Article by David Zarnett, Toronto Star
In January, the Alcohol and Gaming Commission of Ontario, the regulator for private cannabis retail, announced the winners of its lottery for 25 cannabis retail store licences. The lottery is part of the Ford government’s strategy to privatize the sale of non-medical cannabis.
Since the announcement of the lottery winners, the process has been marred in controversy as there were no pre-qualifications for lottery applicants, only 25 licences were provided for the entire province that has approximately two million cannabis users, and the overwhelming majority of licence winners had no prior experience in cannabis retail.
What has received far less attention is that the government sold the licences for well below their market value, leaving more than $200 million on the table at a time when it is making significant cuts to essential social services.
The winners of the lottery paid $10,075 for their licence, which included a $75 application fee and $10,000 in authorization fees. With 17,320 lottery applicants and 25 winners, the government raised $1.5 million.
This amount is absurdly low. At the time of the lottery, several publicly traded companies, which own and operate cannabis retail dispensaries, were valued in excess of $8 million per retail location. Furthermore, two Vancouver-based cannabis retail stores were recently sold for $45 million. It is clear that the government grossly undervalued these retail licences.
What also makes the licence price far too low is the fact the licence provides lottery winners with a substantial head start to build brand loyalty in the emerging cannabis market, as well as a large potential consumer base, both of which greatly increases their value. According to the Cannabis licence Act, only 11 stores are allowed to operate within the Toronto and GTA region, equating to one store per 77,000 cannabis users. By comparison, San Francisco has 23 stores, or one store per 5,800 cannabis users.
The government might argue that the low licence price was put in place to ensure that small businesses would benefit from the legalization of marijuana rather than Big Cannabis. This argument is unpersuasive. The AGCO’s regulations prohibit licence winners from selling their licence, signing a franchise agreement or entering into any other agreement that would cede control to another party.
However, they do not prevent creative partnerships from being formed. On the contrary, the AGCO has already approved million-dollar transactions between a number of licence winners and major cannabis corporations.