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Province decides to limit privatized pot to just 25 storefronts across Ontario

As private cannabis retailers prepared for their chance in the open market come April of next year, the Ford government announced an unexpected turn of events last week.

The nascent sector received word of “a nationwide supply shortfall” that justified the provincial government’s limiting of the number of street-level pot shops that can open next April.

The Ontario government announced late Thursday that it will grant licenses for selling legal cannabis to just 25 retailers across the entire province. To put that in perspective, there are currently 651 LCBO locations and 452 Beer Stores operating in Ontario.

The new announcement backtracks on the PC government’s original statement which said it would grant a limit of 75 licenses per operator in the province, which would provide an expected 1,000+ bricks-and-mortar stores to consumers in Ontario. The main source of legal cannabis will still be sold online through the Ontario Cannabis Store.

“For the most part, there’s a lot of companies doing some soul-searching right now and are licking their wounds,” said Chad Finkelstein, retail strategist and advisor.

“Before the announcement, Ontario gave everybody the impression it was open for business, especially for cannabis retail. This appears to be the opposite of that now.”

Two months after Cannabis legalization, the decision to decriminalize the drug has “turned out to be more popular than anyone could have imagined.” Cannabis producers across Canada are rushing to build and maintain facilities that can deal with peaking demand for legal cannabis. Demand for legal pot has been higher than expected, and legal inventories have been pushed to their limits – something industry watchdogs believe will continue over the next couple of years.

Despite having the financial capital to open up stores to deal with the legal demand, president of Compass Cannabis Clinics, Dave Martyn, told BNN Bloomberg that the nationwide uncertainty is preventing him from signing any leases in Ontario.

Retail is not for the faint of heart,” said Martyn. “[Thursday night] was complicated and it was emotional.” Martyn noted that Alberta had recently suspended granting new licences for cannabis stores in its province to deal with the demand.

“The market got so out of hand so fast, we pulled back,” he continued. “We saw what happened in Alberta and it’s a bloodbath there.”

Alberta’s cannabis regulator cited production limitations as a reason for its suspension as it attempts to “ensure existing companies … have enough inventory to sell to their customers.”

Quebec is also attempting to curb demand, announcing it would close provincial shops between Monday and Wednesday while limiting hours during the rest of the week until inventories are stable and adequate.

Cannabis CEOs like Alcanna Inc.’s James Burns believes Ontario’s decision makes sense given the supply shortages observed in neighbouring provinces. 

“We don’t have product in [our stores],” said Burns. “We have days where the shelves are completely 100 per cent bare. We’ll get a shipment in once a week and it takes a day or two to sell out.”

CEO for Choom Holdings Inc. said the company signed on for 20 leases across Ontario in anticipation of April. The leases would only go ahead if the retailer was able to secure a license, something that seems near impossible following the province’s announcement.

“We protected ourselves very well,” said Choom’s Chris Bogart. He’s hoping to win at least one licence in next month’s retailer lottery and operate in a limited capacity until the restrictions are lifted.

“We’re confident in our approach but there’s obviously some, let’s call it growing pains in the start of the market,” he noted.

A representative from RioCan Real Estate Investment Trust, a large commercial real estate operator in the country, said pot retailers already had to pay a premium for any store locations they’ve already sign on to. There is a competitive demand for storefronts in areas with low vacancy rates. Retailers will have to decide whether to vacate their properties or operate as a seller of cannabis accessories until licenses are granted.

Other cannabis consultants are calling the news a “huge blow” to the entrepreneurial spirit in the province.

“It’s pretty paternalistic of the Ontario government to strike these new licensing plans,” said Michael Garbuz from Vision Advisory. “They should let the market sort itself out and let businesses with a good understanding of the pot industry decide what’s best for them.”

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