Canadian cannabis manufacturers and brands increasingly are, in effect, paying Ontario retailers for shelf space and other special treatment for their products, according to industry executives.
These executives allege the effective use of so-called slotting fees threatens the survival of hundreds of independently owned retailers and craft cultivators, who lack the money and/or resources to accommodate or fund such pay-to-play schemes.
The monthly fee can amount to tens of thousands of dollars or more, one industry executive, who declined to be identified for competitive reasons, told MJBizDaily International Editor Matt Lamers.
Slotting fees, common for decades in traditional retail, are a relatively new phenomenon in cannabis in both the United States and Canada.
In Ontario, cannabis regulators prohibit producers and brands from paying retailers for favorable "material" treatment.
In June, the province's retail regulatory agency noted that cannabis "licensees are not allowed to ask for or accept material inducements."
Industry officials allege that, to get around such restrictions, some producers and brands are instead paying cannabis retailers for their sales data to ensure their products get special treatment in Ontario's hotly competitive retail market.
Industry officials told Matt the workaround falls into a quasi-legal gray area, given that brands and manufacturers aren't paying directly for prime shelf or display space or an exclusive sales deal involving their product.
It's quasi-legal because data sales are allowed so long as the price is "fair market value."
“It’s rampant in the industry," Owen Allerton, owner of Highland Cannabis, an independently owned store in Kitchener, told Matt.
"Everyone knows data agreements are a smokescreen for pay-to-play, or listing fees. Multiple licensed producers have pitched us on it."