Ontario’s only wholesaler and online retailer of legal cannabis is unable to process orders or make deliveries to weed shops and consumers after one of its technology partners was hit by a cyberattack. The Ontario Cannabis Store announced the shutdown on Monday following the August 5 cyberattack on the parent company of its third-party distribution center, Domain Logistics.

Domain Logistics did not immediately respond to requests from reporters for more information on the cyberattack. The Ontario Cannabis Store (OCS) said it is working with Domain Logistics and independent cyber-security experts to determine the extent of the breach, adding that there is no evidence that its computer systems were targeted or that customer data has been compromised.

“However, out of an abundance of caution to protect OCS and its customers, the decision was made to shut down Domain Logistics’ operations until a full forensic investigation could be completed,” the OCS said in a statement.

Cyberattack Shuts Down Ontario’s Only Cannabis Wholesaler

The OCS is Ontario’s only online retailer of regulated cannabis and the sole wholesaler for the province’s more than 1,300 licensed cannabis shops. The outage of the OCS online sales platform is a critical challenge for the retailers, who rely on the wholesaler to keep their shops stocked with licensed cannabis products. Elisa Keay of K’s Pot Shop in Toronto noted that retailers have no other supplier to turn to for merchandise for their store shelves.

“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.”

A letter to cannabis retailers from the OCS 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 cannabis shop owners believe the fee waivers are not adequate compensation for the losses they are experiencing during the outage.

Keay said that if stores do not have the products consumers are looking for, they are likely to shop elsewhere. In Ontario’s crowded cannabis market, losing customers to rival licensed retailers or the illicit market is not sustainable.

“There’s no sort of compensation that can fix damaging someone’s business,” said Keay, adding that the outage is causing serious disruption to the business’s supply chain logistics. “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 Keay.

Cameron Brown, vice president of The Retail Cannabis Council of Ontario, said that the pause in deliveries caused by the Domain Logistics cyberattack could lead to a “significant shortage of cannabis in Ontario” if it continues through the week.

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

Without fresh product deliveries, Keay is afraid that low inventory levels will soon impact the shop’s ability to satisfy its patrons.

“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,” Keay said.

High Tide Inc., a Canadian cannabis corporation with an international reach, is reallocating inventory in some of its lower-volume Canna Cabana retail shops to busier stores because of the uncertainty surrounding cannabis product deliveries, according to an email to reporters from Omar Khan, the company’s vice-president of corporate and public affairs.

But Sean Kady, co-owner of Toronto cannabis retailer Cosmic Charlies, said that moving product from store to store is not an option for retailers with only one location. Additionally, independent shops frequently do not keep large quantities of product on hand, preferring instead to place smaller orders for their merchandise.

“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.

Kady said that his store was nearly “overstocked” on Tuesday, but added that he has heard of business owners who are “freaking out and pulling their hair out” because of their already shrinking supply of cannabis products.

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A massive leak of data associated with government-run cannabis retail stores in Ontario, Canada put retailers in a tailspin. Consumer data, however, is not part of the equation, and wasn’t exposed during the data breach.

The Ontario Cannabis Store (OCS), a government-run agency overseeing the distribution of cannabis from licensed producers to retailers, reported that some of its sales data was “misappropriated.”

An OCS letter sent to retailers on May 10 and quickly picked up by The Canadian Press warned that confidential sales data was being circulated throughout the industry.

“This data was not disclosed by the OCS, nor have we provided any permission or consent to distribute or use this data outside of our organization,” reads the letter, signed by Janet Ihm, vice-president of wholesale partnerships and customer care at OCS. “The data was misappropriated, disclosed, and distributed unlawfully. As a result, we trust you will refrain from sharing or using this stolen data in any way.”

Over 1,200 retail stores in Ontario have been affected. Retail cannabis stores in Ontario rose to 1,333 by a recent count, up from 1,115 in September.

Three anonymous sources say that store names, license numbers, and data showing whether a store is independently owned, run by a corporation, or by a franchisee was also leaked. The matter is being investigated by the Ontario Provincial Police (OPP).

MJBizDaily confirmed with the OPP that the breach is being considered “a criminal matter.” The data was also distributed unlawfully, according to authorities.

Reportedly the data contained ranked sales info of every cannabis store in Ontario. And given that the data also showed kilograms sold during the month, kilograms sold per day, total units sold, total inventory—it could put retailers at risk.

