Article by Jean Lépine, Financial Post
How many retail stores will Ontario need to meet the demand for cannabis, which is set to become legal for sale in less than three months?
Ontario’s previous Liberal government committed to opening 150 government-monopoly Ontario Cannabis Stores (OCS) over the first three years, warning that they would most likely lose money in the early years. The latest information suggests the OCS is readying 30 to 40 stores for recreational sales upon legalization in October. That dramatically underestimates demand.
Ontarians currently enjoy access to alcoholic beverages through a retail system comprised of about 660 Liquor Control Board of Ontario (LCBO) stores, 210 privately run agency stores and 450 Beer Stores. That’s at least 1,320 retail locations across the province where Ontarians can purchase beer, wine or spirits outside of the grocery and restaurant channel. And the new Doug Ford administration has announced that it is going to further expand beer and wine retail. Assuming there will be perhaps 1,500 locations to buy liquor going forward, a number approaching what Alberta offers in private-sector liquor retailers (with a third of the population).
Including retailers, restaurants and bars, Ontarians today have thousands of points of sale for alcoholic beverages and, even then, consumers still want better access to wine, beer and spirits. For cannabis, there are at least 1,000 black-market “points of sale” in Ontario today. Quite apart from the tax revenues to be had — Statistics Canada data from 2016 suggest profits in the area of $5 billion from cannabis-consumption sales — if the policy objective is to get consumers to choose the legal channel, it has to be available widely and in your hometown.
Under Ontario’s current public model for cannabis retail, the population per store is approximately 90,000. That is 2.6 times the Canadian average of approximately 35,000 people per store based on cannabis retail licence commitments made by other jurisdictions. At that rate, Ontario should have at least 390 retail cannabis stores to get to the national average. In legal U.S. states, the population per store hovers at just above 20,000 — four times the Canadian average, suggesting perhaps that Ontario needs closer to 600 cannabis stores.