Ontario Will Limit Number of Retail Licenses for Cannabis LPs

The Ontario Progressive-Conservative government introduced new legislation to restrict the cannabis retail presence of operators as it gears up for the launch of its retail network in April of next year.

Ontario’s Attorney General Caroline Mulroney announced on Wednesday (September 26) Canadian licensed producers (LPs) of cannabis will be restricted to one retail license in the province’s new retail framework.

“In particular the legislation would limit the ability of federally licensed producers to own and operate retail locations. Any licensed producer will be permitted to hold a single retail license at a single production site located in Ontario,” Mulroney said.

Approval of these licenses will be determined by the Alcohol and Gaming Commission of Ontario (AGCO).

When asked about the limitations on LPs again, Mulroney said “a licensed producer is able to apply for a single retail operator license.” 

Mulroney said companies seeking to operate cannabis shops will have to apply for a retail license and a store authorization application per store. The province announced it will not cap the total amount of licenses given to applicants approved by the AGCO.

A variety of LPs have unveiled strategies to own branded shops in Canada. The province had previously announced these shops will not be arriving until April 1, 2019, when it scrapped the cannabis plan from the Liberal government.

It’s unclear whether an LP subsidiary may obtain a separate retail license. Investors have also gained options when it comes to cannabis companies focusing exclusively on the retail aspect of the industry.

Trina Fraser, co-managing partner at Brazeau Seller Law, tweeted a reaction and breakdown of the new Ontario rules set to be voted on:

.@Ont_AGCO will be responsible for cannabis retail licensing.
You will need:
1) Retail Operator Licence
2) Retail Store Authorization (for each location)
No cap on # of licences that can be issued
AGCO will initiate 15 day public consultation period for all proposed locations

— Trina Fraser (@trinafraser) September 26, 2018

Legal cannabis products for these stores will be provided by Ontario’s supply agreements with LPs.

Starting on October 17, Ontario consumers will only be able to purchase legal adult-use cannabis t online from the Ontario Cannabis Store (OCS).

Ontario wants “as many participants as possible” to be involved in cannabis retail strategy

Ontario’s Minister of Finance, Vic Fedeli, warned any companies found with an illegal record or found in association with the black market will be banned permanently from obtaining a retail license.

Currently active dispensaries of cannabis are being asked to shut down and apply for a proper license. Fedeli said anyone operating after the October 17 wouldn’t get a license.

“We want to have as many participants as possible be involved… This is an opportunity for small businesses to get involved,” Fedeli said.

When asked about the limitations of applications for retail licenses, Fedeli said the new legislation doesn’t offer a specific cap in number of stores or total percentage but gives the flexibility to set a number going forward.”

In August, the Ford administration scrapped the plans from the previous provincial government and installed the privatization of the cannabis retail market. Through licenses, companies would be allowed to set up shop across the province.

Ontario would allow municipalities to vote whether or not they would allow for these shops to be installed in their territories. The mayors of Richmond Hill and Markham, two Ontario municipalities, have already determined to vote against the implementation of these shops.

A spokesperson for the Ontario Ministry of Finance confirmed to the Investing News Network (INN) the province will only offer a one-time vote to the municipalities on the retail plan.

The province confirmed the deadline the vote from the municipalities will be January 22, 2019. Municipal elections will take place in Ontario on October 22.

Following the decision by Ontario, several cannabis companies unveiled strategies to apply and set up a retail presence including Second Cup (TSX:SCU), which through a partnership with National Access Cannabis (TSXV:META) revealed it would even be reworking existing coffee shops to become cannabis stores.

Investor takeaway

When the Ontario government announced the launch of retail starting next April, the stock market took a hit with investors seeing the delay as a negative.

It will be critical for cannabis investors to follow the reaction to the limits on retail for LPs during Thursday’s (September 27) trading session.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.