Producers high on Ontario private retail

Ford hints at changing liquor store plan

TORONTO • The Canadian cannabis industry was chomping at the bit Friday over the prospect of being allowed to sell legalized marijuana in Ontario through private-sector pot shops, and not just those of the provincial government.

Until recently, the official plan for retailing recreational cannabis to consumers in Ontario — which would become Canada’s largest market after the drug’s scheduled legalization on Oct. 17 — involved a tightly-controlled and government-owned monopoly.

But new Premier Doug Ford had previously made remarks suggesting that model could be in for some tweaking. And after media reports surfaced Thursday evening about Ford and the Progressive Conservative government considering private pot stores, the cannabis industry snapped to attention.

Leading marijuana producer Canopy Growth Corp. had previously expressed interest in operating a retail pot shop at their headquarters in Smiths Falls, Ont., and earlier this month announced it planned to acquire retail-focused Hiku Brands Co. Ltd.

“We think when you exit prohibition, the first year is going to be all about fact-based education, quality transactions, where informed people are your guide,” said Bruce Linton, chairman and co-CEO of Canopy, in an interview. “We like it, but it’s actually more like the launch-pad value than the immediate margin opportunity.”

While Ford has not officially announced Ontario is pivoting pot sales to the private sector, a government official told Financial Post that they were reviewing the previous government’s proposal to turn the distribution model for the drug over to the Liquor Control Board of Ontario.

Under ex-premier Kathleen Wynne and the Liberals, Ontario had been on track to sell cannabis in-person and online through a government-run system, including up to 150 stand-alone stores to open by the end of 2020. A change to that plan could herald a shift toward the more private-sector-friendly proposals for retail in Alberta and British Columbia.

“During the campaign, our party made a commitment to the people of Ontario that our government’s marijuana policy would focus on protecting children,” said Simon Jefferies, Ford’s director of media relations, in an email. “The federal government has put us in an unprecedented situation and we are reviewing the current structure to ensure we deliver on our commitment.”

Some cannabis companies were quick to applaud Thursday’s news.

Gatineau, Que.-based Hydropothecary Corp. — which recently announced a $10-million investment in Fire & Flower, “a leading adult-use retail cannabis store” — said in a release that they were pleased to see reports of Ontario considering privatization.

“We have been anticipating the Ontario government’s potential move towards retail cannabis in Ontario, and made a strategic large investment in Fire & Flower in preparation,” said Sebastien St-Louis, chief executive and co-founder of the company.

For those that can get a toehold, the payoff could be significant.

“What we have noticed is that the business demand for private retail is palpable, as evidenced by recent market activity,” noted Eight Capital. “In our view, (licensed producers) that have a strong presence at retail will be able to favourably position their brands and products in front of consumers in an early effort to establish brand equity, loyalty and awareness.”

Canaccord Genuity analyst Matt Bottomley was not convinced Ontario could change lanes so near the planned Oct. 17 legalization date and not have hiccups.

“We are highly skeptical that Ontario will be able to make such a significant change to its planned retail platform in this time frame, given the significant logistical considerations involved (tendering, background checks, security, zoning, etc.),” he wrote. “We would think a 12-month time frame to roll out this model is more likely, and it is unclear how the province would execute this platform in time for Oct 17.”

BUSINESS DEMAND FOR PRIVATE RETAIL IS PALPABLE.