EDMONTON — I find myself slightly puzzled over a weekend wire story from The Canadian Press. A staff investigation found that some of the original winners of Ontario’s lotteries for cannabis retailing licences have already sold their stores, often to larger chains. The first 24 winners were technically required to hold onto and operate their stores until December 2019. After that, they, and 42 winners of a second lottery, were free to sell their weed homesteads and move on. The licences themselves are technically not transferable, but Ontario obviously isn’t making a big deal about renewing them.
This gives companies that wish to consolidate and build a national presence a good opportunity to elude the backlog for individual retail-licence applications in Ontario. And the first-mover advantage awarded randomly may be significant, although it would take sophisticated measurement to quantify this. (Some of the stores will presumably just be successful businesses in good locations, as opposed to homesteaders of licences.) At the top of the story, one of the winners, Lisa Bigioni, says she collected $2 million in cash and $2 million in equity from a Vancouver company for her Niagara Falls store.
Some sellers, like Bigioni, intend to reinvest their lottery winnings in new stores, having learned the newly legitimate trade and made a decent go of it. Some, the CP story has an expert speculate, may have been relatively naive people who had a rational response to what was explicitly called a lottery, and are just collecting the cash value of retail properties they never intended to operate in the long run.
But I can’t tell if the story is intended to upset people and, if so, what they ought to be upset about. The lottery system has been tossed out, so licence applications are now first come, first served. Unfortunately, Ontario is serving hardly anyone. Alberta’s open system has issued more than 500 licences for shops, most are serving customers, and applications are still being approved — at a rate, right now, of a couple dozen per month.
Ontario, with more than three times Alberta’s population, has authorized about 130 licensees to open for business so far. The Alcohol and Gaming Commission of Ontario, Ontario’s provincial agency in charge of licit sins, has promised to try to approve 20 licence applications a month going forward, since the government noticed late last year that the growth in the legal market was crawling and there were still a lot of unlicensed dispensaries and other outlets open.
You can do the math as easily as I can on how long it might take Ontario to catch up to Alberta even if the retail market here freezes tomorrow. Obviously it’s not a mature line of business, and many of the Alberta stores may go bust eventually, but if Ontario is destined to have on the order of 1,500 shops, it’s going to take a while.
None of this, however, is the lottery winners’ fault. In a sense, the CP story is “lottery winners won lottery.” It was perfectly foreseeable that the initial licences, handed out in the miserly manner of taxi badges, would begin to change hands for fairly significant sums the second it was possible. Indeed, Bigioni seems to have arranged for her buyer to hold some sort of option at the time she won the lottery, and the Vancouver company helped advise her along the way.
In exchange, they get to jump the queue in Ontario — and she now gets to compete with them with their own seed capital. (Losers of the lottery who were otherwise qualified were placed highest on the wait list for new approvals, so they may not have the same chance to flip their stores in the initial 2020 gold rush, but there are hundreds of owners in line behind them now.)
This is all quite innocent and positive, assuming that we don’t mind the emergence of cannabis chains. Ontario’s goofy system surely wasn’t intended to anchor licence-holders to their locations for all time. And if chains were not thought desirable, it was certainly a mistake to create a supply monopoly. All the stores are choosing their inventory from the same Ontario Cannabis Retail Corporation product base, which will encourage vendors to differentiate themselves in the market in purely cosmetic or mood-affiliation ways (as they pretty obviously do in Alberta). This might give an added advantage to the 7-Elevens of the cannabis world rather than the ma-and-pa shops. It also gives an enduring edge to illegal sellers who have access to stuff you can’t buy in any licensed store.
Copyright Postmedia Network Inc., 2020