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'Fairly dire' choices by Ford government led to Ontario's cannabis problems: expert

Year two of Canada's experiment with legal cannabis has begun, at least in Ontario and Quebec, with layoffs. More than 300 jobs have been lost. Jesse Staniforth, editor of Weedweek Canada, explains why the industry is off to a rough start in Ontario.

CannTrust announced last week it would lay off 140 people

Year two of Canada's experiment with legal cannabis has begun, at least in Ontario and Quebec, with layoffs. More than 300 jobs have been lost. Jesse Staniforth, editor of Weedweek Canada, explains why the industry is off to a rough start in Ontario. 8:40

Year two of Canada's experiment with legal cannabis has begun, at least in Ontario and Quebec, with layoffs.

Just last week two big producers, Ontario's CannTrust and Quebec's HEXO, combined to leave more than 300 hundred people out of work.

It's been a busy last few months for CannTrust. In July, Health Canada discovered illicit cultivation in unlicensed rooms at its Pelham, Ont., greenhouse not far from Hamilton. The company fired its CEO and asked its chairman to resign. Just last Friday the company said it would lay off as many as 140 people while it works to regain its federal licences to sell and produce pot.

Jesse Staniforth is the editor of Weedweek Canada, a free newsletter that tracks what's happening in the cannabis sector. He says the first year has been rough, thanks in part to errors made by Doug Ford's provincial government. 

Staniforth spoke with the CBC's Conrad Collaco about how the cannabis sales system could be fixed. You can read an abridged and edited version of the interview or listen to the full audio interview by hitting the play button above.

Jesse Staniforth, editor for Weedweek Canada 
(Jesse Staniforth)

CC: Why, after just a few months selling cannabis, have HEXO and CannTrust started laying off workers?

JS: CannTrust and HEXO are two very very different companies and if you followed the cannabis news at all since this summer there's a pretty good likelihood that you would have heard that CannTrust was involved in a major scandal. So, as they have been in the process of trying to avoid getting stripped of their Health Canada licence, I think it was a lot less surprising to hear that they were laying off workers. HEXO is a different story entirely. They cut a quarter of their workforce this week and this is a fairly strong and stable company that has 30 per cent of the market share in Quebec. 

It was alarming to see them cutting their workforce but it wasn't unprecedented because they've been warning for quite a while that they have been up against packaging bottlenecks. They have all the same problems that every producer has that there aren't enough stores for them to sell their product and they've had some difficult weeks going into last week.

This is the culmination of a difficult time for them but they are also fairly optimistic. When they made those cuts last week they said that they're doing this to become profitable within the next year and I would argue there's probably a good chance that's going to happen.

We've been paying close attention in Hamilton to the troubles that CannTrust has had as we're close to the Pelham, Ont. facility where unlicensed cannabis production rooms were discovered by Health Canada. These struggles for CannTrust and HEXO, what do they mean for the industry as a whole?

Those cases, they don't have a lot in common because CannTrust was quite grievously doing what they were not supposed to. But what they both have in common is a degree of desperation to become profitable and to get some kind of advantage on a very slippery market that is not yet anything close to its final form. I'm sure that was driven by the desire to simply become a dominant player in the marketplace which is what everybody wants and it's very difficult to do that when Health Canada does not allow you to advertise your product the way that you could advertise alcohol, despite alcohol being about 100 times more harmful to the human body. So, we have these different issues that push companies to make decisions and CannTrust obviously made a terrible decision.  

Was there a problem in the way the Ford government set up the cannabis sales system in Ontario?

Absolutely. I mean the choices that the Ford government made with regard to cannabis retail were fairly dire and I think in Hamilton you guys have gone from having, I think, 60 illicit cannabis dispensaries to now 24 in the province of Ontario, 24 legal cannabis sellers. There are more than three times as many in the city of Calgary alone. The real issue there is that Doug Ford came into office and he had a plan in front of him for cannabis retail which was going to be like the LCBO model, developed by the Wynne government, and he didn't like it. He decided to move immediately to private retail. I believe it was fewer than two to three months ahead of legalization. The decision to do something so quickly and with so little planning was enormously problematic.

Then he compounded that by determining the best way to give out these licences was through a lottery system that gave them, not to the most knowledgeable cannabis professionals, but to whoever happened to win the lottery. As a result of this we have people like Abi Roach in Toronto who runs the HotBox Lounge. She's been doing this for 20 years and is the person that I would go to when I wanted information about cannabis. She cannot, for some reason, become a cannabis retailer herself despite being the one person in the province of Ontario that I want to see running a cannabis store. This is a huge problem. 

We've heard from other experts who say that Alberta may be the province that got off to the best start with cannabis. What did they do that Ontario didn't?

As soon as they saw that the supply shortage was beginning to end they immediately moved back to licensing retail stores. They did so very quickly, by the end of August. I believe it might have even been by the beginning of August they had hit 200 retail stores in the province of Alberta while Ontario still had 24. They've now made it up to, I believe, 300 for the province of Alberta. So, they are licensing a lot of stores. They are allowing them to get open and running. It turns out that's what sells cannabis. It turns out that happened in British Columbia as well, in the month of August. The provincial government made it a priority to get these stores open. We saw, I believe, a 102 per cent growth in sales in August alone in British Columbia.

Is that how Ontario's system should be fixed? More stores?

It's one of the fixes. There are a lot of different fixes. One of the issues that everybody who is a cannabis consumer must bear in mind is that cannabis is not a new market. It's just a new legal market. We have an enormous, established cannabis economy where people are used to buying very high quality cannabis at a fairly low price and they're finding that legal cannabis is often not really as good. Now, sometimes there are lots of exceptions to that rule but in many cases people are unsatisfied with the quality and it tends to be about twice as expensive.

So, the companies that figure out how to really deliver the quality that their consumers want first, those are the companies that are really going to establish themselves in this market again. There's no marketing and because there's very little branding that you can do the only way you can get your name out right now is by making absolutely top shelf products.

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