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This market will therefore soon consist of an oligopoly of producers and, by law, regional distribution monopolies (at least in Quebec, Ontario and Alberta). This situation, a rather unique one, will generate difficult challenges for Crown corporations mandated to act as the purchasers and distributors of these cannabis products.

Should a distributor set a purchase price equal to the producers’ operating costs to which an acceptable margin would be added, as would be done for a regulated industry? Should a price be negotiated that corresponds to the producers’ achievable costs, taking into account the impact on their costs of the very purchases contracted for by the distributor? Should long-term supply agreements be signed only if the prices are indexed to the operating costs? Should Ontario and Quebec create a buying group in order to negotiate best possible costs? Should the distributors require suppliers to disclose the identities of their financial backers?

Stakes are high for managers and directors who have gained large, fragile, paper wealth, based on great expectations

The market valuation of the cannabis producers largely depends on the answers to these questions. An affirmative answer to all of them would cause their market value to tumble. The producers will try to play purchasers in different provinces off each other and obtain long-term purchase commitments at a fixed price; they may also reach tacit and legal agreements with each other to set the base prices; and they will try to differentiate their products to create specific demand by consumers, thereby putting pressure on the distributors.