A CBC News analysis has revealed the price of cannabis extracts varies widely across Canada, with the same product sometimes costing two to three times more in one provincially run online store than another.
The inconsistencies, experts say, could undermine efforts to wipe out the country’s illegal market.
The analysis looked at the price of 61 cannabis capsules, sprays and oils available in Ontario’s provincially run online retailer in December 2019.
Those products were then matched with their counterparts from the online provincial retailers in British Columbia, Alberta, Quebec, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador — provinces where the government is an official distributor and runs an online mail-order site.
Manitoba and Saskatchewan have direct-to-dispensary models, where licensed producers sell directly to retail stores, without the province acting as a wholesaler.
The analysis found that for 31 of the products, the price difference between the most and least expensive province was more than 50 per cent. In some cases the exact same product cost three times more.
Of the 36 products sold in both Ontario and B.C., 25 are more expensive in Ontario. On average, Ontario is charging 32.5 per cent more than B.C. for the exact same product.
A similar trend emerged when CBC News compared prices between the province-run stores in Ontario and Alberta. Of the 54 products the two online stores had in common, 42 cost more in Ontario, with customers paying an average of 33 per cent more.
A 15-capsule bottle of DNA Genetics’ Lemon Skunk 10mg softgels sells for $76.10 in the Ontario Cannabis Store (OCS). Though produced in Ontario, the same product sells for $29.99 in Newfoundland’s online store, $54.99 in Nova Scotia and $34.49 in P.E.I.
Alberta Cannabis charges $37.99 for a 30ml bottle of Symbl’s High THC Oil, which is also produced in Ontario. B.C. customers can buy it for $74.99, while the same product sells for $106.25 at OCS — 180 per cent more than the retail price in Alberta.
For one Toronto consumer the price variations seem a bit fishy.
“That doesn’t really sit well with me,” said Jessica Nudo.
Nudo began using cannabis for her migraines pre-legalization.
“I’d consider myself more of a medical consumer with a touch on the recreation,” she said.
For health reasons, Nudo prefers to consume cannabis oils and capsules instead of smoking pot. But current extract prices are so high at OCS, she says she rations her use.
She says she too has compared Ontario’s prices with the online prices in Alberta and B.C., and found Ontario’s pricing is often on “the higher end of the spectrum.”
Some price variations are to be expected, said Rishi Malkani, of financial consulting firm Deloitte, who has worked directly with several provinces during their price and supply negotiations with licensed producers.
Some provinces hired Deloitte’s Rishi Malkani to help negotiate cannabis prices with producers. He says Deloitte’s research shows regions have different taste preferences, particularly with edibles. Products that sell well could become cheaper.
“Each of the provincial wholesalers negotiates separate agreements with the producers, so depending on what [the provincial government] thought in terms of how much they should buy, how much their demand is going to be, they’re going to be able to negotiate different kinds of discounts.”
On top of that, varying tax rates among the provinces — PST, GST or HST — could make up as much as a 10 per cent difference in the final price. Some provinces include those costs into the display price; others add it at checkout.
Provinces with larger populations could get a better deal for buying in bulk — though that didn’t seem to be the case with the two aforementioned product examples.
The location of the producer also plays an important role, said Malkani, because of transportation costs: a product made in Ontario should cost less in Ontario than it does in Nova Scotia — theoretically, at least.
However, Malkani struggled to come up with an explanation for why a product produced in New Brunswick would be most expensive in neighbouring Quebec and second-most expensive in its home province.
“The provinces are still kind of, you know, feeling out what’s selling, what’s not,” said Malkani.
They’re working through inventory from the first round of wholesale purchases, he said, and suggested some provincial wholesalers may be heavily discounting certain products.
High prices can make buyers feel ‘gouged’
Inconsistent pricing from province to province is detrimental to the goal of wiping out the illegal market, says Daniel Bear, a drug policy expert at Humber College in Ontario.
“One of the primary reasons the government cited when legalizing cannabis was to reduce the black market,” said Bear.
“When the prices are now wildly out of line with one another, that probably impacts trust quite a bit.”
Research on the industry — which so far has been limited to dried flower cannabis — shows customers are willing to pay a bit more for legal product before turning to the illicit market, says Bear, but the margin is small.
If the legal product is anywhere between $1 and $3 more per gram, consumers will buy it, he said.
But when they can see with a click of the mouse that the same product is selling for $10 or $20 less one province over, it makes them more likely to look elsewhere.
“The whole basis of this system needs to be built on the idea that you can trust that a legalized product is fair, it’s coming from good sources and you’re not being price-gouged just to fill the coffers,” Bear said.
David Lobo, vice-president of corporate affairs for OCS, says prices have dropped on more than 200 products since legalization, 40 of those in the extract category: capsules, oils and sprays.
OCS to turn profit after $42M shortfall
One of the reasons for higher prices in Ontario is the province lost $42 million in its first five and a half months selling cannabis.
“Our pricing is set in a manner that helps us cover our costs as an agency,” said David Lobo, vice-president of corporate affairs and social responsibility at OCS.
“Ontarians expect that cannabis operations will pay for themselves and will not be subsidized by the province,” he said, noting that OCS is on track to turn a profit in its first full fiscal year.
Lobo also said OCS has dropped the price on more than 200 products since legalization — 40 of which are oils and capsules.
B.C. cannabis wholesale markup 15%
But critics say cheaper products don’t necessarily mean a healthier sales landscape.
In B.C., where prices are consistently lower, the province’s online store marks up all products, from dried flower to extracts and edibles, at a relatively low flat rate of 15 per cent.
While a lower mark-up sounds better for consumers, it’s making it hard for private retailers to turn a profit, said Unity Whittaker, a buyer for Vancouver’s Village Bloomery.
“How can a private retailer compete with the B.C. government when they’re the wholesaler and retailer?” she said. “The Ontario government is taking it out of the end consumer’s pocket, and the B.C. government is taking it out of the retailer’s pocket.”
Unity Whittaker goes over cannabis products for sale at Village Bloomery in Vancouver. Whittaker is the store’s buyer and tracks the cost from province to province.
Prices will stabilize: Deloitte
Since CBC News gathered the data, several provinces say they have lowered the prices of some extracts to improve sales.
Malkani says the legal marketplace is still a budding industry, and these inconsistencies are to be expected.
“I think we are watching in real time the evolution of prices,” he said, as retailers and producers see what consumers want and how much they are willing to spend. Despite the “turmoil” right now pricing should even out relatively soon.
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Authored By: CBCArticle category: Marijuana Business NewsRecreational Marijuana NewsRegional Marijuana News: British ColumbiaAlbertaQuebecNova ScotiaNew BrunswickPrince Edward IslandNewfoundland
READ MORE: https://420intel.ca/articles/2020/02/20/cannabis-extract-prices-vary-wildly-between-provincially-run-stores