What Investors Should Know About Ontario’s Cannabis Retail Market

INN gives investors a closer look at the role public cannabis companies are playing in the launch of the Ontario retail market.

One of the biggest markets in Canada is set to finally open its doors to brick and mortar marijuana retail stores, but what do investors need to know about this critical change?

Retail sales are a critical segment of the cannabis business chain, and now these stories are capturing the attention of investors as well.

Starting on Monday (April 1), stores will be available for marijuana shoppers in Ontario. Here, the Investing News Network (INN) reminds investors why it will be critical to observe this market in the coming months.

The roadmap to the launch of 10 stores in April 2019

Since the legalization of adult-use cannabis in October 2018, consumers from Ontario have only been able to purchase legal recreational product through the Ontario Cannabis Store’s (OCS) online portal.

Now that 10 stores have opened their doors to consumers effective Monday, that’s about to change.

Those 10 were part of an initial 25 licensed holders selected through a lottery after Ontario regulators elected to privatize the retail market, but went ahead with a slower rollout, citing supply shortages.

The OCS will be tasked with overseeing supply for all the operating stores with licenses.

As part of its regulations, Ontario elected to not place a limit on the total number of stores opening in the province. However, the provincial government allowed municipalities to perform a one-time vote on whether or not to allow stores to be placed in their territory.

Mississauga, Oakville, Markham, Pickering and Vaughan elected to block the opening of the stores.

“We want to have as many participants as possible be involved … This is an opportunity for small businesses to get involved,” Ontario Minister of Finance Vic Fedeli said after the province confirmed its limitation of one retail location per licensed producer.

The producers were granted the option to operate one location based on a facility in the province.

The decision of the Ontario regulators baffled the public markets and even drew the ire of some pot executives.

In February, data from Statistics Canada showed Ontario is lagging behind fellow provinces in recreational marijuana sales.

Ontario reached C$8.7 million in December for adult-use cannabis sales. This represented a drop off of 1.5 percent from sales in November, according to a report from MJBizDaily.

The results from December look even more discouraging paired with the sales seen in the month of October, when Ontario posted C$11.7 million as legalization kicked off.

But all the challenges leading up to the launch of this market have not discouraged one executive.

Bruce Linton, co-CEO of Canopy Growth (NYSE:CGC,TSX:WEED), told INN he expects the consumer excitement for retail in Ontario to match that of legalization day on October 17, 2018, including lineups for the launch stores.

Lottery winners get support from publicly traded marijuana companies

As the deadline of April 1 loomed for the 25 lottery winners, some elected to sign agreements to allow companies in on the set up of their shops.

According to the rules of the Alcohol and Gaming Commission of Ontario (AGCO), the ownership of a license cannot officially change, otherwise the license winner will be rejected.

As such, deals were constructed so interested marijuana companies could still see their branding, logos and store designs while the holders remained in control.

The AGCO confirmed that as long as all its requirements for store approval were confirmed, license holders could make agreements and receive support with their store operations from other parties.

“This could include entering into trademark agreements that allow an applicant to open their store using another company’s brand,” the AGCO said in a statement.

Investors have started to notice the benefits of the retail model for some stock picks seeking to expand networks of stores.

The market will see four stores open with the support of a publicly traded marijuana company in the space on day one, with a total of 11 stores confirmed so far.

These deals vary in scope and not all represent direct branding participation from the public players. Here are all the confirmed agreements between public companies and stores in Ontario:


City Public cannabis company related to the store Lottery winner and owner of retail application Store address
Brampton Origin House (CSE:OH,OTCQX:ORHOF) C.G.S. Foods Inc. 186 Main St, S
Hamilton High Tide (CSE:HITI,OTC Pink:HTDEF) Steven Fry 1317 Barton St. E. Unit H09
Kingston Inner Spirit Holdings (CSE:ISH) Daniel Telio 27 Princess St. Suite 101
Kingston Fire & Flower Holdings (TSXV:FAF,OTC Pink:FFLWF) Brandon Long 75 Brock St.
London Canopy Growth 2674253 Ontario Inc. 1025 Wellington Rd, Unit A-2
Niagara Falls Choom Cannabis (CSE:CHOO,OTCQB:CHOOF) Lisa A. Bigioni 7555 Montrose Rd. Unit E3
Ottawa Fire & Flower Holdings Patterson and Lavoie 129 York St.
Sudbury High Tide Saturninus Partners 2019 Long Lake Rd. Unit B
Toronto Alcanna (TSX:CLIQ,OTC Pink:LQSIF) Heather Conlon 499 Queen St. W
Toronto High Tide Dana Michele Kendal 435(B) Yonge St.
Toronto Canopy Growth Colin Campbell 333 Yonge St.