The data could end up in the wrong hands or for the wrong reasons, such as rival retail stores. The data “provides a lot of really competitive insight into who’s doing what, who’s moving what, which retailers are selling what,” Deepak Anand, founder of cannabis company Materia, told The Canadian Press. “That certainly could be a leg up and give a leg up to competition within the industry that’s looking to get ahead of the next person.”

This type of incident has happened before in the area.

In 2018, the OCS revealed that data for 4,500 of its customers was part of a Canada Post data breach. The 2018 breach was found to be the result of someone accessing data via a Canada Post tracking tool. The data included names of people who purchased pot deliveries, OCS reference numbers as well as postal codes.

Meanwhile, residents are concerned about the rise in competition. Some areas are overrun with cannabis stores, such as Toronto’s Queen Street West. That eventually led the Toronto City Council to issue a moratorium on new cannabis store licenses. The moratorium would run for a year or until a provincial bill is put forth, allowing local communities to have a voice in the matter.

It’s concentrated areas of cannabis retail like Queen Street West, where competition is the most fierce, that would appear to be more vulnerable amid the data leak.

Lisa Campbell, chief executive at cannabis marketing company Mercari Agency, told The Canadian Press that it could be a “death sentence” for some of the businesses who are seeking to be acquired.

Cannabis retail businesses in Ontario face stiff competition already, so underperforming stores could suffer if their data is revealed.

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Sales of legal cannabis outpaced the illicit market in Ontario for the first time ever during the second quarter of this year, according to new data from the province’s only licensed online cannabis retailer. 

“Ontarians chose to purchase more than half of their cannabis through legal channels, as Ontario’s legal market share increased to 54.2 percent, up from 47.1 percent the previous quarter,” the Ontario Cannabis Store (OCS), which is also the province’s sole licensed cannabis wholesaler, wrote in its latest quarterly report.

The figure is based on data collected by Statistics Canada from cannabis consumers, who may have a tendency to under-report purchases from unlicensed sources. But Jennawae McLean, the co-founder of Kingston, Ontario cannabis dispensary chain Calyx + Trichomes, said that the number is not inconceivable.

“When it comes to the unregulated market, (sales) are a difficult number to pinpoint, but assuming the reporting is true, it’s not hard to believe,” said McLean. “The number of stores in Ontario has grown exponentially over the last… two years. It’s really just completely exploded.”

The number of licensed cannabis retailers in Ontario has spiked to 1,115 over the past several months. At this time last year, there were only 183 legal dispensaries in the province and only 53 were in operation two years ago.

Licensed cannabis sales by licensed retailers totaled nearly 394 million Canadian dollars ($306.7 million) between July and September of this year, compared to CA$204.3 million during the same period the year before. A record 56 million grams of licensed cannabis across all product types were sold during the quarter. The vast majority of sales, 96 percent, were recorded by brick-and-mortar dispensaries, with online sales making up the difference.

Legal Cannabis Market Share Growing Rapidly

When licensed cannabis sales began in Canada in 2018, licensed retailers accounted for only about 5.4 percent of the total recreational cannabis market in Ontario. By the end of 2019 licensed retailers’ share of the market had risen to 19 percent, and by the end of 2020, it totaled 44.1 percent. Sales of regulated cannabis in Ontario, Canada’s most populous province, were the nation’s highest, according to the report.

“Ontario continued to sell more legal cannabis than any other province or territory, with nearly 39 percent of all legal cannabis sales in Canada occurring through the province’s licensed retailers and online store,” the report noted. “A record 56 million grams of cannabis across all product categories was sold this quarter with sales reaching nearly $394M, resulting in a 28 percent increase in sales compared to the first quarter of the fiscal year.”

McLean credited the regulated cannabis industry’s success in Ontario in part to the large selection offered by retailers compared to the illicit market. More than 1,800 different licensed products were available in the province during the second quarter, including nearly 400 that had been recently added by OCS. Dried flower, vapes and pre-rolls were the most popular product types.

“Yesterday I was working at one of my stores and I had this guy come in, and he was overwhelmed with the size of our menu, which, to be fair, is 27 pages long,” McLean told The Canadian Press. “He had no idea where to even start and he said that was because since he started smoking cannabis, he got it from a guy and didn’t know what it was or what was available.”

Lori Hatcher, the head of marketing for Truss Beverage Co., a joint venture between brewer Molson Coors Canada and cannabis company Hexo Corp., said that cannabis beverages also helped drive cannabis sales through legal channels in Ontario. 

“This is a category that doesn’t really exist in illicit, so it was really important to actually help bring those consumers into the legal market,” Hatcher said.

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