Ontario Pot Producers Will Be Limited to One Retail Store

(Bloomberg) -- There won’t be a cap on the number of cannabis stores in Ontario but in a setback to producers looking to develop their retail presence they’ll be limited to one location under new rules outlined by Canada’s most populous province.

The proposed regulations, which will be submitted to lawmakers on Thursday, fleshed out more details of the province’s plans for pot sales as Canada marches toward legalization of recreational marijuana on Oct. 17.

“Licensed producers will be able to open one retail location,” Caroline Mulroney, the province’s attorney general, said at a media conference Wednesday alongside Finance Minister Vic Fedeli. The ministers said Ontario won’t place an absolute cap on retail licenses but they’re considering restricting the market share of any one applicant.

“We want to open up the market place,” Fedeli said.

Ontario is one of the last regional governments to detail its plans for cannabis sales. Its Progressive Conservative government, led by Premier Doug Ford, said in August that it would allow for privately operated cannabis stores, scrapping the former Liberal government’s plans for government-run pot shops.

‘No Biases’

To give it time to consult with stakeholders and develop legislation, the province delayed the launch of bricks-and-mortar stores until April 1. Until then, cannabis will be sold online only by the government-run Ontario Cannabis Retail Corp., which will also act as a wholesaler once retail stores open.

The decision to limit producers to one retail location will allow independent retailers to choose what products they want to sell, opening opportunities for companies with strong brands, said Bruce Linton, chief executive officer of Canopy Growth Corp., Canada’s largest cannabis producer.

“There’s going to be a whole bunch more locations to sell product, whether or not they’re ours, branded with us, partnered with us or trained by us,” Linton said in a phone interview. “Independent retailers have no biases except they want to succeed, and you usually succeed by having what people want.”

Cannabis company shares dipped after the news with Canopy down 1.9 percent to C$1.25 at 9:35 a.m. in Toronto, Aphria Inc. down 3.1 percent to C$18.41 and Aurora Cannabis Inc. down 3 percent to C$11.86.

Surprising Move

Keeping producers to one store was surprising, said Matt Bottomley, analyst at Canaccord Genuity Group Inc.

“This represents an overall headwind for the sector,” he wrote in a note to clients. “We believe many assumed that the Ontario model would be similar to Alberta. Although Alberta has a 15 percent cap for any one producer, many licensed producers are planning to open as many as 37 locations in the province but will seemingly be limited to just one in Ontario.”

Ontario’s legislation would establish the Alcohol and Gaming Commission of Ontario as the provincial regulator authorized to grant store licenses. The AGCO would have the authority to enforce compliance, including, if necessary, revoking licenses from stores that fail to comply with the conditions set by the province.

Pot dispensaries, which have popped up ahead of legislation, would be banned unless they have secured a license to operate after Oct. 17. Municipalities will have until Jan. 22 to opt out of having cannabis retail stores in their communities.

The approach to pot sales varies from province to province, with Alberta allowing privately run stores, Quebec selling through its government-run alcohol agency and British Columbia operating a hybrid model.

©2018 Bloomberg L.P.