Cannabis com­pa­nies hunt for On­tario’s re­tail lot­tery win­ners

The Globe and Mail (Ottawa/Quebec Edition) - - FRONT PAGE - JAME­SON BERKOW CANNABIS IN­DUS­TRY RE­PORTER

Win­ners of the On­tario re­tail cannabis lot­tery are al­ready be­ing ac­tively pur­sued by large cor­po­ra­tions who are sell­ing mar­i­juana le­gally in other prov­inces and have am­bi­tions to en­ter Canada’s largest con­sumer mar­ket.

Shut out of the op­por­tu­nity to ap­ply for one of On­tario’s first 25 cannabis store per­mits, which were awarded ran­domly by lot­tery Fri­day, the coun­try’s largest pro­fes­sional pot sell­ers are look­ing for other ways to plant their flags in On­tario. Nearly 17,000 ex­pres­sions of in­ter­est were in­cluded in Fri­day’s draw, roughly two-thirds of which came from sole pro­pri­etor­ships, stack­ing the odds heav­ily against es­tab­lished re­tail­ers.

Some, such as Western Canad­abased Star­buds and Canna Ca­bana-par­ent High Tide, are of­fer­ing what their CEOs de­scribe re­spec­tively as “en­vi­able” and “very favourable” fran­chis­ing deals. Oth­ers, such as Na­tional Ac­cess Cannabis chief ex­ec­u­tive Mark Goliger, crit­i­cize the prov­ince for al­low­ing many of On­tario’s first cannabis re­tail stores to be run by first-time busi­ness own­ers with no back­ground in heav­ily reg­u­lated in­dus­tries such as cannabis.

While call­ing it “a lit­tle bit dis­tract­ing and crazy” to be chas­ing fran­chis­ing deals with in­di­vid­ual lot­tery win­ners, Mr. Goliger said the lack of pre­vi­ous cannabis or re­tail ex­pe­ri­ence among most of On­tario’ s suc­cess­ful ap­pli­cants will make it dif­fi­cult to es­tab­lish a com­pet­i­tive al­ter­na­tive to the il­licit mar­ket.

“This is not the way to es­tab­lish a suc­cess­ful re­tail in­dus­try,” Mr. Goliger said by phone Sun­day. “Un­less, of course, the [Pro­gres­sive Con­ser­va­tive gov­ern­ment of On­tario Premier Doug Ford] is not in­ter­ested in see­ing le­gal cannabis be a suc­cess.”

The cur­rent price of a gram of le­gal dried cannabis av­er­ages $9.75 across Canada, ac­cord­ing to a re­port last week from Sta­tis­tics Canada. The same amount of weed from il­le­gal sources av­er­ages $6.51.

Reached via e-mail Sun­day, Jesse Ro­bichaud, a spokesper­son for On­tario At­tor­ney-Gen­eral Caro­line Mul­roney, said the prov­ince un­der­stands “that those who were not suc­cess­ful in the process may be dis­ap­pointed, [but] the lot­tery process, over­seen by a third-party fair­ness mon­i­tor, was the best way to en­sure fair­ness for ap­pli­cants.”

The lot­tery-based al­lo­ca­tion process, Mr. Ro­bichaud said, “will only be in place un­til there is cer­tainty that On­tario can ob­tain a suf­fi­cient sup­ply of le­gal cannabis from fed­er­ally li­censed pro­duc­ers to meet mar­ket de­mand.”

After tak­ing power last sum­mer and re­vers­ing ear­lier plans to open 40 gov­ern­ment-owned cannabis stores by Oct. 17 in favour of a pri­vate re­tail model, the Ford gov­ern­ment de­layed the launch of store­front sales in On­tario to April, 2019, but placed no cap on the num­ber of stores it would al­low.

In­dus­try ob­servers ini­tially ex­pected up­wards of 1,000 li­cences to be is­sued but three days be­fore the Al­co­hol and Gam­ing Com­mis­sion of On­tario was due to be­gin ac­cept­ing ap­pli­ca­tions in mid-De­cem­ber, the prov­ince an­nounced it would be tak­ing a “phased ap­proach” to cannabis re­tail li­cens­ing, lim­it­ing the first phase to just 25 stores amid con­cerns of a na­tional cannabis sup­ply short­age.

