Ontario’s Doug Ford poised to take pot retail private
Canadian cannabis producers are moving full speed ahead to open their own marijuana shops in Ontario amid anticipation that the provincial government will soon allow private stores to sell recreational cannabis when it is legalized in October.
Several major cannabis companies told BNN Bloomberg that efforts are already underway to secure locations for privately-run retail stores, with a formal framework expected to be announced by Doug Ford’s Progressive Conservative Ontario government next week.
“We wait to see what the government announces but from what we’re hearing, this doesn’t surprise us but delights us,” said Cam Battley, chief corporate officer at Aurora Cannabis Inc., in a phone interview with BNN Bloomberg.
“This is the right move for Ontario to make,” he added. “The cost and risk is not on the taxpayer. It allows the market to do what the market does best.”
Battley said the company has been preparing for privatization of cannabis sales since Ontario changed its government in June, with an internal team working alongside executives from Alcanna Inc. (previously known as Liquor Stores NA) to examine potential leases and locations throughout the province. “We’ve kicked our planning into high gear with the chance this would happen,” he said.
Aurora will have a “significant presence in the province of Ontario,” Battley said, declining to provide further specifics on the amount of stores the company plans to open.
Michael Gorenstein, CEO of Cronos Group, which has a joint venture with MedMen Enterprises to bring the upscale U.S. marijuana retailer to Canada, said Ontario’s move is going to be “huge” for the industry. Gorenstein told BNN Bloomberg in a phone interview that the company already has an operating team in place and is well situated to make a significant splash in Ontario.
“Our approach, similar to what made MedMen a success in the U.S., is ‘fewer, bigger and better,’” Gorenstein said. “Our focus isn’t going to be the number of stores but the quality of stores.”
With less than three months until Canadians will be legally allowed to buy recreational marijuana, allowing the private sector to sell cannabis is likely to unlock the growing bottleneck that the country’s biggest provincial market was facing amid looming legalization in October. Ontario appeared to be ill-prepared to handle the expected strong demand for recreational marijuana amid uncertain leadership and doubts that its initial bricks-and-mortar stores would even be ready for Oct. 17.
Ontario Cannabis Store President Nancy Kennedy stepped down in June shortly after Doug Ford was elected as the province’s new premier. She was replaced by acting president David Phillips, who was in charge of regulatory innovation at the Alcohol and Gaming Commission of Ontario.
In April, Ontario announced the first four cannabis stores would be located in Guelph, Kingston, Thunder Bay and Toronto with a plan to open as much as 40 by the end of the year and roughly 150 standalone cannabis stores by 2020.
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The stakes are high. In its initial year, sales of recreational marijuana could be as much as $5 billion, a number on par with the Canadian spirit market, according to a recent report released by Deloitte.
Additionally, shares of cannabis producers listed on Canadian markets have soared in recent years amid frenzied investor optimism in the sector, although some of that excitement has waned in recent months. While the Horizons Marijuana Life Sciences Index ETF has soared 82 per cent over the past year, it has slumped 15 per cent in the past month.
Aphria Inc. CEO Vic Neufeld told BNN Bloomberg in an interview that launching proper bricks-and-mortar stores will help educate the public on the legalized product as well as squeeze out underground criminal players that currently supply many illegal dispensaries across the province.
“I can only assume the Ontario government, as they look to what the original plan was, they’re going to come to a quick conclusion that they need bricks-and-mortar stores. The end objective is to get the underground consumer to be a purchaser of above ground outlets,” Neufeld said.
Allowing more shops to sell cannabis may also benefit smaller, craft-based marijuana producers that rely more on cash flow than bigger suppliers. Battley said Aurora’s shops would sell a range of products outside of the company’s own supply, including micro-cultivators.
Sebastien St-Louis, CEO of Hydropothecary Corporation, said in an email to BNN Bloomberg that “smaller, less well-capitalized players than [Hydropothecary] who were counting on early cash flow will be negatively impacted” if the province kept cannabis sales to just the Ontario Cannabis Store.