Applications open for retail cannabis licences in Ontario

TORONTO -- Applications were being accepted Monday from those looking to enter a lottery for the first 25 cannabis retail licences in Ontario, with the government defending the strict limits it had placed on the number of brick-and-mortar stores that will open this spring.

Finance Minister Vic Fedeli said the cap on the number of stores will be lifted after what he called serious cannabis supply issues are addressed by the federal government.

"We know that putting out 25 stores, which is the amount of cannabis that we can guarantee receiving, is the right way to go," he said. "This is only temporary. Once the federal government can guarantee a better supply then we know we'll begin to issue more licences as we go along."

Recreational cannabis can currently only be purchased legally in Ontario through a government-run website. The Progressive Conservative government has said the first private stores will open April 1 and had initially said it would not put a cap on the number of outlets.

Fedeli said the province's move to limit the first phase of outlets to 25 was the only fair way forward for business owners investing capital in shops.

The Alcohol and Gaming Commission of Ontario, which will regulate the province's retail cannabis outlets, is taking applications until noon Wednesday.

There is a $75 fee to submit an expression of interest and those selected through the lottery will have five business days to turn in their application along with a $6,000 non-refundable fee and a $50,000 letter of credit.

Those receiving licences will be picked randomly on Friday, with the results expected to be announced publicly within 24 hours. The licences are being divided regionally, with five going to the east of the province, seven in the west, two in the north, six in the Greater Toronto Area and five in Toronto itself.

The AGCO has said it can levy thousands in fines if applicants who get retail licences do not open their stores on time. Failing to sell pot by April 30, for example, would result in a $25,000 fine.

One consumer advocacy group criticized the government for its plan to start with just 25 stores.

"The supply issues are real. That is something that consumers are dealing with, the industry is dealing with. ... that doesn't justify a lottery system and it doesn't justify capping retailers at all," said David Clement, manager of North American affairs for the Consumer Choice Center.

Clement said he will be watching the results of the lottery closely and was doubtful that all of the companies drawn will be able to meet the quick ramp-up requirements to open their stores by April 1.

"They are faced with heavy fines if they aren't able to open on time," he said. "There are some heavy limits and stress testing they are required to meet. Our concerns with some of those criteria is that the province doesn't treat other businesses that way."

Others, however, supported the government's approach.

Omar Yar Khan, a vice president at strategy firm Hill+Knowlton who advises cannabis sector clients, said the lottery system was the right way to bring in retail outlets.

"What they're trying to do is avoid a situation like we've seen in Alberta and some other provinces where people put a lot of money down, they hired staff, they open up a store and then they're not able to provide any product," he said. "They incur a lot of those start up costs and have to layoff staff. I think a cautious approach is the right approach."

Khan, who worked on the previous Liberal government's cannabis legalization task force, said while he favours a uncapped market, the lottery system is a good way to ensure fairness given the current supply issues.

"Every indication that I have seen is that it will actually be very random," he said. "One of the things any government will want to avoid is any perception of favouritism."

Khan added that he doesn't expect applicants who aren't serious about setting up a shop by April 1 to apply given the potential financial consequences.

"I suspect that the financial penalties being where they are set is a sufficient deterrent to prevent any applicants who may not be ready to roll very quickly," he said. "If you're a mom-and-pop shop trying to play Lotto 6/49 with the system here, the amount of money you stand to lose if you're not actually able to deliver is quite a significant deterrent."