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Disqualified Applicants Sue AGCO

18 of the 42 second round lottery winners have now been disqualified from the application process by the AGCO and one winner has withdrawn. Of the 18, 12 were disqualified for failing to submit all required application documents within the prescribed period after the lottery.

In a surely fatal blow to the already much-maligned Ontario cannabis lottery process, 11 of the 12 have now initiated legal action against the AGCO, claiming that the AGCO failed to follow its own rules by delivering late notice of the lottery win. Until the matter can be determined, the Ontario court has ordered a a two-week stay of the entire lottery process, preventing the AGCO from advancing the application process for any of the lottery winners.

The other six of 18 disqualified applicants were eliminated for breach of the lottery rule that dictated the pre-qualification requirements for entering the lottery in the first place. Though we don’t know the specific causes, the fact that these winners are being disqualified only after the lottery for reasons relating to pre-qualification requirements is telling.

At this point, it’s unlikely the Ontario government will have the stomach for a third lottery, but let’s hope the Ontario Cannabis Retail Corporation and federal cannabis producers get their cannabis supply chain act together soon, so Ontario consumers and would-be cannabis retail participants can avoid any risk of having to suffer through another lottery.

Presuming there is no further lottery, and absent a further amendment to the regulations under Cannabis Licence Act (Ontario), the Ontario cannabis retail market will open to all on July 3, 2020.

No Access to Capital

While the first lottery for 25 licenses held in January was characterized by a gold rush mentality with 17,300 participants, the second round lottery participants faced prequalification requirements that created challenges of their own. For example, more than a week before the lottery window opened on August 7, the few banks that had been willing to provide the required comfort letters (essentially confirming that applicants had $300,000 available) stopped doing so. The banks, including go-to Ontario cannabis credit union, Alterna, started turning customers away after being inundated with requests. This prevented some otherwise qualified individuals and organizations from being able to participate in the lottery. Some participants also faced gouging by landlords exploiting the requirement that applicants secure a store premises prior to entering the lottery.

This was followed by the discovery that certain retail brands had coordinated dozens or more lottery participants to submit applications for the same store premises – though multiple lottery participants using the same location was not, by itself, a breach of the lottery rules.

Jeremy Burke is a corporate-commercial partner, and member of the Cannabis Group, at the law firm Aird & Berlis LLP. Jeremy advises stakeholders from all corners of the cannabis industry on commercial and regulatory matters.

Photo courtesy of Wesley Tingey