The Ontario government lost $42M selling cannabis in the last year | Hacker News Reader

The Ontario government lost $42M selling cannabis in the last year

cbc.ca

47 pointselmar43 comments

Fair or not, Canadians find this hilarious because Ontario premier Doug Ford is reputed to have been a hash dealer in his younger years. https://www.theglobeandmail.com/news/toronto/globe-investiga...

His brother, while mayor of Toronto, also smoked crack. They preach populism, and when elected cancel as many public transit projects as they can.

Smoking crack is the tip (albeit a large tip) of the iceberg. He regularly said crazy or ridiculous stuff, and was generally bombastic and buffoonish.

Mildly NSFW example: https://www.youtube.com/watch?v=H4siKr6qY8w

The Ontario government made $64M in sales, with $106M in expenses. By comparison, the Alberta government made $77M in sales with $72M in expenses[1].

What's not mentioned in the article is if there's tax revenue seperate from the profits/losses of the government corporation. In Alberta, there were an additional $30M in cannibis taxes not included in their $5M profit.

[1]: https://calgaryherald.com/cannabis/cannabis-business/provinc...

Carrying on a long tradition of Alberta having more defensible government in most ways, and having books that are balanced despite the federal parasite of equalization, and a largely natural-resource driven economy (which usually produces extremely crappy government).

I think you just mean they have oil

Alberta is always happy to take help from the rest of Canada when they need it, but when they are asked to contribute, they fall back on "let them freeze to death in the dark".

Alberta lucked out by having oil and even with it, managed to spend everything with very little to show for it.

Wait until renewables take off (especially in the auto sector). Then they'll be singing the praises of equalization.

> Wait until renewables take off (especially in the auto sector). Then they'll be singing the praises of equalization.

Alberta has about 30% as much installed wind power generating capacity as Ontario, and about 30% as much population.

Alberta is also better positioned for solar PV [0], and has more capacity (in absolute terms) coming online in each of the next three years than Ontario, and possibly as much or more installed already (hard to find good numbers), despite being only 30% the population.

Somehow the oil province is also the renewables province, and the province of good governance.

[0]: https://energyhub.org/alberta/

If you can't make money selling drugs then there is literally no hope.

With a quasi-monopoly nonetheless!

The government’s rollout has been nothing short of a debacle. First they limit production and then because there is an expectation of a shortage (surprise surprise) they create an absurd Kafkaesque lottery (in every sense of the word, with unsophisticated winners with no experience raking in millions by teaming up with large established international players) which doesn’t take into account market demand and has now descended into lawsuits.

There was a change in the provincial government prior to legalization that probably contributed to this loss. The previous provincial Liberal government had planned to sell cannabis through the provincially owned liquor stores. In June 2018 they lost the election to the Conservatives, who in August 2018 decided not to sell cannabis in the government stores but through private retailers[1]. However, as this was an unexpected change the first private retailers wouldn’t be operational until April 2019 [2]. So from the time of legalization, October 17, 2018 until April 1, 2019 the only way to legally purchase cannabis in Ontario was online and by postal delivery.

[1]: https://www.cbc.ca/news/canada/toronto/ontario-cannabis-priv...

[2]: https://www.cbc.ca/news/canada/toronto/ontario-cannabis-open...

This is why I read the comments to articles first. Thanks, @fraqed for adding important context!

It's still confusing. How expensive is it to setup a Shopify site and a third-party logistics company to send out orders?

I guess the question is: how much of the loss is one-time capital costs, and how much is ongoing.

Should Ontarians look forward to more losses, or to a more profitable system overall?

Well, for one thing you have to make sure none of the data touches the US or companies that might share data with US agencies (particularly cbp) to avoid screwing over otherwise innocent people who like weed.

That's Shopify's problem.

That's fine because Shopify is Canadian.

The Ontario government actually does use Shopify for its online cannabis store:

https://www.cbc.ca/news/canada/ottawa/ontario-shopify-mariju...

From reading the article, this accounting seems misleading since a lot of the expenses were initial setup/etc. Even if it continues losing money in the future, it feels like it could be worth it since illegal cannabis increases black market sales and illegal possession, and those things end up wasting law enforcement and health service resources.

Yeah, because this number includes initial setup costs and any penalties for backing out of contracts contingent on plans scrapped after the change in government.

I’m way more interested in the next year.

Wow! You could buy an ounce of weed for 25$ on 4/20 this year in washington state versus 360$ it cost for an ounce back in the midwest when I was in college a few years ago when it was illegal and they managed to lose money. Despite the differences between the US and Canada, that is insane.

Strange how Québec's SQDC seems profitable...

Crown corporations tend to do pretty well. LCBO provided $2.12 billion in dividends to the Ontario government FY1718. That said, LCBO was established in 1927.

It is probably worth mentioning that these particular crown corps are also monopolies. They have no competition in hard liquor, and depending on details, maybe even beer or wine (depends on the province). Some provinces have also set up monopolies for cannabis retail.

There's different ways of setting up these monopolies. In ON, the province has a monopoly on distribution and retail sales of liquor.

In Alberta, the province has a monopoly on distribution, but lets (almost) anyone set up their own liquor store. So the government can still get the benefits of high prices, but without spending money on an expensive retail network.

Ontario is (sorta) going with the Alberta model for cannabis, but being slow and inefficient on private retail licenses.

profitable and useful are two different things.

Most businesses/startups can take 3-5 years to see a profit. A lot of their losses is due to poor execution, but the product is literally a 'cash crop'... Once they have systems in place and better management, it'll just keep growing. 10 years from now I'd expect to see a huge windfall as an aggregate.

