42 operators chosen to apply for Ontario pot store licences in second lottery

TORONTO — Ontario has selected 42 operators who can apply to run the next wave of cannabis shops in the province but some analysts say the new stores still won't be enough to combat pot sold on the black market.

The Alcohol and Gaming Commission of Ontario — which regulates the sector — held the province's second cannabis store lottery Tuesday and announced the results Wednesday. The new stores, when approved, will more than double the number of marijuana outlets in the province.

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Unlike the first lottery for 25 stores, applicants in the latest draw had to show they had secured retail space that could be used as a store if they were selected, and that they had enough capital — $250,000 on-hand — to open it.

Those selected now have until Aug. 28 to pay licensing fees, and provide a letter of credit for an additional $50,000 to the regulator.

"The AGCO will only licence applicants and authorize stores that meet all legal and regulatory requirements," the agency said in a statement, noting that the aim was to have new stores open in October.

Another eight stores will be located on First Nations reserves and are being approved through a separate process that is currently underway.

The latest lottery and the on-reserve stores mean the number of pot shops in Ontario will eventually rise to 75, but some observers said that still wasn't enough.

"Fifty more licences is a good step, but it's nowhere near what they need to do to actually deal with the illicit market," said Omar Khan, a vice president at strategy firm Hill+Knowlton who advises cannabis sector clients.

"What that means is that the small business person whose taken out a line of credit and put money down for the lease is facing some stiff competition from those who aren't necessarily following the legal framework. To me, that's quite unfair."

David Phillips, a principal at consulting firm Navigator who is a former executive at the Ontario Cannabis Retail Corporation, also said the black market continued to be an issue.

"Every additional store in Ontario will help towards eliminating the illicit market, but the province still has a long way to go," he said.

David Wood, a lawyer specializing in the cannabis sector at the firm Borden Ladner Gervais, said the lottery is another step towards fighting black market sources of cannabis.

Part of addressing the stigma around pot will be opening more stores, making the product more readily available and making it cheaper than illegal weed, he said.

"The stores are a big part of that," he said. "Price, variety and accessibility. All of those determine how appealing and engaging this market is compared to the existing illicit market."

Wood said Ontario's next step could be to open up the market further, removing the cap on the number of stores that can operate.

"We're not really protecting people from anything by minimizing the number of stores," he said. "Minimizing the number of stores plays into the hands of the illicit operators."

The latest lottery winners appear to be a mix of sole proprietors and numbered companies that could turn out to be part of larger entities, Phillips noted. Small business owners who were selected will likely have to partner with companies who have experience in the field, he said.

"We're likely setting ourselves up for another feeding frenzy where these lottery winners will be out seeking partnerships with well-known commercial enterprises and essentially auctioning off their golden ticket to the highest bidder," he said.

The 42 new stores will be distributed regionally, with 13 in the city of Toronto, six going to the Greater Toronto Area, 11 in the west region, seven going to the east region, and in the north, one each in Kenora, North Bay, Sault Ste. Marie, Thunder Bay and Timmins.

Phillips said the random nature of the lottery may create problems for communities when it comes to the location of their pot shops. For example, three applicants won licences to apply to locate stores on the same street in Innisfil, Ont.

In Toronto, five of the lottery winners have leased shop space on Queen Street, where two pot shops already operate, he said.

"That suggests that Queen Street in Toronto is going to quickly turn into cannabis row," he said. "That's a consequence of them setting up a system where essentially the applicants could decide where the store location was going to be and then because it's subject to a draw you're essentially leaving it to chance."

Note to readers: This is a corrected story. Previous version spelled last name as Woods

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