Ontario’s second cannabis store rollout isn’t going as planned after 11 disqualified applicants who won a retail licence from the province’s second lottery system have made their way to court to seek a judicial review.
According to court documents, the 11 disqualified applicants launched a legal challenge at the Ontario Superior Court last Thursday to put a hold on the distribution of the store licences until a judge can decide if the applicants were disqualified fairly. The notion is jeopardizing the next wave of retail openings in Ontario — Canada’s largest market for pot which has already had a slow store rollout.
The next 42 stores were expected to open in October under Ontario’s lottery system as the province planned to have 75 pot shops open by the end of the year. But last month 12 applicants were disqualified from being able to obtain their licence because they didn’t submit the required documentation on time, according to the Alcohol and Gaming Commission of Ontario (AGCO). One of those applicants withdrew their application, the provincial regulator said.
At the core of the issue is whether the disqualified applicants had submitted a $50,000 letter of credit within the AGCO’s five day deadline.
“It is our position that our clients fully complied with the rules and all required documentation was submitted on time,” said Peter Brauti, the lawyer for the 11 disqualified applicants, in an email statement to the media.
“The issues in this matter have the potential to wreak havoc with the lottery system. It is our hope that common sense will prevail and at some point there will be a meaningful dialogue to resolve the issues.”
Justice David Corbett is expected to rule on Sept. 25 to determine whether the disqualified applicants submitted their applications on time. If they are disqualified, their spots would replaced with applicants from a waitlist. In the meantime, the store rollout will be delayed as the Ontario judge has suspended the AGCO from issuing licences for two weeks until his final ruling is made.
Red tape, supply shortages trip up Ontario store rollout
The opening of brick-and-mortar pot shops has been notoriously slow in Ontario, as the first wave of retail locations weren’t open until April — six months after federal legalization when the province held the first retail lottery in January.
Before the initial April rollout, the Ontario Cannabis Store’s online portal was the only way consumers could legally purchase pot in the province, which resulted in thousands of complaints. Once retail cannabis shops opened, sales in the province more than doubled. And now with supply issues improving, the province felt there was room to add another 50 stores — 42 being decided by a second lottery, while another eight set to open this year on First Nations lands after being decided in separate process.
However, the lottery system has drawn plenty of criticism for resulting in a cluster of winners in small areas and shutting out established retailers, while also not providing enough stores to dismantle the black market.
On top of those issues, there were questions about multiple submissions on many of the applicant’s store addresses. Abi Roach, who owns the HotBox Cafe in Toronto said that some applicants were “gaming the system” by putting in multiple entries.
One of the lottery winners matched the location of an illegal dispensary, sparking other questions about the lottery rules. But the province’s attorney general told reporters each of the winning applicants would be properly investigated.
More stores, more sales
Yet in Ontario — Canada’s most populated province — there are currently 25 stores operating. Even though the Ontario government plans to expand to 75 stores in total by the end of the year, that would leave one store per 190,000 people. In the more established recreational marijuana market in Colorado, by comparison, there is one store per 10,000 people which has helped sales to surge over US$1 billion each year since legalization began in 2014.
When pot giant Aurora Cannabis (TSX:ACB) posted underwhelming fourth-quarter results last week, it noted the lack of stores in Ontario for its lower-than-expected results.