The government of Ontario has announced it will abandon the current lottery system for cannabis retail and move towards an open licensing system beginning January 2020 that will see the removal of a cap on the number of private cannabis stores across the province.
The Alcohol and Gaming Commission of Ontario (AGCO), the provincial regulatory body that is in charge of the cannabis retail system will begin accepting operator licence applications from prospective retailers on Jan. 6, 2020, followed by store authorization applications on March 2, 2020, according to a source.
Store authorizations will be issued starting April, at a rate of approximately 20 a month, similar to the pace in which Alberta awards cannabis store licences.
The government will also eliminate pre-qualification requirements for prospective retailers. The second cannabis lottery required that applicants secure leases and provide a letter of credit from a financial institution proving that they had a loan of at least $250,000.
The government announcement also confirmed that licensed producers will be allowed to participate in the retail market by opening a single store at one of their facilities.
“In response to the federal government’s decision to legalize cannabis, our government is determined to open the cannabis market as responsibly as possible,” said Attorney General Doug Downey. “We have said all along that opening more legal stores is the most effective way to combat the illicit market, protect our kids and keep our communities safe. That is our number one priority.”
The announcement is bound to reinvigorate investor confidence in cannabis companies, which has been waning partly because of limited accessibility in Ontario that has, to date, just 24 stores. Licensed producers — many of which have experienced declining revenues and are sitting on a pile of cannabis inventory — are banking on the creation of hundreds of new retail outlets to boost cannabis sales.
We have said all along that opening more legal stores is the most effective way to combat the illicit market, protect our kids and keep our communities safe.
Ontario Attorney General Doug Downey
“Moving towards an open allocation system for retail store licences is a positive step towards eradicating the illicit market and providing consumers with access to safe and regulated products,” said Omar Yar Khan, the national cannabis sector lead at Hill + Knowlton Strategies.
“As the government moves forward with this new licensing system, it should also look at ways to enhance the online consumer experience,” he added.
Ontario used a lottery system to award the first 67 licences, with eight licences allocated to First Nations groups. The lottery process was plagued with issues and even resulted in a lawsuit filed against the AGCO by 11 people who were disqualified from the process, one which was ultimately dismissed.
Because of the limited number of licences, the lottery process generated a feeding frenzy of sorts, with big name licensed producers and retail chains rushing to craft deals — sometimes worth millions — with lottery winners in order to enter Ontario’s retail market in some way.
Meanwhile, numerous would-be cannabis operators who did not obtain a licence in the lottery process, have continued to pay into commercial leases on a monthly basis, while awaiting the provincial government to open up the licensing process.
