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Ontario Attorney-General Caroline Mulroney.

Fred Lum

Ontario Attorney-General Caroline Mulroney is defending her government’s recent decision to dramatically scale back the number of cannabis retail stores allowed in the province next year as “prudent” given the lack of supply countrywide.

The move caught some in the industry off-guard as many would-be retailers secured leases that now won’t be allowed to open for some time.

In an interview with The Globe and Mail, Ms. Mulroney called on the federal government to fix Canada’s cannabis supply shortages as the province projects less than one-quarter of demand in Ontario will be met in the first year of legalization.

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According to a source familiar with the government’s projections, Ontario expects to receive about 60,000 kilograms of product from its suppliers in year one. Provincial officials think in an open market in which there are an adequate number of retail outlets, at least 250,000 kg a year would be required to satisfy demand, said the source, who was granted anonymity because they were not authorized to speak to the news media.

The province announced this month that it would slow down the granting of private retail licences, limiting to 25 the number of licensed retailers that will be allowed to open come April 1, because of inadequate supply. The new regulation is set to expire in December, 2019, and can be revoked early or extended. In order to lift that cap, the province would need to know suppliers could produce something close to 250,000 kg annually, the source said.

For the first round of legal private outlets, retailers will be chosen by lottery, with the province deciding which regions will initially get shops and how many there will be in municipalities that have opted to allow cannabis retail stores.

“We want people getting into this market to have commercial certainty,” Ms. Mulroney said. “We don’t want retailers in Ontario to take the step of opening a store and finding that they’re going to have to cut hours and take other mitigating steps to deal with this [supply shortage].”

The move is a big departure from the more open retail market the Ford government was planning to start in April. That would have seen hundreds of cannabis stores open for business during the first year of the new regime, with individual retailers operating as many as 75 locations each.

The reason for the phased-in plan is the countrywide shortage of legal marijuana, which has left shelves in other provinces bare and some stores closing early. Alberta has stopped issuing licences to sell cannabis for the time being and is rationing supply among its existing 65 stores. The supply crunch has also left some medical patients without timely access to the strains of cannabis and oils they need.

In the first two weeks after legalization on Oct. 17, sales of legal cannabis totalled $43-million, according to Statistics Canada data released Friday. Nearly $12-million of product was sold in Ontario, which had a chaotic launch plagued by delivery delays. The only way to buy recreational cannabis legally in the province is through the provincially-run online store.

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For months, cannabis growers haven’t been shipping what they said they would. On Oct. 17, Ontario had received only 20 per cent of the amount of product it ordered for its online store, said the government source, though fill rates have gotten better recently. On Nov. 17, Alberta had only received 20 per cent of its order.

“We want to get to an open market,” Ms. Mulroney told The Globe. “In terms of when that’ll be, we have to wait and see what’ll happen with the supply. We’re not there.”

She called on the federal government, which regulates cannabis growers, to fix the supply issues.

“My understanding from the federal government is they’re confident they have addressed the supply issue, but it’s clear that they have not,” Ms. Mulroney added. “So they have a lot more to do to make sure that retailers are able to meet demand when they open their stores.”

In early December, Health Canada said it “remains confident that there is sufficient supply of cannabis overall to meet market demand now and into the future.” A spokesperson for the department said product shortages, which are localized to some regions and product lines, were expected and would likely continue as producers and distributors look to meet market demand.

Ms. Mulroney’s father, former prime minister Brian Mulroney, is involved in a cannabis company south of the border, where the drug is legal in some states but prohibited under U.S. federal law. He sits on the board of Acreage Holdings Inc., along with former U.S. Speaker of the House John Boehner.

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The Alcohol and Gaming Commission of Ontario (AGCO) will be issuing licenses and choosing where cannabis stores can be located, as long as they meet the new specifications set this month by the province, are in a municipality that will allow cannabis shops and are at least 150 metres away from a school.

Unlike Alberta, municipalities in Ontario can’t create their own bylaws to control how many cannabis stores will open within their boundaries and where. Cities can only submit input to the AGCO during a 15-day consultation period for proposed locations. This lack of power will become an even bigger concern for cities once the cap on licenses is lifted, says Pat Vanini, the executive director of the Association of Municipalities of Ontario (AMO).

“I think what’s common to municipal governments across this issue is where can the stores go and what does store concentration look like,” Ms. Vanini said. “That is still underpinning some of the municipal anxiety.”

She said the AMO, which represents Ontario’s 444 municipalities, is still pushing the province to give cities more influence over this process, adding that maybe the regulations could change again after the capped period.

“I do think maybe we have some time on our hands to convince the government,” she said.

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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