With this recent vaping controversy, I think Canada’s methodical and slow moving system has been a great success. These products use THC which is tracked directly back to the seed. No mystery illness problems going to pop up here.

Have there been mystery illnesses popping up in WA and CO? Biggest issues with WA and CO, who've had legal weed the longest, isn't random sickness, but the fact that their crazy-high retail tax rates mean it's more cost effective to buy home-grown weed from local dealers.

Tracked, pure THC is a non-issue, IMO.

This data is based on less than 6 months of distribution in Ontario and doesn’t give us an idea of what it’s been like since last March. I’ll be more curious to hear about a full fiscal year before saying much else.

They only opened stores in April.

The government is only running the online shopping site. Retail stores are all privately owned/operated, and the government is being slow on issuing licenses.

Yeah, but honestly, I'm fine with us taking it slow enough to see if this Cannabis thing rocks the social and health boat. I don't think it will, and I love having one more choice of things to do while hanging out with friends but it is kind of a global experiment, with other countries watching what happens to us and Uruguay

Leave it to the government to manage to lose money in a market that's highly profitable for private enterprise even without a monopoly...

Edit: OK, that was pretty snarky, but Ontario is the first place I'm aware of that has a "single government-owned retailer" model, and also the first place I'm aware of that has racked up losses of this magnitude in getting started. Did Colorado's private retailers lose $100m collectively the first year they were open? (And even if they did, was it taxpayer money that they lost?)

FTA: '"Cannabis legalization is a new venture for Ontario. There were investments required for setting up a system that could achieve our objectives — which is to protect youth and combat the illegal market. The OCRC's revenue outlook reflected the initial costs for the development of this retail system," Emily Hogeveen wrote in an emailed response.'

That's a convenient excuse, but I don't recall Colorado losing $100 million in their first year of operations as the first legal market for cannabis anywhere:

https://www.colorado.gov/pacific/revenue/colorado-marijuana-...

That link only includes revenue, not expenses. I'm sure Ontario has a similar graph showing their sales tax income.

You're comparing one state's revenues to another's costs as if they were the same thing. That doesn't make sense. In fact, even if you compared to the $42M net loss in the article, it would still be a mistake. Your reference is for tax revenues, but the Ontario accounting excludes tax revenues.

StatsCanada states that provincial marijuana excise taxes totaled $79M in this period, though it doesn't break it down by province. https://www150.statcan.gc.ca/n1/daily-quotidien/190619/t001e...

> That's a convenient excuse, but I don't recall Colorado losing $100 million in their first year of operations as the first legal market for cannabis anywhere:

I don't think The State of Colorado sells people the pot but a bunch of private businesses who all have individual profit/loss experiences. If one corporation was granted a monopoly then you'd have a valid comparison.

But that is the complaint: Ontario decided to go with tight control over wholesaling and retail sales, instead of letting just about anyone set up a retail store and using high taxes to make money.

They didn't set up their own system. They outsourced the website to Shopify and the logistics to another 3rd party company.

It was a Conservative government responsible for this debacle. The previous Liberal government which had started legalization would have sold cannabis at LCBO stores which are in every neighbourhood and are run quite efficiently. Under the Conservative retail rollout, you can only buy cannabis via the online store (i.e., a 2-3 day wait for shipping) or a handful of physical stores. Toronto has a ridiculously low number of stores. There are roughly half a dozen stores with a capacity of about 40 people each to serve a greater Toronto population of more than ~6.5 million people. These physical stores which are the only legal way to obtain cannabis the same day, often have 20-30 minute wait line-ups outside.

To give you an idea of what we're dealing with in this government, it is headed by a complete shit show of a politician. He's the older brother of the late crack smoking mayor and is a cheap dollar store equivalent of a populist. He basically got voted in because the Liberal government was long in the tooth having governed for 15 years. People wanted change for the sake of change and if that meant throwing out a well researched cannabis legalization plan, then so be it. Of course, the asme people that voted for the premier are some of the loudest to complain how shitty the current legal cannabis situation is.

> LCBO stores which are in every neighbourhood and are run quite efficiently

This is pretty funny. On what basis can you make this claim?

Putting aside fully private retail systems and considering only Canada, they are waaaay less convenient and accessible than stores in Alberta or BC, return less profits to the taxpayers than the alternative would. Not to mention the ridiculous selection: Ontario, which is much bigger than Alberta, has a total distribution of ~1/3 the SKUs of Alberta. That’s what happens when you have a monopoly, no innovation, no specialization!

Seriously, think about cigarettes, food or pharmacies! Governments can regulate, license and tax. They don’t need to run the retail itself!

The liberals own study [1] concluded that a privatized system would benefit Ontario far more, and it was promptly buried.

It truly boggles my mind to see how many people think the LCBO is great, efficient, provides excellent selection, convenience, etc. It isn’t, it isn’t, it doesn’t and doesn’t.

I can only speculate that keeping the LCBO was politically necessary for the liberals (because doing otherwise would require taking on the unions, and they got scared when they considered doing that in the early 90s), so they propagandize this message that the LCBO “makes a lot of money for the public” and they invest is keeping the stores (too) nice and clean so that everyone feels it’s a great system.

The change to give private licenses was the right move, and it’s a shame that it was bungled so badly. Though I think it’s fair that the current and previous government should share responsibility, given that it would not have been bungled if they had just elected to do the best thing for Ontario in the first place.

/rant

[1] https://www.fin.gov.on.ca/en/publications/2005/basr/report.h...

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