Ontario Cannabis Store New Product Performance Criteria and Designations

The sale of certain cannabis products in Ontario will be discontinued as the Ontario Cannabis Store (“OCS”) has recently announced that it will be removing cannabis products that are not performing from its roster. In what the OCS is calling their “core assortment” program, approximately 200 product SKUs are set to be removed in the coming months, resulting from such products’ lack of sales or inconsistent inventory levels. The program is being initiated in an effort to improve the reliability and supply of products for consumers.

The OCS’ criteria for having a product delisted are as follows: (i) falling below 0.5 units of product sold per store per week; or (ii) the product being consistently out of stock after having been on the market for at least 6 months. Either will result in the consequence of such product being removed from the OCS’ website and the sale of such product to brick and mortar retailers. It is unclear whether products can be re-listed after a period of time.

This move will likely cause inventory levels and write-downs to increase in an industry with an already inefficient supply chain. High inventory levels have been a long-standing issue for licensed producers, while retail stores are typically having shortage issues when it comes to in-demand products. The core assortment program likely seeks to have licensed producers focus on their more popular products and ensure that they are effectively managing the supply of such products.

At the same time, the OCS will be introducing a craft designation for certain cannabis products. Similar to the beer market, craft products are intended to be produced in smaller batches and “handcrafted”, suggesting a higher quality product. In order to be considered craft, a producer must not have an annual production of more than 10,000kg per annum, and the cannabis must be hang dried, hand trimmed and hand packaged. For reference, micro-cultivators are capped at an annual production level of 600kg per annum. It may also be possible for producers to have an overall production of over 10,000kg as long as the facility from which the craft product is derived does not exceed 10,000kg, leaving room for the large manufacturers with multiple facilities to potentially take advantage of the craft designation.