So you want to open a cannabis store, Part 1 of 2
If you’re reading this, you probably know that cannabis retail licensing is one of the hottest and most bizarre topics of Ontario’s cannabis industry.
Unless you’re living in a grow-op, you’ve probably witnessed the chain of stranger-than-fiction news stories detailing the evolution of pot dispensaries.
In the beginning, before legalization and all the licensing talk, remember how there were pot shops sprouting up in every major Canadian city? The young Trudeau had just been elected in November 2015, and many people thought that his taking the PMO meant that cannabis was de facto legalized. He campaigned on legalization and many people voted for him and the Liberals for that reason alone.
Canna-preneurs took the initiative to emerge from the shadows of back alleys and parking lots to sell weed openly in storefronts, with precautions but with a new pride that had never been seen before.
Different cities had different reactions. Vancouver established a bylaw licensing regime — for a $30,000 fee, anyone could operate a dispensary as long as it was 300 metres from a school. However, in Toronto, the city’s Municipal Licensing and Standards Division joined forces with the Toronto Police Services to execute Operation Claudia to shut them all down.
The irony is that the stores, for the most part, were servicing the public’s needs with respect to agegating, product quality and customer service.
Nevertheless, when the provincial government took over, common sense flew away leaving the public with a weekly Alice-in-Wonderland feeling.
Under the Wynne Liberals, it was “40 government stores province-wide, and eventually 80.” And people cried out, “Not enough for 14,400,000 people!” (There were more than 90 pre-legalization stores in Toronto alone.)
Then Doug Ford’s Conservatives were elected with his “open for business” platform and he promptly pronounced that he would “let the market dictate” how pot shops would be licensed, allowing anyoneto line up at the Alcohol and Gaming Commission of Ontario (AGCO) to get one of more than 1,000 store licences.
People were excited. Anyone could be a weed dealer! Fantasies of leaving the 9 to 5 or untold riches danced like infused sugarbud fairies in people’s heads.
Then suddenly, four days before applications were to be accepted, the government pivoted dramatically … to a lottery!
Certainly a unique idea, holding a lottery to choose who gets a licence to run a marijuana store, it was nonetheless a shock to people who had already signed leases and began designing their store’s interior.
Now there was no certainty, and only a slight chance of winning one of 25 licences. Nevertheless,17,320 dreamers paid $70 for a chance to win the promise of earning millions of dollars in bud revenue every year.
Ultimately, the provincial government was the biggest winner, earning $1.3 million in unanticipated fees. Of course, the lottery was run by the AGCO, the agency that regulates cannabis retail and lotteries. Who better?
While the government’s stated intent was to give those 25 licences mostly to mom-and-pop pot shops, the surprise for most wannabes was how big companies and big law figured out how to circumnavigate the rule prohibiting any change in the ownership of the licence holder — by licensing big companies’ IP, which is how we have chains like Tokyo Smoke, Canna Cabana and NOVA as our first licensed stores.
And then, if one lottery was not enough, the province held a second lottery! But this time the government got wise. Applicants had to get two letters from a bank showing they had $250,000 for start-up costs and a promise for a $50,000 letter of credit to be paid as a penalty for not opening their store on time.
The surprise for most wannabes this time was that banks refused to write these letters. Many people received the answer: “We do not support the cannabis industry,” or the more generic, “We do not have the capacity at this time.” Most Canadian banks were and still are leery of lending money to the cannabis industry because of the banks’ U.S. divisions’ inability to lend due to cannabis being federally illegal.
A few persistent applicants found a way to hypnotize their bank managers into signing letters, and a lucky 48 people were picked randomly by a KPMG monitored but closed-to-the-public lottery selection. Did they use the balls-in-the-air popper? No one knows!
Litigation by 11 applicants ensued, claiming that the government was not fair. The entire licensing process was shut down. Eventually, the court did not agree.
But just a few weeks before the holiday season, new Ontario Attorney General Doug Downey gave prospective retailers an early gift: an open market for retail cannabis stores beginning in Jan. 2020. No more lotteries!
“We have said all along that opening more legal stores is the most effective way to combat the illicit market, protect our kids and keep our communities safe. That is our number one priority,” Downey exclaimed to an angelic chorus of hallelujah!
But what truly lies in store for selling cannabis in Ontario? (Come on, I had to use that pun once!).
Stay tuned for part two where we look at the Alcohol and Gaming Commission’s licensing process, and the real potential for moms and pops across this enormous province to sell the demon weed. And cannabis cookbooks.
This is part one of a two-part series.