Ontario Cannabis Retail Corporation, the state entity that controls the cannabis market in the Canadian province, reported a loss of $42 million in its first fiscal year.
Even though Canada legalised cannabis consumption last year, the selling of the drug is tightly controlled. The OCRC is the only place you can buy the drug in Ontario legally. It operates under the Ontario Cannabis Store brand. They reported profits of $64 million for the year ending March 31st, 2019, but racked up expenses of $106 million.
The rollout of legalisation was full of supply chain issues and product shortages, which may have contributed in some way to the financial problems.
Emily Hogeveen, a spokesman for Ontario Finance Minister, Rod Phillips, blamed the initial startup costs for the loss:
Cannabis legalization is a new venture for Ontario. There were investments required for setting up a system that could achieve our objectives — which is to protect youth and combat the illegal market. The OCRC’s revenue outlook reflected the initial costs for the development of this retail system… The Ontario Cannabis Retail Corporation (OCRC) needed to make foundational investments to support Ontario’s approach to retail sales, which will see a broad network of private retail stores across the province established to effectively combat the illegal market.
The communications director of the OCS, Dafydd Roderick, backed up the claims of Ms Hogeveen in an email to the Financial Post:
Many entities in the legal cannabis supply chain across Canada, including the Ontario Cannabis Store, made considerable foundational investments to establish infrastructure to support an industry well positioned to compete with the illegal market and protect children and youth… OCS expects continued revenue growth as the industry evolves and Ontario’s private retail store network expands to meet the needs of adult consumers across the province. Although it expects to be profitable moving forward, the OCS will work with the Government of Ontario to evaluate any additional foundational investments required to further support Ontario’s policy objectives for cannabis legalization.”
However, some of these “foundational investments” include $10.2m spent on cannabis stores that never even opened, and nearly $300,000 that was attributed to “computer impairments” and machinery problems that related to changing the direction of how involved the private sector was going to be.
It turns out that when you get government involved, even the most profitable industries don’t seem to be able to make any money!