Ontario’s plan to allow cannabis producers to sell their products on site is already experiencing growing pains.

The Cannabis Act currently states that Ontario growers can only sell their products to the provincial wholesaler, the Ontario Cannabis Store (OCS), and that retailers are only allowed to stock their shelves through purchases from the same place.

Now that the government is allowing growers to open farm-gate stores to sell their wares on-site, it was thought the OCS’s role in the supply chain might change. So far, that has not been the case.

To abide by regulations as they stand, Ontario growers must sell their marijuana to the OCS and then buy it back before selling it to customers. It is unclear if any mark-ups will be applied to products during the transaction, but an OCS spokesperson said growers will not be required to actually send it their products.

Growers are still in the dark about how the process will work and if the initiative will be able to achieve its goal of combating black-market sales.

“The OCS is working to finalize details on how on-site retail stores will operate and will share these with federally licensed producers in coming weeks,” Daffyd Roderick, director of communications for the OCS, told The GrowthOp. “Products will not be physically transported from the (licenced producers) to OCS to be transported back to LP’s farm-gate stores.”

While that may clear up some of the confusion, growers are still in the dark about how the process will work and if the initiative will be able to achieve its goal of combating black-market sales — particularly if mark-ups hinder their ability to offer competitive pricing.

“While we understand there are policy justifications and a need to maintain the infrastructure of the OCS, we would hope drivers such as competing with illicit market prices and excessive environmental repercussions will be considered when determining the farm-gate store process,” said David Grand, founder and CEO of Muskoka Grown. “Though the Cannabis Act states that retailers can only sell cannabis purchased from the OCS, our hope is that they will adopt a sales model that resembles the wine and beer industry,” Grand said.

If no product is being shipped anywhere, a mark-up would make little sense, added Craig Wiggins, a managing director at independent analysis firm, The Cannalysts. “There’s absolutely no need for physical possession,” Wiggins said. “If OCS doesn’t touch it, they should reduce their usual ‘margin confiscation’ to an absolute minimum,” he added.

FILE: Situated in downtown Bracebridge, Muskoka Grown is preparing the construction of a “new experiential space” that will educate visitors and help them better understand the benefits of cannabis. / Photo: Shutterstock/SunMediaArchive Shutterstock/SunMediaArchive

The farm-gate concept was widely praised by growers and consumers alike for its potential to bring more stores and selection to areas of the province badly underserved by Ontario’s decision to use a lottery system to award the first two waves of retail licences in the province.

Ontario currently has about two dozen cannabis retail stores for 14 million people, with another approximately 50 authorized licences expected to be operational by spring. In comparison, Alberta, a province with a population of 4 million people, has opened and supported 300-plus privately owned stores.

Grand said that Muskoka Grown is taking a wait-and-see approach at the moment, but a farm-gate store is still very much in its future. “We understand the OCS will share more detail on how the on-site farm-store will operate in the next few weeks and look forward to working within the regulations to develop an education-led and experience-driven retail space,” he said.

“Muskoka Grown is still very committed to creating a direct to customer sales channel and becoming the first farm-gate store for the Muskoka region.”