Ontario hasn’t learned all its lessons from first pot licence lottery

The Ontario government has announced it will allow 50 more cannabis shops to open in October. Eight are allotted to First Nations reserves. The other 42 will be chosen by lottery. Unfortunately, the government has learned only some of the lessons from its previous cannabis lottery experience last January.

The announcement of more stores is good news for the fight against black markets. Ontario has trailed other provinces on that goal because it lacks enough legal retailers.

Statistics Canada’s latest retailing report confirmed the value of physical stores. Ontario’s legal recreational cannabis sales totalled just $7.7 million in March, when only online sales were available. That jumped to $19.7 million in April after the first dozen shops opened.

But while more stores are needed, ongoing product shortages effectively limit their number. Health Canada data suggest legal production of dry cannabis products is improving, but it’s still only enough for one-sixth of national demand.

So, the province is justified in limiting the next store batch to 50. The 42 off-reserve shops, including 11 in western Ontario, will be chosen by lottery.

Compared to the previous January draw, this one has tighter rules. Applicants must show they have a store location and $250,000 to invest.

(Those changes parallel new federal rules for producer licenses. Prospective producers must now build greenhouses before applying for licenses, rather than after.)

Some rule changes clearly were needed. The first lottery attracted over 17,000 entries, many seemingly unprepared. They apparently hoped to get lucky first and worry about business plans later.

Unfortunately, that lack of preparation likely contributed to late store openings. The tight timeline between January lottery and April opening didn’t help either Only 13 of the 25 shops opened in April; three still haven’t.

The government evidently learned from that experience. Forcing applicants to have sites and cash ready should also encourage other preparations, thereby screening out most frivolous entries.

Unfortunately, the requirements also screen out “mom-and-pop” retailers with ample experience but little cash.

Bizarrely, the lottery specifically excludes licensed cannabis producers. That’s self-defeating. Such companies already have passed federal review and clearly know cannabis. They’d surely meet the province’s goal of quickly and successfully opening shops.

The lottery itself is another mistake. After the first one, news reports indicated many winners received million-dollarplus partnership offers. Some effectively auctioned themselves off to the highest bidder.

The opportunity to be among the first 25 stores was golden for large firms building brand reputations. The next batch won’t be as rare, but they’ll still be valuable.

So, this time Ontario should replace the lottery with an auction. Firms will willingly pay for early access to consumers. Let those payments flow to taxpayers, rather than lucky ticket-holders.

Ontario might have raised around $50 million by doing that in January. Since then, the deficit-hunting Conservatives have cut funding for everything from autism treatment to student loans. Why miss out again on easy revenue?

Ontario’s “open for business” government should also become more open about its cannabis business. Compared to its Quebec and New Brunswick counterparts, the Ontario Cannabis Store (OCS) has been very secretive.

That’s inappropriate for a taxpayerowned monopoly, and makes retailers’ planning tougher.

For example, how does OCS set its wholesale and online prices? Does it use a fixed markup over cost, or some other method? Could it end up undercutting the stores it both supplies and competes with? Retailers need these questions answered to prepare good business plans.

The government’s plan for more retail licenses is slightly improved over its previous January lottery. But it should, and still could, be so much better.