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Ontario Stifling Cannabis Retail Sector

Provincial regulators are keeping a firm hold on the cannabis industry in Ontario, one of the largest markets in Canada. In the wake of COVID-19, allowances are being reeled back and new stores are carefully rolled out according to a timeline written when the world was a much different place. With millions in profits and over 2,000 jobs on the line, these changes could put a major damper on the industry.

A Little Background

Back in December 2019, when Ontario opened the market, the Alcohol and Gaming Commission of Ontario (AGCO) outlined their plan of attack: 20 new stores per month, or five stores per week. Prospective retailers could apply in January of 2020 and new stores were authorized in March.

Since then, after a short pause due to the pandemic, they have received over 800 applications, and have gone from 42 stores to over 100 with 450 approved and waiting to open.

In the meantime, the Government of Ontario had pushed through an emergency provision that allowed curbside pick-up, online sales, and delivery only to revoke it earlier this month.

What’s the Big Deal?

To add insult to injury, the AGCO is sticking hard and fast to their limit of opening five stores per week, despite being backed up to March of 2021. This means that approximately 450 store owners are sitting on their fully actualized cannabis stores, paying rent but not being allowed to open.

Retailers were under the impression that this cap was a minimum goal, not a limit. The AGCO claims that the province could increase the number in the fall and that their ultimate goal is to have no cap at all, but can’t say when that might happen.

Claims have been made that suggest the reason for sticking to the limit is that the OCS is having issues obtaining enough product to supply the burgeoning market, however, a lack of supply is not an issue, and the OCS says that expanding Ontario’s retail network is their top priority for this year and the next.

“The OCS is working collaboratively with the AGCO to onboard authorized retail stores at a pace aligned with the direction set out by the Government of Ontario as announced in December 2019,” says Daffyd Roderick, Director of Communications for the OCS. “The OCS continues to review and streamline its operational policies in these early months of Ontario’s open allocation of retail licensing.”

At the moment, the AGCO receives 25 to 30 new applications every week. Despite this year feeling like it has lasted a decade, it’s important to remember that applications have only been open for about six months, and processing over 800 applications must feel overwhelming for the AGCO.

Retailers and the Ontario Chamber of Commerce are not sympathetic. They say that doesn’t change the estimated $1 billion in economic activity and 2,500 jobs that could be lost in the province without delivery, particularly if the stores have to keep their doors closed.

“At a time when Ontario’s economy—and the retail sector in particular—is grappling with the challenges brought on by this pandemic, we should be championing, not stifling investment and economic growth in emerging industries,” says Daniel Safayeni, Co-Chair of the Ontario Cannabis Policy Council. “The reality today is that Ontario’s lacklustre retail footprint has underserved the market, done little to stop illicit actors from profiting, and represents a lost opportunity for industry growth and tax revenue.”

Experts have said that Ontario could easily support 1,000 retail stores or more, but at this rate, the province won’t hit 1,000 retailers until 2024.

“A faster monthly rate—something that is surely feasible given the demand for cannabis in a province of Ontario’s size—would improve market penetration and customer convenience,” says Safayeni. “It would also do more to combat the illicit market by providing Ontarians with more options to purchase cannabis from legitimate channels.”

With a huge surplus of inventory and a long way to go in eradicating the illicit market, it would do the province well to hit this goal sooner, rather than later.