The Ontario Budget and the Future of Ontario Cannabis Retail
On Thursday, April 11th, 2019, Ontario Minister of Finance Vic Fedeli presented the 2019/20 provincial budget where it offered insights into the future of Ontario cannabis retail. The budget is quick to point the finger at the federal government, stating that the federal government had “[chose] to throw open the doors to cannabis legalization without first taking into account the reliability and sustainability of the national cannabis supply.”
Ontario has offset the blame for the limited amount of retail stores onto the Federal government, with the justification that the cap on retail stores was necessary to address the supply shortage issue. Although this caused much frustration in regions where access to a retail outlet would be few and far between, the model was justified when looking towards other jurisdictions such as Newfoundland where retail stores had to close because the stores were unable to be supplied with enough product to sustain operations. Ontario has called on the Federal Government to take steps to address this issue and states that the Federal Government, “is failing to curb the growth of the illegal cannabis market while also creating widespread business uncertainty for the people and businesses seeking to make a living in this new industry.” The Ontario Government limiting the amount of private retail store was a policy option with the intention to mitigate the risk of private retail stores following the same fate as those in Newfoundland.
The inability to curb the illicit market doesn’t fall entirely on the back of the federal government, and some provincial policies do not effectively nudge consumer behaviour away from the illicit market. Though common in practice across jurisdictions, the policy of allowing municipalities to opt out of having retail stores perpetuates the illicit market in those regions by not providing consumers with an easy and accessible outlet to obtain cannabis. Rather than driving to another jurisdiction to go to a retail outlet or waiting a few days (or weeks) to receive a delivery from the Ontario Cannabis Store, consumers will go to an unregulated source. The enactment of the lottery system, and the number of authorizations allocated per region prove problematic for moving consumer behaviour away from the illicit market. For instance, the vast and glorious Northern Ontario was only allocated two retail locations. In South-Western Ontario, most of the authorizations were awarded in Hamilton, leaving much of the population without access to a regulated retail outlet. If policy decisions do not create easy ways of accessing regulated cannabis, the illicit market will continue to thrive.
There is hope yet for those wanting to one day hold a retail licence in Ontario. This budget states that the government is committed towards an open allocation of licences and they will be limited only by market demand. The caveat is that further retail store authorizations will only commence once Ontario has determined that the federal government has provided enough “reliable supply.” How this will be determined is unclear and given that market predictions point to the supply issue not being remedied until 2020 or later, the dream of owning a retail store may still be a few years off for potential store owners.
The budget provides limited insight into how additional stores will be licensed. It states that the government is developing a process for the Alcohol and Gaming Commission of Ontario (AGCO) to pre-qualify operators for future allocations of retail stores. The pre-qualification criteria that may be included are:
- The payment of a fee or obtaining a standby letter of credit;
- Financial information, including information about corporate structure and affiliates;
- Criminal and other background checks; and
- Information confirming lease or ownership interests in potential retail store locations.
The current regulatory framework requires that prospective retailers obtain a Retail Operator Licence (ROL), a Retail Store Authorization (RSA), and a Retail Manager Licence (RML) before they are given permission by the AGCO to open their stores to the public.
The Expression of Interest (EOI) lottery rules limiting the issuance of RSAs to 25 operators were included in the provincial regulations governing the eligibility criteria for licences and authorizations, namely Ontario Regulation 468/18. The lottery process rules, currently in place until December 13th of this year, indicate that only applicants selected in a lottery for a specific region are permitted to apply for ROL and RSA. The lottery held on January 11, 2019, saw 25 lucky applicants move on to the assessment and issuance process, with thousands of other applicants placed on a regional waiting list. Should any of the selected applicants become ineligible for an ROL or RSA, a waitlisted applicant is selected to start the licensing and authorization process. To date, 13 stores have been granted ROL and RSA while 11 stores are in the process of being reviewed; only one out of the 25 spots remains unaccounted for at this time.
The current ROL process assesses an applicant’s suitability to operate a retail store by ensuring that they are fiscally responsible, compliant with personal and corporate tax requirements, and not involved in criminal activity. The pre-qualification criteria included in the budget is an indication that it is the operator licensing process that may be opened, paving the way for the future allocation of additional retail authorizations.
Where things get a bit muddy is on how and when the pre-qualification process will occur. Until December 13th, the regulations require that only those applicants who submitted an EOI and who are selected in a method that does not rely on the exercise of discretion on part of the [AGCO] or any other person” can be notified of their eligibility to submit applications for ROL. In other words, the regulations make it clear that only EOI applicants selected in a random lottery-type method are eligible to submit ROL applications.
The budget announcement does not provide details on whether applicants on the EOI waitlists will be permitted to enter the operator licensing process, if the regulations will be repealed or amended, or whether a new process will allow the AGCO to pre-qualify applicants and by-pass the requirements set by the regulations.
A pre-qualification process does not ensure that more than 25 stores will open before the end of the year, but it gives applicants not selected in the lottery a way to start the review of their applications and remove the element of uncertainty about their plans to open stores in 2020 and beyond.
Though the budget offers insight into what the government intends for the next phase of cannabis retail in Ontario, there are still many questions that require answers. What is clear is that there is no shortage of people eager to obtain a retail licence and consumers in need of a more accessible way of procuring legal cannabis. Like all things in this new world of recreational cannabis, the roll out of retail must be done thoughtfully to ensure alignment with overall goals of public health and safety, as well as ensuring stability for retail business owners.
Written By: Taylor Yurcich, Policy Analyst