If you have $75 in your pocket and can prove you have $50,000 in credit, you too can apply for a pot retail license in Ontario. Sounds kind of comical? Well, it might be just that. The Ontario government is now holding a lottery to award some lucky winners the 25 available store licenses, and no shortage of regulations alongside it. There is even risk of a massive fine if your store is not operational and selling cannabis by April 1st… With more than a few bumps in this road to retail pot, many consumers and investors are left with only more questions for the Government’s choice of roll-out approach.
The real story began when the Ford administration was voted to power. The number of retail stores shrunk from 40 to 25. This left many wary of their decision making, as there is expected to be an undersupply of Cannabis with so few retail fronts. If things couldn’t get any more confusing, now under the terms of the lottery, companies must submit an expression of interest to the alcohol & gaming commission of Ontario (AGCO) to win their licenses. Licenses are then distributed between five defined regions: 5 to the city of Toronto, an additional 6 to the greater Toronto area (GTA), 5 to Ontario East (Peterborough, Ottawa among others), 2 to Northern Ontario (including Sudbury and Thunder Bay) and 7 to Western Ontario (including Hamilton, Niagara and Waterloo).
Some larger questions to ask are, what is the nature of each application, and how they are they weighted? Can the larger corporations come along and purchase multiple applications, therefore increasing their stake in the lottery and ultimately their chances? The answer is no. The AGCO has stated in multiple releases and webinars that “the applications are one per entity / per region so that the process is extremely fair going forward” … extremely fair? If all the licenses are won by applicants who have absolutely no interest in selling Cannabis, and then hold up the licenses and try to resell for a profit, wouldn’t this only cause a further delay? As a consumer, wouldn’t I want to feel secure, knowing my once favorite brand on the OCS will continue to be able to make the deadlines and reach retail stores near me?! And as a company, who has invested millions of dollars and expressed interest in opening as many as 20+ locations, shouldn’t I get first access to the licenses? Considering many of these companies have shown good faith in their commitment to the Health Canada regulations and have respected the hoops the government has made them jump through thus far, they don’t seem to be shown much respect in return. Private businesses who are prepared and ready to deal with these issues of supply and demand are now being funneled into the Government’s mess. These are the mysteries of Ontario’s jumbled retail rollout.
Analysts predict that we should see some of this bottleneck in supply ease by the second or third quarter of this year when more growing operations are put online, but it still leaves a lot of risk of supply overstock if there aren’t enough stores to keep the flow of cannabis moving to consumers. See below for a current outline of the AGCO’s retail process. How things are predicted to play out.
The AGCO intends to publish the results of the lottery, to be held on January 11, 2019, on its website within 24 hours of the lottery selection.
Stay connected and continue to follow the conversation. Happy investing.
6 years experience in Capital Markets with a degree of Entrepreneurship and finance Ryerson University. You can find Alex on his free time, pursuing his multiple business endeavours, with his family, or playing music around the city. Feel free to follow him @alexxsimonelli
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