Ontario is exploring the possibility of no longer running the province’s wholesale cannabis distribution business, according to several people familiar with the matter, a move that could substantially lower prices of legal pot in the province.

Ontario, which is Canada's biggest market for legal pot, will begin consultations with various industry members to pursue a Saskatchewan-like distribution model where licensed cannabis producers will ship directly to retailers, the sources said. An announcement could come as early as next week, the sources added.

The province's government-owned cannabis business is the Ontario Cannabis Retail Corporation, a crown corporation that operates the Ontario Cannabis Store’s online retail business and sells wholesale cannabis to the province's private retail stores.

The OCRC lost $42 million in the last fiscal year, a shortfall attributed to outsized costs in establishing the province's new pot business. Earlier this month, the OCS announced former Ontario Lottery and Gaming Corporation vice-president Cal Bricker will take over as chief executive officer of the province’s cannabis business. Bricker will take over from Patrick Ford, who is retiring.

The decision to stop distributing cannabis in Ontario was linked to the province's warehouse that is said to be running out of space ahead of the launch of next-generation cannabis products later this year, the sources said. The warehouse, located in Oakville, Ont., can store approximately 100,000 square-feet of inventory and employs roughly 200 people.

"The province is thinking: 'Why do we need to be in the warehouse business?'" one of the sources told BNN Bloomberg.

Daffyd Roderick, a spokesperson with the OCS, declined to comment on the report the province was set to exit the distribution business. However, in an email to BNN Bloomberg Roderick said the organization’s wholesale and e-commerce business will continue to operate when the province expands its retail licences to 75 stores and sells new cannabis products such as edibles and extracts.

“OCS is in constant communications with licensed producers and industry partners to ensure that distribution capacity is in place as the Alcohol and Gaming Commission of Ontario issues new retail store authorizations,” Roderick said.

“OCS continuously considers how to improve operations and services in order to effectively serve Ontarians while supporting the government’s commitment to combatting the illegal market and protecting children and youth.”

Taking the provincial middle-man out of the cannabis supply chain is likely to see prices of cannabis decline in Ontario, the sources said. The average price of a gram of cannabis in Ontario is $7.53, above the national average of $6.94, according to crowdsourced data published by Statistics Canada.

"That's one less shipping box that the product needs to go into," another one of the sources said.

Ontario is eyeing Saskatchewan's model for regulating cannabis as a potential solution to its distribution issues. Saskatchewan's rules allow the private sector to obtain wholesale permits to distribute cannabis to licensed retailers.

"This model minimizes the upfront cost to taxpayers. It has been successful in other jurisdictions in combating the illegal market," the province said on its website.

Legal cannabis sales in Ontario have totalled $121 million in the first nine months of legalization, the second-largest amount in the country behind Alberta, which has sold $124 million, according to Statistics Canada.

Sales of recreational cannabis in Ontario have been off to a sluggish start amid a lack of available bricks-and-mortar retail outlets, supply shortages, and various logistical issues. Ontario has 24 cannabis stores operating in the province as well as the government-run online store.

A panel of judges on the Ontario Divisional Court ruled Friday to dismiss a notice for judicial review brought forward by 11 disqualified pot shop applicants. The ruling will also lift a stay on Ontario’s licensing process for the latest round of cannabis stores.

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