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Houses and condo building are seen in Mississauga.Mark Blinch/The Globe and Mail

Part of cannabis and small business and retail

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Dealing a setback to aspiring Ontario cannabis retailers, two major Toronto-area municipalities moved Wednesday to prevent private storefronts from selling marijuana within their borders.

Mississauga City Council, representing the province’s third-largest city, just west of Toronto, voted 10-2 in favour of opting out of cannabis retail. A few hours later, city councillors in Markham, just north of Toronto, also voted “no” on cannabis retail in a 12-1 vote. The decisions come just one day before Toronto city council will vote on the same issue.

Ontario has given municipalities until Jan. 22 to decide whether to allow physical cannabis stores within their boundaries. Cities that reject pot shops will be allowed to change their minds after that date, but those agreeing to host cannabis retailers cannot ban them later.

“We were preparing for a government-controlled cannabis retail model that resembled the LCBO,” Mississauga Mayor Bonnie Crombie said in a statement after the vote, referring to the former Liberal government’s plan to open dozens of Ontario Cannabis Store locations through a subsidiary of the Liquor Control Board of Ontario, which has a monopoly on alcohol sales in the province. New Progressive Conservative Premier Doug Ford’s government switched to a private retail model “too quickly,” Ms. Crombie said, adding that the province “has not given municipalities any control over where cannabis stores can be located in our city [and] this is cause for great concern.”

Upward of 1,000 cannabis retail stores are expected to open across Ontario starting in April, 2019, with the Alcohol and Gaming Commission of Ontario (AGCO) expected to begin accepting applications next week. According to Dave Martyn, president of British Columbia-based retailer Starbuds, several hundred of those stores were being planned for Mississauga.

“You’re going to see landlords getting stung because offers to lease and letters of intent are no longer executable,” Mr. Martyn said. “We had not committed to real estate ourselves as of yet, but I know there has been an absolute ton of real estate that people have committed to already and I know there are a lot of sites in Mississauga that people have committed to already.”

National Access Cannabis, which currently has 20 storefronts operating across the country, had already signed one lease in Mississauga and was in talks for more. Mark Goliger, the company’s CEO, confirmed that lease will now be cancelled with NAC paying unspecified fees he attributed to the “cost of doing business.”

“I’m certainly disappointed by the result,” Mr. Goliger said. “I think Mississauga is a very important market for Ontario cannabis and [the decision] really doesn’t make sense.”

Toronto Mayor John Tory shares his Mississauga counterpart’s concerns over a lack of control over where to locate private cannabis stores. He will move a motion at council on Thursday asking Queen’s Park for more power for Toronto and other cities over cannabis sales, with the current framework giving the AGCO power to make what Mr. Tory called “unilateral” decisions on licensing cannabis retailers.

Mr. Tory is still urging councillors to vote in favour of opting in and allowing private-sector pot dispensaries, as opting out would see the city lose millions in funding from the province meant to assist with marijuana enforcement.

Last month, the province detailed regulations for cannabis retail stores in Ontario, requiring stores to be located at least 150 metres away from schools. The plan backtracked from Mr. Ford’s campaign pledge to set a minimum distance between cannabis stores and schools that was more than the 450 metres set by then-premier Kathleen Wynne.

The province has set aside $40-million over the next two years to help cities that do not opt out address the costs associated with cannabis retail. An initial payment of $15-million is expected to be made in January, with Toronto due to receive slightly more than $3-million.

Mississauga and Markham become the fifth and sixth Ontario municipalities to opt out of cannabis retail, according to the AGCO, although they are by far the largest. The other four municipalities to opt out so far – the townships of Papineau-Cameron, Lake of the Woods, Frontenac Islands and Erin – have a combined population of 13,964. More than one million people live in Mississauga and Markham.

Mississauga, which is still due to receive at least $313,309 from the Ontario Cannabis Legalization Implementation Fund’s first payment in January, “may decide to opt-in in the future,” Ms. Crombie said. Starbuds’ Mr. Martyn expects that decision to come “relatively quickly” for economic reasons.

“We had sourced a group that is based out of Mississauga, woodworkers and carpenters, and they were facing overwhelming demand to help build sites,” he said. “Now that is a giant piece of economic growth that is off the table.”

With a report from Jeff Gray.