Shops can offer consumers all the legal offerings in Canada like fresh or dried flower, pre-rolled joints, cannabis-based oils, capsules with oil, seeds and plants.

Canada is expecting to see the entry of edible and infused items into the mix later this year, as the federal government confirmed it will legalize these novelty products on or before October 17.

These stores will also sell cannabis accessories and merchandise from brands in the space.

Ontario highlights training program from cannabis company

Even though retail tactics and business operations are well known, Ontario is requesting all the stores in the province to employ a novelty training program for all staff at the stores.

CannSell is a retail certification program designed for the capacitation of workers in a cannabis-oriented setting. This program is designed and managed by public firm Lift & Co. (TSXV:LIFT,OTC Pink:LFCOF).

“The overarching objective of the program is to educate cannabis retail employees on the responsible sale of cannabis, as well as their legal and regulatory obligations,” Jean Major, CEO and registrar of AGCO, said in a press release.

Investor takeaway

The Ontario cannabis retail market is finally opening to consumers, but it still faces a variety of challenges in its rollout.

While fellow provinces like Alberta have been applauded for the cleaner start to their retail sales, Ontario is the most coveted Canadian jurisdiction, representing nearly 40 percent of the Canadian population.

Consumers will still be limited in their purchasing options, because, while Ontario wants an unlimited number of stores in the future, only 10 stores are confirmed to open on day one.

The remaining 15 retailers have either completed the public notice period or are close to finishing it.

The challenge remains now for legalized cannabis to sway consumers away from the black market sector, which has continued to thrive in Canada. The opening of these stores could signify a change in consumer trends for Ontario, but a lot of questions still face the space.

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.

Editorial Disclosure: Inner Spirit Holdings and High Tide are clients of the Investing News Network. This article is not paid-for content.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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Catch up and get informed with this week's content highlights from Charlotte McLeod, our editorial director.

Top Stories This Week: Powell Gets Fed Nomination, Using Gold in a Market Correction youtu.be

We're back after a break last week with quite a bit to cover in the gold space.

After running up past the US$1,860 per ounce mark midway through November, the yellow metal has taken a tumble. At the time of this writing on Friday (November 26) afternoon, it was sitting just under US$1,790.

Gold's losses this week have been attributed to elements like a stronger US dollar and better Treasury yields, although Jerome Powell's US Federal Reserve chair renomination has pulled other factors into play — some market watchers believe he may move to taper and raise interest rates faster than anticipated.


If the Fed follows its previously laid out timeline for tapering, it will wrap up in mid-2022; the central bank has said it won't raise rates until after that. It has also emphasized that its roadmap may change if necessary.

Looking at the larger picture for gold, I heard recently from Nick Barisheff of BMG Group, who believes the stock market is due for a major correction.

"The market is due for a major correction. What will cause it and when it will happen is anybody's guess — it could be tomorrow, it could be six months from now" — Nick Barisheff, BMG Group

It's impossible to know when this correction will happen, but Nick emphasized the importance of acting before it's too late. He pointed out that investors are typically slow to get out of the market once a crash actually begins — they wait for a turnaround, and by the time it's clear there won't be one, they've experienced big losses.

In his opinion, the solution is to get out of the stock market early and transfer money into gold.

Here's how Nick explained it:

"Instead of taking your money off the table and going into cash … you go to gold (because cash is devaluing daily). Gold will at least hold its own and probably appreciate … so by sitting it out in gold you can wait until the market finishes correcting and then buy back in" — Nick Barisheff, BMG Group

With gold's future in mind, we asked our Twitter followers this week what price they think the metal will be at the end of 2021. By the time the poll closed, most respondents had voted for the US$1,800 to US$1,900 range.

We'll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

Finally, in the cannabis space, INN's Bryan Mc Govern spoke with Dan Ahrens of AdvisorShares to get his thoughts on 2021 trends and what's ahead in 2022.

Dan was candid, and said if he had to choose one word to describe the cannabis market in 2021, it would be "painful." Like many others, he's been disappointed in the industry's performance — while positivity initially ran high due to excitement about potential federal changes in the US, ultimately progress has been slow.

"Cannabis started with a big run-up in January and February ... and things dragged from there" — Dan Ahrens, AdvisorShares

Still, Dan has hope for 2022 and said it will be a "huge year" for cannabis. He believes US reforms will come sooner rather than later, and in his opinion those widely anticipated changes will bring a wave of M&A activity.

