Ontario to open second cannabis warehouse by September, analyst says

Ontario’s lone cannabis wholesaler and distributor received the green light from the provincial government to expand its privately-operated distribution network when necessary, an Ontario Cannabis Store spokesperson told Marijuana Business Daily.

A new distribution warehouse could come sooner than later, according to one analyst, potentially providing the slack the system currently lacks to open stores faster, giving a much-needed boost to stores and producers.

“Ontario is expected to open a second distribution warehouse by September, which we believe should drive an increase in sell-in” in the fourth quarter of this year, Bank of Montreal analyst Tamy Chen wrote in a note to investors this week, citing industry sources.

Sell-in refers to sales by federally licensed producers to the provincial distributor.

In lieu of answering questions from MJBizDaily, the OCS provided the following statement – attributed to Daffyd Roderick, director of communications – which stops short of confirming the opening of the warehouse by September:

“After the consultations last winter where the producers opted out of delivery, we received confirmation from the government to continue to expand our privately operated distribution network when necessary,” the statement reads.

The “network” is a reference to a new warehouse.

The OCS held consultations in 2019 on increasing private sector participation in the delivery of recreational cannabis to stores.

Global News previously reported that Ontario’s cannabis warehouse is about the same size as one operated by British Columbia, even though Ontario’s market is considerably larger.

Ontarians spent 41.1 million Canadian dollars ($30 million) on cannabis in May. In British Columbia, consumers spent about half that – CA$27.1 million.

All legal cannabis is required to circulate through Ontario’s only marijuana warehouse, and industry experts have long questioned whether the province’s facility is too small.

“For much of 2019, the Ontario Cannabis Store’s sole warehouse has been described as one of the contributors to supply chain challenges, whether it was limiting the pace of new store openings or accelerating returns of slow-moving SKUs to free up storage capacity,” Chen’s note said.

“As a result, we believe a second warehouse should drive an increase in sell-in during Q4/20 and better support inventory needs from a growing store network.

“We expect this tailwind will have varying degrees of impact,” the note reads, as “the OCS has become more disciplined in their purchasing by better matching procurement with what sells at retail and not accepting inventory that was packaged more than three months ago.”

Ontario issued its 100th retail store authorization in June, putting the province on pace to reach 150 stores this year – the original target laid out by the previous Liberal government.

The retail regulator – Alcohol and Gaming Commission of Ontario – currently issues about 20 Retail Store Authorizations per month “with direction set by the government.”

Late last year, the current government announced a move towards an open market for private cannabis retail in Ontario.

But industry has often been frustrated by provincial missteps, such as last week’s confusing end to temporary curbside pickup and delivery services for privately-owned cannabis stores.

Alberta, with a population about one-third of Ontario’s, has over 500 stores serving the regulated adult-use cannabis industry.