Province delays cannabis outlets

LCBO unit will handle web sales, private stores to open by April 1

Ontario is ditching plans for government-run cannabis outlets in favour of letting private businesses run the shops.

The last-minute switch means people in Ontario won’t be able to shop in any stores at all when recreational marijuana becomes legal across the country on Oct. 17.

The government aims to have private stores running by April 1, 2019, which leaves time for wide consultations about the new system, Finance Minister Vic Fedeli said Monday.

However, cannabis will be sold online for home delivery on Day 1, Fedeli promised.

The Ontario Cannabis Retail Corp., the subsidiary of the LCBO set up by the previous Liberal government, will still act as a wholesaler and be responsible for online sales.

But the plan to set up Ontario Cannabis Stores — four locations had been identified — has been scrapped in favour of privatelyrun stores.

Fedeli threw another wrinkle into the province’s pot plans by announcing that municipalities will be given a one-time chance to opt out of having cannabis stores in their jurisdictions.

A spokesman for the City of Ottawa said it’s too soon to comment on this development, and the city will wait to see the new legislation.

The chair of the Ottawa Board of Health, Shad Qadri, said the public health department can’t say much about the development until it’s taken a close look at the legislation.

“We will wait for that and then look at our position,” he said.

There are so many unanswered questions at this point, Qadri said, such as where these private pot shops would be permitted to operate and whether they would create any issues related to zoning.

Many details of Ontario’s plan have to be worked out. Some other major questions: Will there be a limit on how many stores can be licensed in Ontario or how many stores can be owned by any one company? What responsibilities will be handed to municipalities?

Depending on how it rolls out, municipalities may have to approve zoning changes to determine where stores can be located. Under the LCBO subsidiary model, municipalities were consulted, and public consultations were promised, but the provincial government had the final say in where stores would be located.

Fedeli promised to consult with municipalities, and offered them $40 million in “transition funding ” over the next two years.

He also warned his government has “zero tolerance” for anyone involved in the illegal marijuana trade.

Asked whether operators of illegal dispensaries would be eligible to run private stores, he said: “We won’t want to do business with people running an illegal business.”

Fedeli said he was confident that private stores could operate a safe, reliable system. Any store caught selling cannabis to anyone under the legal age of 19, even once, will lose its licence, he warned.

The Liberals said they chose the LCBO model to help ensure a safe, controlled rollout as Canada enters the world of legal pot. Some entrepreneurs and cannabis activists had lobbied for both private industry participation and more stores to create a thriving industry and combat the black market.

The change will be a bonanza for companies eager to do business in the province that will be Canada’s largest marijuana market. The latest report from Statistics Canada estimated that about 4.6 million people nationally, or close to 16 per cent of Canadians aged 15 years or older, reported using cannabis in the prior three-month period. In Ontario, the rate was 18 per cent. Given Ontario’s population of 13.97 million, that amounts to about 2.5 million potential pot customers.

Bruce Linton, chief executive of Smiths Falls-based Canopy Growth Corp., said his company will apply to run as many stores as Ontario regulations allow.

Private operators can set up stores much more quickly, providing serious competition to the black market, he said.

“This is a pretty darn big province. And 30 or 40 (governmentrun stores), even if they doubled it each year, is not really going to do it.

“I suspect this pause will mean we end up with 10 times more stores by the first anniversary. And if we are trying to compete with the guy in the puffy coat selling illegally you actually have a lot more proximity (to a store) than you would otherwise.”

Canopy has properties that can be converted to stores in Ontario, including several Tweed Main Streets, which are information and education centres, Tokyo Smoke stores, and Canopy’s Toronto HQ on Queen Street, he said.

Since the Conservatives were elected, the company has been scouting potential locations in case of a policy change, said Linton. Once a lease is obtained it takes 40 to 60 days to renovate and set up a store, he said.

Canopy has already been chosen to operate stores under its Tweed brand in Manitoba, Newfoundland and Labrador and Saskatchewan, and has applied to operate 37 stores in Alberta.

Another large cannabis grower, Aurora, also has ambitions to set up as many stores in Ontario as allowed. Aurora has a deal with Alcanna, the largest private-sector liquor retailer in Canada, to operate cannabis stores under the Aurora brand.

They expect to open 37 stores in Alberta in the first year of legalization, and have developed training programs and store designs that can be used elsewhere, said Cam Battley, Aurora’s chief corporate officer. “We will be ready to go and to go fast.”

Aurora has also begun scouting locations in Ontario, he said. “We feel like we have a significant head start.”

The move to private retail will help boost the economy and move the risk onto private companies, Battley said. “Ontario taxpayers don’t have to take on the cost and the risk.”

Ottawa’s National Access Cannabis also has ambitions to operate stores in every province in which private stores are allowed. It is now setting up stores in Western Canada under the Meta brand, some in former Second Cup coffee shops.

Gatineau’s Hydropothecary also wants a foot in the retail trade. That company, which is changing its name to Hexo, recently bought a stake in Fire & Flower, an Edmonton outfit that has applications pending to operate 37 cannabis stores in Alberta.

Interest probably won’t be limited to cannabis firms, either. Loblaw has already been named as a qualified applicant to run 10 stores in Newfoundland and Labrador.

How much room there will be for smaller entrepreneurs in Ontario depends on the regulations.

Alberta and B.C. have put a ceiling on the proportion or number of licences that can be awarded to any one company. To try to keep the market from being monopolized, B.C. has also banned companies that grow pot from operating stores that sell their products.