How Do You Lose Money Dealing Marijuana? Be a Government Agency.

Ontario has lost millions trying to sell cannabis.


When Canada legalized recreational marijuana, it did a lot of things right, including lower weed taxes than you'll find in some U.S. states. Unfortunately, it also insisted on licensing, heavy regulation, and state monopolies in the supply chain.

The result: Over the last fiscal year, Ontario has lost $42 million—$31.7 million in U.S. dollars—by getting the country's largest province directly involved in setting up the marketplace.

Ontario doesn't just handle the licensing and regulations. It also is responsible for operating the only legal online site for purchasing marijuana in the province, and it is the only wholesale vendor. The Ontario Cannabis Retail Corp., the state-owned business that runs the Ontario Cannabis Store, reported revenues of $64 million for the last fiscal year, which ended in March. But newly consolidated financial statements show that during the same time, the corporation logged $106 million in expenses. (The province of Ontario, incidentally, logged a $7.4 billion budget deficit for the 2018-19 fiscal year.)

Tons of supply-side problems hamstrung the rollout of legal marijuana in Canada, leading to shortages in stock, not enough storefronts, and bureaucratic troubles for private vendors seeking permission to operate. Because the state handles the wholesaling, it had to limit the number of storefronts it would permit, leading to a lottery. Thousands entered for 75 allotments, and it all got messy.

British Columbia has seen similar frustrations due to not having enough licensed—only 60 for a province that is physically larger than California. Alberta next door has 270 licensed retailers and is making more than four times as much revenue as British Columbia in sales, even though British Columbia has a higher population (5 million compared to 4.3 million). The government of British Columbia wants to share revenues with cities within the province, except it doesn't actually have any revenue to share, according to Finance Minister Carole James.

Canada's legal marijuana isn't as expensive as it is in places like California. But the process is still so bogged down that a black market for weed still remains.

On the positive side, many of those issues are being resolved; legal marijuana sales across Canada are mostly on the rise. Ontario reported $25 million in cannabis revenue for June. British Columbia reported $4.1 million for June, doubling its revenue from February. The country will start permitting sales of edibles in October, but supply-side issues may mean yet more shortages in supply.

Government bureaucracy works slowly, and it lacks the profit motive that prompts the private sector to sort things out quickly. Until Canada and its provinces get their collective acts together for licensing and approvals, they'll be holding the private market back and costing taxpayers money in the process.