell their sales data “for business intelligence purposes.”
The data is generalized sales figures and not customer data. The AGCO notes on its website the “sale or sharing of personal customer information continues to be prohibited by Canadian law, unless expressly consented to.”
The AGCO said in an email to CBC Kitchener-Waterloo that it works to ensure compliance with the regulations and that includes rules around inducements.
“We are currently conducting inspections into allegations of inappropriate cannabis inducements and will determine if it gives rise to any regulatory concerns relating to licensed retailers in Ontario,” the statement said.
Allerton says he’s received the same message from the AGCO, but says he’s been flagging the issue to the commission for months and he’s seen no change.
He’s not alone. Jennawae Cavion, co-owner of Calyx + Trichomes Cannabis in Kingston, Ont., told the trade publication StratCann that she’s been approached by producers who want to make a deal for shelf space.
“We often get offers from third party reps or ‘data groups’ looking to kick us back five to 50 per cent. They will say something like, ‘If you buy this case I’ll give you $1 per unit back,” Cavion told CBC K-W in an email.
“But those offers usually come on products that are pure trash that need to be moved or worse, products that are pure trash with artificially inflated price to account for these kickbacks.”
Cavion said her staff won’t accept those deals because then staff would need to push certain products and recommendations then are “not coming from the heart [and] we will lose credibility.”
Allerton says these kinds of deals are hurting smaller cannabis retailers.
“If you talk to any of these stores that are closing their doors and giving up, they’ll all tell you the same thing — it’s the pricing they can’t keep up with,” he said.
Cavion says she expects the deals will “dry up” in a few years.
“Now more [licenced producers] are willing to say, ‘My cannabis is quality and it will sell itself.’ When these deals evaporate, the retailers participating in these deals will go bankrupt because their whole business model is taking handouts,” Cavion said.
“Independents need to tighten their belts and ride it out.”
Allerton says the Cancel Kickbacks campaign is meant to educate and unite independent retailers.
“We’re not demanding change,” Allerton said. “We’re just asking that the existing regulations are enforced so that we have a fighting chance in the industry and that’s it.”