TDR Exclusive Interview: Ontario Attorney General Doug Downey Shares Insights on Cannabis Market

The TDR Three Key Takeaways Regarding Ontario and Doug Downey:

• Doug Downey acknowledges progress but highlights ongoing black market challenges in Ontario. 
• Economic growth in Ontario’s cannabis market driven by public acceptance. 
• The interview took place in a SNDL Value Buds location in Toronto.

Ontario, with a population approaching 15 million, is at a crucial juncture in the development of its legal cannabis industry. Since the federal legalization of cannabis in Canada in 2018, the province has witnessed significant growth and encountered substantial challenges. The current state of the market and its future trajectory were thoroughly discussed in yesterday’s episode of “Trade to Black” podcast. The conversation with Ontario’s Attorney General, Doug Downey gave insight into Ontario’s cannabis market.

Addressing the reduction of the cannabis black market, Downey acknowledged that while progress has been made, there is still a long way to go. “I can tell you it’s not – we’re not far enough into taking over the black market as I would like to be at this point,” he stated. This highlights the ongoing struggle to diminish the influence of illegal cannabis sales despite the expansion of the legal market.

Economic growth and job creation have been positive outcomes of increased market acceptance. Downey noted a significant shift in public perception, with cannabis now seen as a legitimate product. “There’s definitely more acceptance that it’s a legitimate product. But we’re also not at a spot where, as you mentioned, it’s not really a pharmaceutical per se, but there is great research going on in that area, and it’s going on because it’s become more socially acceptable.” This acceptance is fostering economic opportunities and job creation within the Ontario.

The free market approach, characterized by the absence of caps on the number of stores or their concentration, has led to a diverse Ontrario’s cannabis market landscape. “We took a free market approach. So, as you know, we didn’t say, you know, we’re going to cap the number of stores, we’re going to cap the concentration of stores. We said, we’re going to let people be adults and we’re going to let the market decide,” Downey explained. This strategy has allowed the market to naturally find its equilibrium, although it has also resulted in some market saturation and price compression.

Regarding the caps on the number of locations an owner can have, Ontario has made adjustments to accommodate market dynamics. “We started off with a projection. We thought there would be 750 stores, but again, we let the free market decide. We ended up with 1,700. So, we went from 75, which was 10%, to 150, which is a little less than 10%,” Downey clarified. This increase reflects the province’s adaptive approach to market demands.

The initial lottery license system, which was eventually phased out, allowed a surge of dispensaries to enter the Ontario’s market. Downey provided context on this decision: “When we started, when we got elected in 2018, it was clear it was coming. The federal government decided it was going to happen, so it was up to us to manage it. And there were a number of files like that, where the federal government decides the principle, and then we have to figure out how to execute. And we were moving very fast. Coming out, we knew there was great interest. Some speculators, right? Not all people who wanted to be in the market for the long term. And that drove some of the decisions on whether we did the lottery, how we did the lottery, and then how we moved beyond it.”

The issue of prices and the excise tax remains a critical topic. The industry has seen price compression, yet excise taxes have stayed relatively constant. Downey emphasized the importance of competitive pricing to combat the black market: “One of the early decisions was to make sure the price point was such that it could compete with that black market. And we made a commitment. We had the federal government join us in that commitment. So I think it’s up for rediscussion at a period. Again, we’re a few years in now. The federal government has done its review on certain parts of the industry. And we’re open to have that discussion.”

Looking ahead, the goal for Ontario’s cannabis market is to significantly diminish the black market’s share. Downey expressed optimism about achieving high levels of legal market penetration: “I think we want to see other industries. And I don’t want to compare industries. These are very different. But in the iGaming industry, we’re running at about 80%. Huge numbers. Huge numbers of legal market, regulated market. So it is achievable to get the numbers up.”

Ontario’s cannabis industry is poised for substantial growth, but this will require ongoing regulatory adjustments and market adaptations. By addressing current challenges and leveraging opportunities, the province can establish a strong legal cannabis market that benefits both consumers and the broader community. Want to be updated on Cannabis, AI, Small Cap, and Crypto? Subscribe to our Daily Baked in Newsletter!