Ontario has laid out its plan to sell recreational marijuana in Ontario once the federal government legalizes it next summer. It’s a bold plan and it’s going to fail miserably. For very predictable reasons. Yet, there is a way to make it a winner. By drawing from lessons learned in the private sector, the government could make its plan better, faster, more profitable and disarm much of the opposition. All it would take is one little tweak.
The province wants to maintain strict control on where, how and to whom marijuana is sold, so it plans to allow pot sales only through government owned and operated stores. It will manage these stores as a stand-alone extension of the Liquor Control Board of Ontario, a subsidiary Cannabis Control Board if you will. This plan won’t work.
One of the stated objectives of both federal and provincial governments, when it comes to legalizing recreational marijuana use in Canada, is to displace and destroy the criminal market for cannabis. Ontario’s plan will not do this.
The LCBO which owns and operates Ontario’s liquor stores has zero experience operating in a competitive marketplace. They have no competitors in the liquor market. Their marketing department churns out glossy magazines and spends millions merchandising beautiful stores, but let’s be realistic: any bum with a Sharpie and a piece of cardboard could put up a sign and sell booze if he’s the only source in town.
The LCBO’s foray into pot sales will be very different. They are the small player taking tentative footsteps into a pre-existing, mature (although illegal) market that already delivers quality marijuana to consumers conveniently and at an affordable price. To win over customers, the LCBO will have to sell legal pot cheaper and more conveniently than illegal weed.
Meanwhile, there are hundreds of illegal “medical marijuana dispensaries” operating across the province. As fast as police can shut them down, they spring open again. They’re owned and operated by cannabis-enthusiast “entrepreneurs” who want in on what they believe will be a billion-dollar industry when recreational pot is legalized. They’ve invested their own capital and sweat into launching businesses that are currently illegal – and will never be legal under the government’s plan. They’ll continue to dog the government because they have to: they need to recoup their investment.
There is already a drug dealer on every corner in every neighborhood in the province. There is no way the government can build out a retail footprint fast enough to compete with them. Ontario’s plan for 40 government pot stores in the first year, growing to 150 stores by 2020 isn’t going to cut it. The CCBO can’t possibly grow fast enough. They’d have to invest hundreds of millions in capital just to open the stores. It would bankrupt the treasury.
The government can’t compete on price either. Street-corner pot is pretty cheap. It’s easy to grow and it’s an efficient, competitive and entrepreneurial marketplace. The LCBO’s public-sector managers and unionized employees are exactly the opposite. They’re expensive, inflexible and stodgy-thinking. Drug dealers will under price and run rings around them.
The government argues it will win market share with higher quality marijuana. But, here’s the rub: nobody wants higher quality bud. Drug users are quite happy with the pot they smoke already, thank you very much. They’re not paying a dime more for better weed they don’t want.
The government’s only hope for building market share is to vastly increase the enforcement of drug laws and hope to eliminate competition. But, this will be enormously expensive, as Canada’s police chiefs recently pointed out. And, one of the biggest reasons governments considered legalizing marijuana in the first place was to reduce the costs of ineffective law enforcement. Ontario’s plan will do the opposite.
And yet, there is a possible solution. If government opens its mind a little bit, and draws from the experience and expertise of the private sector. That solution: franchising.
Build the Cannabis Control Board of Ontario – under a franchise model. Let the scores of existing entrepreneurs who are already investing in illegal dispensaries buy franchises. The CCBO could put a new Pot Shop™ on every corner, in every town, using the franchisees’ capital – not the taxpayers – in quick order. Let franchisees hire their own staff to run the shops. They could be up and running in days or weeks – not years.
The Pot Shop™ franchise model would keep control in the hands of the government-owned CCBO. Like every franchiser, the CCBO would dictate what, where, how and to whom products are purchased, marketed and sold. It would dictate the branding and layout of every shelf in every store. It would control employee training and standards. All at the franchisee’s expense. It’s a win-win.
If a franchisee steps out of line – the CCBO wouldn’t need the police to enforce the law, or to take the store owner to court. They could simply shut him down under terms written into the franchise agreement.
The franchise solution would immediately co-opt the hyperactive illegal dispensary owners into willing allies instead of tireless opponents. It would allow the rapid growth of legal, government-controlled Pot Shops™ across the province – in a controllable, affordable manner.