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Ontario’s independent cannabis retailers band together to tackle predatory pricing

close up photo of marijuana plant
“We decided to either minimize or eliminate the position of LPs engaging in data deals that fund predatory pricing structures,” says Jennawae Cavion, founder of Calyx + Trichomes in Kingston. “We’re doing this while amplifying the LPs who don’t engage in data deals, who support independent retailers, and who engage in healthy business practices that stimulate longevity.”

Tim Wilson | Stratcann

Independent cannabis retailers in Ontario are fighting back against LPs selling products at what they say are predatory prices in discount chain stores.

A core group of 14 owners, representing 23 top-performing stores, will be monitoring large LPs who feature and promote products at razor-thin margins, and who they say are suspected of financing these low prices via data deals.

This independent retail group, which operates in separate markets in Ontario and freely shares information, will then advise the larger community of independent stores. 

“We decided to either minimize or eliminate the position of LPs engaging in data deals that fund predatory pricing structures,” says Jennawae Cavion, founder of Calyx + Trichomes in Kingston. “We’re doing this while amplifying the LPs who don’t engage in data deals, who support independent retailers, and who engage in healthy business practices that stimulate longevity.”

The group is developing a three-tier list for categorizing LPs: those suspected of engaging in predatory data deals; those working with collectives; and those LPs that are data-free and don’t pay listing fees. 

Of these, the companies suspected of doing data deals will face the most scrutiny, and possibly be boycotted.

“We talk about what we see in each of our markets, and we share information about which products are selling at such low prices that it doesn’t make sense,” says Owen Allerton, the owner of Highland Cannabis in Kitchener. “We can shine a light on bad behaviour by LPs, avoid those companies, and work with producers who play fair. We have a huge amount of buying power, and won’t be tricked into subsidizing our competitors.”

This informal group is different from organizations like the Independent Retail Cannabis Collective (IRCC) in that it doesn’t function as a buying organization that seeks group benefits or discounts. There is, in effect, no business model. 

The group does, however, act with solidarity when it comes to member interests, and will even be adding maps to store websites highlighting other members in case customers are travelling to other cities.

It is also more than willing to school the market.

“I think the LPs currently look at making deals with retailers with predatory pricing as a net positive,” says Sam Gerges, the owner of MaryJane’s in Toronto. “Once they understand and see that it’s actually a net negative because we will offload them, they will start making decisions differently.”

A Wider View

Member retailers contacted by StratCann noted that this independent retailer group, while informal and without a written mandate, can provide support in other areas where there might be common ground.

“Other issues of concern are getting rid of the excise tax, increasing the limits on edibles, and allowing for parcel shipping of recreational cannabis in Ontario,” says Nick Baksh, founder of Montrose Cannabis, in Pickering.

The independent retailers are working together to share good business practices, and to offer expertise wherever possible.

“We’ll share anything from product recommendations to brands we like, HR best practices, creative ideas that work,” says Cavion. “We also support any projects the others are working on.”

However, while these and other issues are a meaningful part of discussions within the group, the concerted action will be to provide a collective response to predatory pricing. 

“If you’re a brand and are into predatory pricing with certain box retail chains,” says Baksh, “slowly but surely, we’ll find out and make new room.”

The concern isn’t only that these practices unfairly discriminate against smaller players but that with the status quo, independent retailers are, in effect, subsidizing practices that threaten their businesses.

“LPs pay a handful of retailers money they generate from the sales in our stores to help them fund predatory pricing structures,” says Cavion. “Independents are then forced to sell at a loss, while the LPs erode their own brand value. It’s lose, lose, for both LPs and independents.”

While it is legal for licensed retailers to enter into agreements with LPs for the sale of data for business intelligence purposes, the suspicion is that data deals are really a cover for listing fees and preferential treatment. But nothing is stopping independent retailers from fighting back and supporting LPs with quality products and ethical business practices.

“Small, independent growers making quality craft cannabis are unable to compete and pay retailers these crazy listing fees that have become so common,” says Cavion. “They don’t have the millions of dollars needed to engage with a handful of large groups that have many stores. And why should they? Quality cannabis should sell itself!”

An overarching theme of the initiative is that those LPs suspected of working with discount retailers on predatory pricing will have their products boycotted. 

“We won’t support people who are funding our demise,” says Gerges from MaryJane’s, which has been Toronto’s number one ranked cannabis store by sales since Q1 2021.

“We can’t have a cannabis market where shelf space and the supply chain ecosystem are controlled by larger corporations which will only stock what they get paid to stock. The Canadian consumer deserves the best product, not the product willing to pay the most. These smaller LPs don’t have money to get on the shelves of these predatory pricing retailers; we independents will be their safe haven.”

Onside with the OCS

The Ontario Cannabis Store (OCS), the provincial Crown corporation with the legal monopoly for wholesale distribution of recreational cannabis, has ameliorated the situation somewhat by increasing the number of SKUs available through its Flow-Through program. 

This move has provided more opportunities to create distinct value propositions.

“Generally, we are feeling pretty good about the OCS,” says Allerton. “With an abundance of SKUs, we can carry products that others don’t and avoid going head-to-head with the discount chains.”

In a tough market, where many retailers are struggling to stay above water, having the provincial wholesaler adjust policies and reduce margins is providing some relief.

“OCS does a lot of the heavy lifting for us,” says Baksh, from Montrose. “At the same time, via Flow-Through I can access a lot of stuff that isn’t otherwise getting to market, and isn’t stocked at the warehouse in Guelph.”  

Independent retailers have informed the Alcohol and Gaming Commission of Ontario (AGCO)—the Crown agency that regulates cannabis in the province—that deals based on revenue or units sold contravene the inducement regulations. To date, nothing has been done, either for lack of evidence, or will, or perhaps a sense that the jurisdictional responsibility lies with Health Canada.

At this stage, it doesn’t matter: independent retailers are stepping up and taking the fight to the big guys. The small group of top-performing retailers represents over $60 million in sales and is attached to another larger group, representing another 100 stores, accounting for $200 million in sales. 

“Given that there are over 1,700 cannabis outlets in Ontario, of which approximately 300 are low-volume chain stores, is it really worth it to pay these data deals to get shelf space?” says Allerton. “Maybe it’s time to start operating with integrity, which gets you love not only from our group, but from all the independent retailers in Ontario.”

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