Pot shop owners worry they'll lose customers if halt on OCS deliveries stretches on

Pot shop owners say they're worried they will lose customers and run out of product if a halt on Ontario Cannabis Store deliveries stretches on and consumers turn to the illicit market.

The stores said Tuesday they have been left with no other choice but to make do with the stock they have after the provincial pot distributor informed them Monday that a cyberattack faced by one of its logistics partners had left it unable to process or deliver orders to marijuana shops and customers.

"I don't like to order massive quantities of any one thing because I rotate a lot of things through, so when I get disrupted, it means that the shelves are going to be bare," said Elisa Keay of K's Pot Shop in Toronto.

"It means that some customers are going to come in, shake their head, upset they're not getting what they want and they're going to go somewhere else because they don't want to hear that it's not my fault ... and there was a cyberattack."

The OCS has said there is no indication that its systems were targeted or its customers' information was compromised during the Aug. 5 attack on the parent company of its third-party distribution centre, Domain Logistics, but deliveries were stopped "out of an abundance of caution to protect OCS and its customers."

Domain Logistics has not responded to a request for comment and the OCS has not offered a timeline for how soon it could restart deliveries, but promised to provide an update later Tuesday.

The timing is terrible for Keay. In recent weeks, she's seen an uptick in sales, but not getting a delivery, means she's selling through items quicker and will be more likely to have to turn customers away, if products aren't sent to her store.

Like all other cannabis stores in the province, she also can't seek cannabis elsewhere because the roughly 1,333 licensed pot stores in Ontario must buy the products they sell from the government-backed OCS.

"When you're my only wholesaler and you've got a firm grasp on who can get delivery and when we can get delivery, it leaves us zero options," Keay said.

"We're totally at their mercy."

Small businesses 'freaking out' 

With no idea when deliveries could restart, High Tide Inc. has begun reallocating inventory from its lower volume Canna Cabana shops to higher volume ones, said senior vice-president of corporate and public affairs Omar Khan, in an email.

But independent businesses with single locations can't model that behaviour, pointed out Sean Kady, co-owner of Cosmic Charlies, a Toronto pot shop.

Independents are also less likely to have a big stockpile because most don't place huge orders.

"They're on a more tight, fixed budget, so from week to week, we can only spend so much and if you're not getting that product that you need, what are you supposed to do and how are you supposed to pay the rent?" he said.

While his store was almost "overstocked" on Tuesday, he's heard of other retailers "freaking out and pulling their hair out" because of their dwindling supplies.

The situation has created trouble for Lisa Bigioni, who owns the Stok'd cannabis chain.

She estimates she has enough marijuana to keep her stores stocked for a week but worries about the halt on deliveries continuing past that.

She's also had to put a weekend opening of a new store complete with a barbeque and parking lot games on hold because she's unsure when product will arrive.

"We put a lot of time and effort into planning the grand opening ... and all of that is going to have to be rescheduled," she said.

Cameron Brown, vice president of The Retail Cannabis Council of Ontario, says this halt in deliveries could cause a "significant shortage of cannabis in Ontario" if it continues throughout the week.

"The next worry for a lot of retailers is when their next inventory shipment is going to come from to get through not only this week but another big weekend in August — one of the busiest times so far in cannabis." 

OSC waiving delivery fees until Sept. 30 

An OCS letter to retailers obtained by The Canadian Press said "as a goodwill gesture," the OCS will waive retailer delivery fees until Sept. 30 and a $500 processing fee for one emergency order per store between Sept. 1 and March 31, 2023.

But many shop owners don't feel that's commensurate to the risk their businesses are facing.

Keay feels if customers don't find the products they want at their store, they'll go elsewhere — a rival shop in Ontario's crowded market or even to an illicit dispensary or dealer that the industry has been fighting against since recreational marijuana was legalized.

A customer that finds another option might be lost forever, so Keay said, "There's no sort of compensation that can fix damaging someone's business."

This incident follows an OCS announcement May 11 that the Ontario Provincial Police were investigating the "misappropriation" of confidential store sales data.

That breach "was no failure of IT security or systems," the OCS said, after it quickly launched an investigation to identify the source, restricted access to internal data reports and notified the police.

Both breaches came amid heightened competition in Ontario's cannabis industry, which has seen the number of pot shops explode in recent months.

Many predict store closures are on their way because demand for cannabis has not increased at the same rate as shop openings, the illicit market remains strong and stores are consistently having to reduce their margins as rivals steadily drop prices.