What You Need To Know If You Want To Open A Weed Store In Ontario

Chosen retailers will be fined up to $50K if they’re not ready on time.
January 3, 2019, 7:42pm
Photo via VICE

The Ontario government has released the rules for its cannabis store lottery, through which 25 applicants will be chosen to open legal weed shops in the province on April 1.

The rules, set out by the Alcohol and Gaming Commission of Ontario, prohibit federally licensed producers from entering the lottery, while also imposing heavy fines for retailers who are given a licence but aren’t ready to sell cannabis on April 1.

Those interested can apply between January 7-9, with selections being made on January 11. There is a $75 application fee, but selected applicants will also have to fork up $10,000—$6,000 for the retail operator licence and another $4,000 for the retail store authorization fee. Additionally, lottery winners need to provide a $50,000 letter of credit that remains valid until December 13, 2019 within five days of being selected.

“I’ve already had a client calling me in a panic saying there’s absolutely no way [the bank] will give me this letter of credit,” Ottawa-based lawyer Trina Fraser told VICE. “Most banks still won’t have anything to do with cannabis.”

Fraser said the rules favour larger prospective operators with deep pockets, as opposed to mom and pop shops.

Here are some of the key takeaways:

The 25-store cap is in place until December

The rules state that January 2 to December 13, 2019 will be known as the lottery process and is “the timeframe established by the government for the temporary cap of 25 Retail Store Authorizations while cannabis supply stabilizes.”

Upon deciding to go with a private retail model, Premier Doug Ford’s government initially said there would be no cap on the number of pot shops in the province. However, the government recently changed its mind on that front, stating that it didn’t want to open too many retail stores when there are cannabis shortages across the country. Under Kathleen Wynne’s Liberals, the province was slated to have 40 government-run stores open in time for legalization.

The cap means there will be five stores to service the Toronto region—there were at least 80 black market dispensaries in Toronto prior to legalization. The other stores will be distributed throughout the province as follows: five in the east region; six in the Greater Toronto Area; two in the north; and seven in the west.

Massive fines

The government is imposing steep fines for retailers who aren’t ready for business on April 1, which means those chosen will only have about two and a half months to get their stores in shape. Retailers not ready by April 1 will be docked $12,500 from their credit letter, followed by another $12,500 on April 15 and an additional $25,000 on April 30. Lottery applicants who are disqualified for breaking any rules will also forfeit $50,000.

Aleem Kanji, vice president at Sutherland Corporation, a lobbying firm that focuses on cannabis, told VICE he thinks the fines favour bigger businesses with a lot of capital.

“The heavy fines that could be imposed will push smaller players to the sidelines and ensure serious players that are genuinely interested in running a retail store will succeed in the lottery system.”

Fraser said she believes the rules favour potential operators who have already taken a leap of faith and leased store locations, and have good relationships with banks and contractors, because of the short timeline the province is imposing.

However, she said it would be “terrible” if the AGCO drew upon the letters of credit to penalize lottery winners for factors outside of their control e.g. getting a building permit or letter of credit in time for April 1. She added April 1 is an “arbitrary” date that the province is sticking to because it wants to uphold its previously stated commitment.

LPs can’t apply

The rules stipulate that licensed producers cannot enter the lottery. Eventually, LPs will be allowed to have one retail shop in the province.

Licences can’t be transferred

Lottery winners cannot change the ownership and/or corporate structure “in such a way that would result in a change of the control” of their stores at least until December 13, according to the rules. That means winners can’t sell their licenses.

Cannabis lawyer Jack Lloyd told VICE the rule means big businesses can’t swoop in and buy up mom and pop shops.

Fraser said she believes the government imposed the rule to limit the number of lottery applicants. But she pointed out that a retailer could still sell up to 49.9 percent of their business before December 13, after which a change of control would likely be possible.

Until April 1, Ontarians will have to continue buying recreational weed online through the Ontario Cannabis Store.

Follow Manisha Krishnan on Twitter.

Sign up for the VICE Canada Newsletter to get the best of VICE Canada delivered to your inbox.