The Ontario Cannabis Store is in the process of moving Licensed Producers to their new “flow-through” model. It aims to have the majority of new products launched via flow-through within the next few years, according to sources.
On May 13th, 2021 – the OCS sent an announcement to authorized cannabis retailers detailing its new by-demand sales plan. This new “flow-through” program was original to be introduced by late summer 2021, but was repeatedly postponed and has only started being utilized over the last few months. This new model allows cannabis retailers to order products not stocked in the OCS warehouse.
This news means that the Ontario Cannabis Store will no longer play as big of a role in demand forecasting or inventory management. Instead, the OCS will act more as an intermediary, allowing LPs to list SKUs, allowing retailers to express their interest in them and order them – and only then cutting purchase orders based on the confirmed number of cases pre-purchased by retailers. This means no giant purchase orders and no excess inventory sitting in warehouses. Ultimately, the OCS is performing this so that they aren’t blindly estimating demand, they hold less stock and take on less risk (and because their warehouse practically couldn’t fit more SKUs). The OCS still generally takes the same cut and percentage of profits from Flow-Through products as their General Listing products.
Now that Ontario has become well acquainted with flow-through, here’s what you can expect.
How does the Flow-Through Model affect retail stores?
The flow-through model allows retailers to purchase products that are not stocked in the OCS warehouse. Retailers will have access to a broader selection of SKUs since the OCS will now be allowing a larger number of new products to be listed through this model. This has allowed for more differentiation among retailers’ menus and gives consumers a larger product selection across the market.
A benefit of the Flow-Through program is that retailers finally have assured stock once a product is ordered. Ontario retailers know the pain of ordering x amount of cases of a General Listing product and only have a fraction of those cases arrive on their delivery date. This is because the OCS has operated as a lottery system when demand exceeds supply. With Flow-through, as long as the Licensed Producer adequately fills the requested orders, retailers will always receive the exact number of cases they ordered and paid for. That means less guesswork for inventory planning.
Not only are retailers guaranteed the products they ordered, but due to how licensed producers receive this order, stores are much more likely to receive fresh products. The new flow-through system ensures that products are not left to degrade on OCS shelves, rather they are sent straight out of the facility to the OCS to be put directly on a palate for the retailers.
Retail stores occasionally have to facilitate receiving more shipments than before, in order to account for a 2-3 week waiting period to receive flow-through products, instead of the typical weekly shipments from the OCS. Once retail stores input their purchase orders, the OCS will cut a purchase order to the Licensed Producer and then the retailers will be charged for the product the day before the delivery arrives.
How does the Flow-Through Model affect Licensed Producers?
The flow-through model has changed many things for LPs that on-load their new SKUs on the program and have had varying impacts on each producer based on an array of factors.
Firstly, it has made it easier for smaller brands and craft SKUs to get listed and prove themselves in the market. Instead of having to convince the buyers at the OCS to purchase the product, they can prove their demand by receiving a Flow-Through listing (while the OCS takes on no additional risk or cost).
Licensed Producers MUST get buy-in from retail stores now. The OCS has not and will not be taking any big risks by cutting significant purchase orders without proof that those products will undeniably sell through. Quick and efficient sell-through is necessary as the OCS will delist Flow-Through products that aren’t moving.
Most new product launches will eventually be introduced through the Flow-Through program. If a flow-through SKU has a strong sell-through, it may become a “stocked” General Listing product. If a “stocked” General Listing has a lower sell-through, it may be forced to become a Flow-Through product. Products that do not have a strong sell-through on Flow-Through will be completely dropped and delisted.
Ultimately this changes how Licensed Producers sell their products. Instead of managing one wholesale relationship with the Ontario Cannabis Store provincial distributor, LPs now need to manage multiple relationships with dozens or hundreds of retail stores throughout the province.
Now LPs need more boots-on-the-ground representation. To manage these newly required relationships with hundreds of cannabis retailers, brands need a more comprehensive internal or external sales team. The importance is no longer on the single relationship with the OCS but on the face-to-face interactions with retail stores. LPs need to remember that these retail stores actually interact with consumers on a daily basis and require a different and more authentic approach to make a sale.
Licensed Producers now need to focus their marketing efforts more on B2B communications and winning over retail partners vs end consumer awareness or OCS presentations. Build a strong email marketing program with a verified list of budtenders and buyers from retail stores. Create a strong social media presence that appeals to and talks to budtenders and retail store owners. Build your website and online presence in a way that reaches, educates, informs and entertains your retail partners.
How do I ensure my cannabis brand or store succeeds under this new Flow-Through model?
LPs need to act and pivot quickly to ensure their continued success. Cannabis brands and Licensed Producers need to be aware of how this transition to flow-through affects their business model and distribution. When everything is constantly changing in the cannabis industry, you need a team of trusted experts to rely on. You can trust ADCANN’s sales & marketing agency partner, grnhouse, to help you transition to the flow-through model. Our agency will help you every step of the way with your sales and marketing strategy, including revamped retailer-focused digital marketing efforts and boots-on-the-ground representation to increase sales orders. If you are a retail store, we can help you with strategic, operational, purchasing, marketing consulting and relationship building with LPs.
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