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Cannabis Ontario proposes capping number of stores for cannabis growers, open market for recreational sales

Part of cannabis laws and regulations

The Ontario government is setting a framework for recreational cannabis retailing that emphasizes widespread competition and deals a blow to licensed marijuana producers by limiting their share of the market.

Finance Minister Vic Fedeli and Attorney-General Caroline Mulroney said on Wednesday during a joint news conference that there will be an unlimited number of stores that can sell recreational cannabis in Ontario, but that they will drastically limit licensed growers to just one store each at an Ontario production site. The proposed legislation, which will be introduced on Thursday, also leaves the door open for the province to restrict how many licences a single entity could hold, but no number has been set.

“We want to open up the marketplace,” Mr. Fedeli said at the news conference. “This is an opportunity for small business to get involved. We want to have as many participants as possible be involved.”

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Ontario also gave its municipalities a Jan. 22 deadline to decide whether they will ban legal cannabis stores within their borders entirely. Ontario municipalities are holding elections on Oct. 22 and new city councils won’t be sworn in until December. Last month, the province said the new framework would be in place by April 1.

Read more: Ontario announces bill to loosen restrictions on smoking marijuana in public

The new details come three weeks before recreational cannabis is legalized on Oct. 17 and a month after Canada’s most-populous province announced a significant shift in the retail model for bricks-and-mortar stores. The previous Liberal government gave the Liquor Control Board of Ontario a monopoly on the sale of recreational marijuana, planning to open 40 shops in the first year. Instead, Mr. Ford’s Progressive Conservatives scrapped that model and turned to the private sector for in-store sales. Under the proposed legislation, the cannabis operations of the Ontario government will now report directly to Mr. Fedeli and will no longer be a subsidiary of the LCBO.

“These are all stand-alone, bricks-and-mortar facilities that will have a common look and feel, you can’t enter if you’re under the age of 19, you won’t be able to see inside,” Mr. Fedeli added. “This is all about the safety of our youth, the safety of our roads and tackling the illegal marketplace.”

Ontario joins Newfoundland in allowing sales at production sites, which is what industry giant Canopy Growth Corp. plans to do at its cultivation site in St. John’s. Sixty-three of the 118 production licences issued by Health Canada are to growers in Ontario. However, the limit of one store for each licensed grower came as a surprise and could derail the large-scale retail plans of some of the largest companies, such as Canopy.

“Although this is one more location than would have been allowed under the old LCBO model, we believe this represents an overall headwind for the sector,” Matt Bottomley, an analyst at Canaccord Genuity Corp., said in a note to clients.

Many industry participants assumed Ontario would adopt a retailing model similar to that of Alberta, which plans to approve 250 retail licences in the first year of legalization and won’t issue more than 15 per cent of those licences to a single entity.

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“Alberta has a 15-per-cent cap for any one producer, many LPs are planning to open as many as 37 locations in the province but will seemingly be limited to just one in Ontario,” Mr. Bottomley added in his report.

The news came as a surprise to the industry group that represents dozens of licensed producers.

“We’re a little disappointed. We had hoped that we’d be able to play a larger role than simply one store, but again, we need to see the legislation to fully understand what this means,” said Allan Rewak, executive director of the Cannabis Council of Canada.

James Burns, chief executive of Alcanna Inc., in Edmonton, said the Ontario briefing raised more questions than answers. Alcanna is the country’s largest privately owned liquor retailer which has leases or agreements with landlords in Alberta for more than 50 locations where it could open a cannabis store, although it will be allowed to operate only 37 stores – the maximum permitted for a single retailer in the first year in that province.

“Until we see more flesh on the bones it’s really hard to react,” Mr. Burns said. “There’s still a lot of uncertainty.”

What is clear is Ontarians won’t be able to buy legal marijuana in a store come Oct. 17. Sales will be web-only for a few months through the government-run website. Investors expected that online-only retailing will result in lower sales for growers initially, which sent stock prices tumbling the day after Ontario announced its new approach last month. But the sell-off was short-lived, as Constellation Brands Inc.’s $5-billion investment in Canopy has buoyed the entire sector.

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With a report from Mark Rendell

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