Those con­cerns are now “a lit­tle overex­ag­ger­ated,” said High Tide CEO Raj Grover, not­ing his stores are fully stocked and say­ing more cannabis is be­com­ing avail­able on a weekly ba­sis. NAC’s Mr. Goliger agrees, not­ing he ex­pects ma­jor ex­pan­sions of li­censed grow­ing fa­cil­i­ties across the coun­try to be­gin yield­ing re­sults by the spring.

Un­til that much an­tic­i­pated del­uge of ad­di­tional pot sup­plies hit the mar­ket, how­ever, the shift in On­tario has left as­pir­ing re­tail­ers in an ex­pen­sive limbo. No ad­di­tional li­cences will be is­sued un­til De­cem­ber, 2019, at the ear­li­est, the prov­ince has said, leav­ing many stuck pay­ing rent on stores they thought would be in busi­ness by the spring that are now likely to sit empty for months.

“There has been, across On­tario, quite a bit of money that has been in­vested into prop­er­ties as a place­holder that now has to ex­tend longer into a wait­ing pe­riod un­til [the On­tario] gov­ern­ment de­cides to roll out a more tra­di­tional ap­proach to li­cens­ing,” said Mr. Goliger. “NAC, as well as other le­git­i­mate cannabis com­pa­nies, are cer­tainly hold­ing leases in On­tario for key real es­tate as­sets in the prov­ince.”

April 1 is a “tight time­line” to get a store open, said High Tide’s Mr. Grover, not­ing “ag­gres­sive” fines await those that fail to open on time. The fines start at $12,500 for any stores not sell­ing cannabis by Day One, ris­ing to $50,000 if sales have still not com­menced by April 30.

“We are ac­tively look­ing for [lot­tery] win­ners,” Mr. Grover said. “A lot of the win­ners … some of them are dry clean­ers now, or they own a dif­fer­ent busi­ness or some of them have never owned any busi­ness be­fore … and we can fi­nance the whole store struc­ture so it will be at no cost up front to the lot­tery win­ner.”

Lit­tle is known about the win­ners them­selves and many ap­pear to have gone un­der­ground since their names were posted to the AGCO web­site on Fri­day evening. The voice­mail for Tripset­ter Inc., one of the win­ners in the Greater Toronto Area, for ex­am­ple, was full on Sun­day morn­ing.

At least one of the suc­cess­ful ap­pli­cants, how­ever, is no­table for a fam­ily con­nec­tion to an ex­ec­u­tive at Canada’s largest mar­i­juana cul­ti­va­tor. Lisa Bi­gioni, one of the win­ners for Western On­tario, is the sis­ter of David Bi­gioni, chief com­mer­cial of­fi­cer of Canopy Growth’s recre­ational divi­sion.

Dave Mar­tyn, pres­i­dent of British Columbia-based cannabis re­tailer Star­buds, told The Globe and Mail’s Cannabis Pro­fes­sional daily news ser­vice last week that es­tab­lished op­er­a­tors will be “try­ing to make side deals to ac­quire li­cences a year from now and all these kinds of things, so it is go­ing to be a wild world for these groups that win.”

Av­er­age per-store rev­enue at Na­tional Ac­cess Cannabis, for ex­am­ple, is on track to ex­ceed $2-mil­lion a year, based on sales data the com­pany re­leased last week show­ing more than $10-mil­lion in rev­enue from its 20 NewLeaf and Meta Cannabis stores spread across Al­berta and Man­i­toba in roughly 80 days of sales. Those fig­ures help ex­plain the value of On­tario’s first 25 cannabis re­tail li­cences, though AGCO rules pre­vent any of Fri­day’s win­ners from sell­ing or trans­fer­ring their li­cences un­til De­cem­ber, 2019, when the next phase of the lot­tery is sched­uled to be held.

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