Cannabis Market Reacts to Ontario Retail Restrictions

Cannabis investors face a red day with pot stocks taking hits on Thursday (September 27) after the Ontario provincial government outlined its decision to restrict LPs to one retail license in the province.

Ontario’s Attorney General Caroline Mulroney stated during a press conference there would be no limit on the total amount of licenses given out to Canadian LPs, but would instead be given the chance to apply for a “single retail operator license” only.

“Any licensed producer will be permitted to hold a single retail license at a single production site located in Ontario,” Mulroney said. The province will also limit how many licenses a specific company or person may hold.

The new Ontario plan will see the installation of these shops by April of next year.

Canadian LP Canopy Growth (NYSE:CGC,TSX:WEED), issued a response on Thursday to the Ontario legislation.

The company hinted to shareholders it still plans to pursue “additional retail capabilities” through the Tokyo Smoke platform and potential investments from Canopy Rivers (TSXV:RIV).

When it comes to Ontario, the producer will seek its single retail license for its headquarters in Smith Falls.

Allan Rewak, executive director of The Cannabis Council of Canada, an association representing the interests of Canadian LPs, told the Investing News Network (INN) the council is “eagerly awaiting the introduction of legislation” in order to better understand how exactly the government is planning its approach.

The council had previously issued a warm response to the new Ontario retail framework implemented by Premier Doug Ford.

Frank Robinson, a partner in the franchise law group at Cassels Brock, said the new regulations will “shut out” the big producers and create opportunities for franchising by LPs.

“The only way [LPs] will be able to get their logos and brands on storefronts is to license or franchise all of these small business people to which the province wants to allow access,” Robinson said.

“This sets the stage for a varied and comprehensive cannabis retail experience, which should be expected to include the use of franchise systems, helping operators market faster, harness established operating systems, create quality and brand reliability and keep shelves stocked.”

Market reaction

The Horizons Marijuana Life Science Index ETF (TSX:HMMJ), which added nine new stocks into its holdings on Wednesday (September 26) and the Evolve Marijuana ETF (TSX:SEED) both declined in value on Thursday’s trading session.

As of 12:30 p.m. EST, HMMJ and SEED saw drops of 0.99 and 2.37 percent respectively. HMMJ holds a price of C$23.98 and SEED is valued at C$23.90.

Another indicator of the overall Canadian market is the Marijuana Index from The Arcview Group. On Tuesday (September 25), the index showed all but one of its 17 constituents with a loss. The overall index was down 31.19 percent in value.

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