Ontario Mulls Overhauling Pot Shop System in 2020 as Sales Lag: Source

Article by David George-Cosh, BNN Bloomberg

Relief may finally be coming for cannabis producers that have been stymied by the lack of legal retail stores in the country’s most populous province.

The Ontario government is considering a plan that would abandon the maligned lottery process that has left it with only two-dozen legal pot shops, and instead pivot as early as January to a system that could lay the groundwork for up to a thousand stores in the province, according to a person directly familiar with the matter.

Provincial officials have proposed moving to an “open allocation” system for issuing pot store licences next year, allowing would-be shop owners to simply apply online and pass a series of background checks to sell legal cannabis in a bricks-and-mortar shop in the province, the person said. It would mark a return to the Progressive Conservatives’ original plan to open enough cannabis stores to support what it believes is a mature market, which analysts estimate to be between 750 to 1,000 outlets, the person added.

The person, who wasn’t authorized to speak publicly on the matter, said that no decisions have been finalized as government officials are still putting proposals forward to Ontario’s cabinet for approval. However, a decision is expected to be announced in the coming weeks, the person said.

“There’s no clear consensus on the cabinet table, but a decision should be made soon,” the person said.

The cabinet-level discussions signal that Premier Doug Ford’s Ontario government acknowledges it needs to ramp up efforts to open additional legal pot stores in the province and stamp out a still-thriving illicit market.

Shortly after cannabis was legalized in Oct. 2018, the country’s licensed retailers decried a supply shortage that led Ontario policy makers to scrap their initial plan of letting companies open as many as 75 cannabis stores each in favour of a lottery system where participants could apply by paying a $75 fee.

That lottery system has been panned by industry participants, with only 24 cannabis stores currently operating in the province as well as the government-run online store, compared to Alberta where more than 300 pot shops have opened their doors.

Cannabis sales in Ontario have totalled $185 million in the first 11 months of legalization, the most in the country, according to Statistics Canada. However, the province has lost out on $325 million in economic activity and approximately $50 million in tax revenue by not having as many pot stores as Alberta, according to analysis by The Cannalysts Inc., an independent cannabis research firm.

“We’re looking at getting back to the easiest, fastest way to the open allocated model that we considered to be the ‘gold star’ plan,” the person said.

The lack of Ontario retail outlets was often cited by several major cannabis producers including Tilray Inc., Organigram Holdings Inc. and Canopy Growth Corp. during last week’s round of quarterly releases. Meanwhile, sluggish sales in the province led some pot companies to lay off employees, including Hexo Corp., which cut 200 positions and shut down an Ontario facility in an effort to rein in costs and reach profitability.

“The inability of the Ontario government to license retail stores right off the bat has resulted in half of the expected market in Canada simply not existing,” said Canopy Growth Chief Executive Officer Mark Zekulin during the company’s conference call with analysts on Nov. 14.

Read the full article here.

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