What Investors Should Know About Ontario’s Cannabis 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 provinceconfirmed 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 regulatorsbaffled the public markets and evendrew 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 areport 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 AGCOsaid 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:

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 thefederal 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.