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Cannabis store licence lottery process kicks off

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TORONTO—Ontario kicked off its application process yesterday for the first 25 cannabis retail licences in the province, with the results of a lottery expected later this week.

The government said the firm cap on the number of stores that will open this spring was needed due to what it called serious cannabis supply issues that had to be 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,” said Finance minister Vic Fedeli.

“This is only temporary," he stressed. "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 currently only can 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 initially had 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 tomorrow.

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 of dollars 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.

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

“The supply issues are real,” said David Clement, manager of North American affairs for the Consumer Choice Center.

"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,” he argued.

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 noted. ”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 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 remarked.

"They incur a lot of those start-up costs and have to lay off staff.

“I think a cautious approach is the right approach,” he noted.

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 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 reasoned.

“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.”

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