Much needed cannabis retail reform could be in store for Ontario.
The current AGCO lottery-based model has left the province with about two-dozen cannabis shops. That works out to approximately one retail store for every 600,000 residents. The small number of brick-and-mortar outlets is a far-cry from the 750 to 1000 stores which analysts estimate would be needed to support a mature market.
Last week saw lacklustre quarterly reports from cannabis giants such as Organigram, Aurora, Canopy Growth, and Tilray. Companies are pointing to the lack of retail space in the province as the source of waning revenue.
Canopy Growth CEO Mark Zekulin told analysts on a call last Thursday: “At the risk of oversimplifying, the inability of the Ontario government to license retail stores, right off the bat, has resulted in half of the expected market in Canada simply not existing.
“[Ontario’s government] indicated they’re going to open more stores. Everybody is pressuring them to open stores. Hopefully they’re listening to calls like this and considering the impact it’s having on our sector.”
Ontario Finance Minister Rod Phillips responded to the criticism in an interview with BNN Bloomberg’s Paige Ellis. “Sometimes business people look for all kinds of reasons why things don’t work out,” Phillips commented. “We’re focused on what is going to be a system that is sustainable, that makes sense, that makes sense for our communities, that tackles the black market. We’re confident that we’ll put that forward.”
Proposed changes to the cannabis retail system
The new cannabis retail system would abandon the AGCO lottery in favour of an “open allocation” model. Prospective retail owners would fill out an online application. They would then need to pass province-imposed background checks. Successful applicants would get a license.
There is no concrete roll-out date for the proposed system. It is believed that provincial officials are eyeing the beginning of 2020.
“What’s important is that we’ve talked about moving to open allocation once the conditions are right,” said the Finance Minister. “Our priority is making sure that we have safe distribution and that we tackle the black market, and our government’s been clear that the private sector delivery and private sector retailers are going to be an important part of that.
“We’re confident that when the system rolls out, it will operate well, and we look forward to that. This is a new industry. Supply issues did plague the market for the first year. Those have been largely resolved at this point, and that’s why the cannabis store is working with suppliers in making sure they are a part of the system so we get it right.”
Can Ontario catch up with up to Alberta?
The open allocation system could be a huge step toward Ontario realizing its full market potential. Alberta has a similar system already in place, and currently leads Canada in total cannabis sales. It’s worth noting that Alberta is only the fourth most populous province.
Ontario Premier Doug Ford spoke to reporters about cannabis retail on Thursday morning.
“That’s eventually what the goal is — open it up to the market and let the market dictate,” said Ford. “It’s like any business: some people will be successful, some won’t. But I guess the previous issues that the whole country saw … we didn’t have enough cannabis to sell but now there’s enough supply and we’re working hand-in-hand with the [licensed producers].”
Puff Puff Post will be following the proposed changes.