Ontario made $520M from pot last year. So why do retailers say they're struggling?

Ontario Cannabis Stores, the province's pot supplier, charges a 31% mark-up to retailers.

The province of Ontario made more than a half a billion dollars from the cannabis industry in the last fiscal year, according to public accounts released by the government on Friday.

But that $520 million is coming at least partially at the expense of struggling local retailers, according to Michael Armstrong, a business professor at Brock University in St. Catharines, Ont.

"About 56 cents of every dollar you spend at a cannabis store goes to the businesses, the retailers and producers," Armstrong told CBC Toronto.

"The other 44 cents is going to government in one way or another," he added.

"Retailers and producers ... don't mind paying out money when they're making a profit, but not when they're not," he said.

"Not when they're taking a loss."

31% mark-up

Part of the provincial cannabis cash is coming from a mark-up of about 31 per cent that the provincial supplier, Ontario Cannabis Stores (OCS), is charging legal retailers.

The dispensaries then pass at least some of that extra expense on to consumers, Armstrong said.

The province's pursuit of cannabis profits is also making it tougher for legal retailers to stay in business, he said, because legal buyers are probably paying more than their neighbours who continue to get their supply from the black market.

Customers can get marijuana of comparable quality on the black market for less money that they can by purchasing it at legal dispensaries. That's partly why many pot-shop owners are struggling, Kady says. (Robert Short/CBC)

Sean Kady, who owns a pot dispensary west of downtown Toronto, agrees with Armstrong.

"Our cheapest ounce is about $100 and you can get the same ounce about the same quality from these black markets for about 50 to $70," said the owner of Cosmic Charlies at the corner of Queen Street West and Niagara Street.

The public accounts were released by the province's Treasury Secretariat and Finance Ministry on Friday. They show the Ford government ran a $2.1 billion surplus in the fiscal year that ended in March — in contrast  to the $33- billion deficit that had been projected. 

Armstrong said the provincial cannabis revenues came from various taxes that are charged to local cannabis producers and retailers by the province, as well as payments that retailers make to OCS, which has a monopoly on the marijuana supply in Ontario.

He said he'd like to see the province review the existing system with an eye to establishing a more equitable tax schedule.

Retailer wants 'a little bit more of the pie'

Many cannabis retailers, especially in built-up areas where competition is heaviest, are struggling, Armstrong said, and they should not be expected to pay the same in taxes that more successful retailers pay.

That idea gets a stamp of approval from Kady.

"I think it's time that they revisit [cannabis store taxation] and start sharing a little bit more of the pie with the people that are trying to make the industry run."

In an emailed statement, a spokesperson for Finance Minister Peter Bethlenfalvy said "Ontario remains committed in its priorities for the legalization of cannabis, including supporting the growth of the legal cannabis market and the displacement of the illicit market, protecting youth from exposure to cannabis, and providing access to tested and reliable products.

"The OCS is committed to social responsibility and is in the first year of a three-year strategy aimed at advancing cannabis knowledge, supporting sustainability and diversity and inclusion.

The government will continue working with the OCS to ensure that its wholesale pricing model helps support a competitive market."