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Report on Business Cannabis Professional Wheel of fortune: Ontario’s second retail lottery will issue up to 50 new licences

Ontario is set to issue up to 50 new retail cannabis licences that will lift the tally of pot shops in Canada’s biggest consumer market to 75 this year and provide some financial relief to businesses that have been holding leases since 2018.

Forty-two of the new permits will be granted through a lottery in August, the province announced Wednesday. This follows in the controversial footsteps of Ontario’s first round of licensing in January, when nearly 17,000 individuals and companies competed for 25 licences via a draw. This time, however, financial pre-qualifications are expected to deter inexperienced applicants.

The additional eight licences will be issued on First Nation reserves in a separate process. Those will be allocated on a first-come, first-served basis to those who have the approval of band councils, according to website of the Alcohol and Gaming Commission of Ontario.

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The staggered approach to opening more stores highlights the balancing act that provincial governments face in a bid to take business away from the illegal market while also navigating a national shortage of legal pot that some experts expect might soon shift into oversupply.

Still, even after Ontario’s latest expansion, the province will have dolled out fewer than half of the 156 retail cannabis permits already granted in Alberta, which has roughly one-third of Ontario’s population.

Ontario Attorney-General Doug Downey said the government settled on 50 new licences based on advice from the Ontario Cannabis Store, the province’s sole wholesaler for retail marijuana, regarding the estimated amount of supplies expected to be available throughout 2019.

“We’re taking their advice that 50 more stores can be serviced. It’s driven by the supply chain,” Mr. Downey said, adding he expects the stores will open between October and December.

“[A lottery] is a fair way to allow applicants to have an equal chance once they’ve qualified but we do have regional limitations in the lottery.”

When the province held its first lottery in January, the names drawn were mostly individuals with limited retail experience; established retailers reportedly offered some of the winners millions of dollars for branding partnerships. Twenty-two retail cannabis stores are currently open in Ontario out of 25 that were slated to open in April.

“This time, the government’s rules will screen out most of the unprepared entries that seemed common in the first lottery,” said Michael Armstrong, professor at Brock University’s Goodman School of Business. “One side effect is that they’ll screen out ‘mom and pop’ entrepreneurs who have retail experience but little liquid cash; i.e. the classic small retailer.”

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Like the first lottery, the province has allocated specific numbers of licences to five regions of the province. Of the 42 stores to be chosen by lottery, 13 will be in Toronto, six in the Greater Toronto Area, seven in the east of the province, 11 in the west, and one in each of the following northern cities: Kenora; North Bay; Sault Ste. Marie; Thunder Bay; and Timmins.

Tom Dyck, chief executive of new cannabis retailer mihi, said the company, which does not yet have a licensed store, has been paying rent on 30 multiyear leases in Ontario since 2018, with the hopes of opening retail cannabis outlets. Unsuccessful in the last lottery, he and many other retailers plan to apply in all five regions.

“The notion of a lottery runs counter to how you build healthy companies and ultimately industries,” Mr. Dyck said, adding that while this is a positive step forward, analyses indicate that cannabis supplies are growing at a rate that likely could stock more than 75 stores in Ontario.

“I don’t think there’s anybody short of the 25 winners that were happy with the process last time. I think this time we’ll probably see fewer people enter the lottery.”

Mihi is not alone in holding multiple leases in Ontario while awaiting licences. High Tide Inc., which operates Canna Cabana stores, said it is maintaining approximately 20 leases in Ontario and plans to enter the lottery.

“A measured approach is wise and we expect many more licences to be issued over time, to approach and eventually exceed the number of licences in Alberta,” said Nick Kuzyk, chief strategy officer for High Tide.

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National Access Cannabis, one of Canada’s biggest pot retailers with 25 operating stores in the Prairies, also plans to enter the Ontario lottery in all five regions.

“We feel that product availability is stabilizing and that all markets can handle more retail stores. However, we want the product availability to remain stable,” said Matt Ryan, vice-president of marketing for National Access. “Therefore, we think that pacing it out is warranted if that ensures that retailers do not face a shortage situation.”

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