Cannabis prices kept low despite inflation amid 'intense' competition
While Canadians have endured months of rising prices for staples such as food and gas, one product consumers may have noticed little change in is retail cannabis.
Figures from Statistics Canada show that the consumer price index (CPI) for alcoholic beverages, tobacco products and recreational cannabis rose 3.5 per cent in August compared to the same month in 2021, which is lower when compared to other items monitored by the federal agency.
But on its own, the CPI for recreational cannabis has seen year-over-year declines through to August 2022, falling as much as 10.3 per cent in May.
George Smitherman, president and CEO of the Cannabis Council of Canada, told CTVNews.ca in a phone interview on Tuesday that this deflation in price reflects an "intense competitive environment," which is translating into weak bottom lines for those in the regulated industry.
"Sadly, it's not financially sustainable," Smitherman said.
The cannabis analytics firm Headset noted this trend back in February in the United States.
More recently in August, The Canadian Press pointed to competition between retail stores as a driver behind low prices for consumers.
"In fact, the last thing you want to do is to increase prices because the black market has adjusted very, very aggressively and cannabis on the black market is cheaper," Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, told CTVNews.ca in a phone interview on Monday.
But Smitherman said this is also happening at the expense of producers, whose margins are becoming thinner under the current system.
A report from the firm Ernst and Young, commissioned by the Cannabis Council of Canada, found that licensed producers in Ontario saw their share of sales revenue fall to 60.8 per cent in April 2022 from 74.2 per cent in July 2019. Over that same period, the share going to the federal and Ontario governments through excise duties rose to 37.6 per cent from 23.9 per cent.
The industry also has not been immune to supply chain issues, Smitherman said.
A cyberattack in August on a logistics partner for the Ontario Cannabis Store affected orders from retailers, while a labour dispute involving public sector workers in B.C. stopped the province's cannabis distribution centre from shipping product.
Smitherman said the examples in Ontario and B.C. show how much distribution has been monopolized, adding that suppliers are absorbing the increased costs from supply chain disruptions.
Despite the concentration of cannabis stores in certain communities, access to cannabis is not the same everywhere and in some cases, communities have chosen to opt out of the retail market.
And Smitherman said the illicit market is still being propped up by retail and online stores operating illegally. The federal government is in the process of reviewing the legalization of cannabis in Canada.
"If we don't bring more people over from the illicit market, we've failed the public health objectives of legalization," Smitherman said.
With files from CTVNews.ca Writer Natasha O'Neill, The Canadian Press and CNN
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