Auditor General: Ontario not properly monitoring movement of recreational cannabis in retail stores
Ontario’s Auditor General Bonnie Lysyk says there is a lack of transparency and oversight with the operations of the Alcohol and Gaming Commission of Ontario (AGCO), the agency responsible for regulating the alcohol, gaming, horse-racing and private cannabis retail sectors throughout the province.
With nearly 80,000 licensees across four industries in its purview, Lysyk’s report states that “the AGCO does not have strong processes and systems in place to effectively carry out its regulated activities.”
When it comes to cannabis, Lysyk flagged multiple areas of concern, including that “the AGCO is not properly monitoring the movement of recreational cannabis in retail stores.”
According to the report, almost 5,500 units of cannabis products were destroyed by cannabis retailers between September 2019 and July 2020, but the AGCO received no assurance that these units were “not lost, stolen or diverted.”
During that same period, the report found that cannabis retailers had 84,228 fewer units on hand than recorded in their inventory systems.
Jaclynn Pehota, executive director at the Association of Canadian Cannabis Retailers (ACCRES), characterized those findings as “not overly surprising” and “foibles of centralized distribution.”
The Ontario Cannabis Store has a monopoly on online recreational cannabis sales, as well as acts as the wholesale distributor for retailers throughout the province.
“I think these distribution systems were launched with a degree of haste and they were modeled on alcohol distribution systems and, unfortunately, alcohol and cannabis are not identical in terms of how they need to be stored and managed at the inventory level,” Pehota told The GrowthOp.
Pehota said ACCRES has been advocating for establishing distribution systems that support direct supplier to retail relationships.
The auditor general’s report also noted that AGCO compliance officials have “significant autonomy” in selecting which establishments to inspect and “did not document the rationale for their selections.”
In 2019-2020, there were 258 unannounced inspections at cannabis stores, including regular inspections and mystery shoppers. Violations were noted for 35 per cent of inspections, but more than half of those violations were self-reported.
The report also states the majority of cannabis purchased in 2019-2020 was obtained in the illicit market, but that the price point between legal and illegal cannabis “was not significant” at the time of the audit.
However, the AGCO received multiple complaints about retailers selling “sub-par cannabis (too dry, for example),” it notes.
“We heard that some people prefer illegal cannabis because it is more potent and the product is fresh,” the report states, citing discussions with cannabis store managers and AGCO staff. One store operator reported that since the products don’t arrive with expiry dates, it’s a challenge to know which items to sell first.
In a statement, the AGCO notes that the audit “identified some valuable areas for improvement,” and that the agency will address the report’s recommendations as a priority.
The report marks the first time the AGCO has been audited by the Office of the Auditor General of Ontario.
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