Specifically, he expects to see alcohol, tobacco and other consumer packaged goods companies making deals with cannabis players, not just cannabis entities doing transactions with each other.

"Those big alcohol companies, tobacco companies, other consumer packaged goods product companies — they're waiting. They're waiting on the US" — Dan Ahrens, AdvisorShares

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there's someone you'd like to see us interview, please send an email to cmcleod@investingnews.com.

And don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

gold bars

2020 was a banner year for gold-backed ETF inflows, but interest has lagged this year as investors become more comfortable taking risks.

In 2020, gold-backed exchange-traded fund (ETF) inflows ballooned to an impressive 877 tonnes, marking the largest one year intake in ETF history.

Investor appetite was fueled by economic stimulus mixed with concerns about COVID-19 closures, which together brought risk-averse buyers to the yellow metal in droves, propelling investment demand.

"Over the first three quarters of 2020, gold ETFs accounted for almost two-thirds of total investment demand," notes a monthly ETF report released by the World Gold Council (WGC) in January.


"This is significantly higher than any previous full year. Gold ETF demand was also equivalent to a quarter of the average annual gold mine production over the past five years."

Since then, gold ETF demand has waned as investors become more comfortable taking risks. So far, 2021 has seen outflows of 269.1 tonnes compared to 87.6 tonnes of inflows. Of the first 10 months of the year, six registered net outflows from the ETF segment.

In fact, a large part of gold's muted Q3 price performance has been attributed to a 7 percent decline in demand coming largely from the ETF segment. This trend continued in October, when gold ETF holdings shed 25.5 tonnes.

"Global gold ETF holdings fell to 3,567 tonnes (US$203 billion) during the month — notching year-to-date low levels — as investor appetite for gold diminished in the ETF space following price declines in August and September," an October WGC gold ETF report states.

After two months of pressure pushed the gold price to a six month low at the end of September, October saw the metal begin to rebound from the US$1,750 per ounce range to US$1,819.

Adam Perlaky, senior analyst at the WGC, told the Investing News Network (INN) that gold's price positivity in October was largely driven by growing inflationary tones.

"In recent years, gold has been inversely correlated with nominal interest rates, and yet gold strengthened during the month despite higher nominal rates," he said via email. "This is likely a result of rising inflation expectations, though changes in the relative move in interest rates may have had an impact."

He added, "Though higher rates could be a headwind for gold, broader concerns of inflation and a potential recession highlight gold's value as an effective portfolio hedge."

The role of gold amid uncertainty

Gold's use as a hedge against inflation is likely to come into focus in the coming months, a sentiment that was echoed by Juan Carlos Artigas, head of research at the WGC.

Artigas explained that while some are of the belief that the "elements of high inflation we've seen so far are transitory" and will dissipate, there will be longer-term reverberations from the current inflation, and potential secondary effects from the fiscal and monetary policies that were put in place to restart the economy.

In mid-November, JP Morgan (NYSE:JPM) said it anticipates that the US Federal Reserve will raise rates in September 2022 by 0.25 percent, followed by 25 basis point increases on a quarterly basis until real rates hit zero.

"Gold still can face headwinds from potentially higher interest rates," said Artigas.

"(The) opportunity cost of holding gold is one of the drivers of performance, and especially in the short and the medium term, interest rates tend to influence gold's behavior significantly, especially in a period where investors are looking to understand how central banks will behave."

However, as the head of research at the WGC pointed out, there are also some tailwinds that could move gold higher, including inflation that may not be transient, but more structural.

He also pointed out that interest rates are still historically very low, which has pushed investors to make their portfolios more risky. Hedging against this type of exposure is positive for gold's investment side. Additionally, on the consumer side, US infrastructure spending could also serve as a catalyst to more gold upside.

"What we know historically is that better economic growth tends to support consumption of gold, whether it is in the form of jewelry or technology, and 2021 is a good example of that, where you saw the contraction in gold-backed ETF holdings, you (also) saw an increase in demand coming from jewelry, technology and even bar and coin investment," Artigas commented to INN.

Another factor the researcher is watching is central bank gold holdings, which are on track for a 12th consecutive year of inflows. Artigas noted that a 2021 survey of central bankers conducted by the WGC found that the monetary institutes are interested in "expanding the role that gold has in foreign reserves."

"We do expect central banks to continue to be net buyers," he said, adding, "We have seen investors, especially more strategic longer-term investors, taking advantage of the price pullback that we saw in previous months as an opportunity to add gold to their portfolios."

For investors wanting to look at the strategic role gold has played throughout history, the WGC recently released a five part documentary series titled The Golden Thread.

The price of gold was at the US$1,790 level on November 25.

Don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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