Ontario’s new cannabis market has retailers buzzing

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It’s official: following through on a campaign promise, Ontario’s new Progressive Conservative government will be allowing private retailers to sell cannabis throughout the province. The rollout will see the government-run Ontario Cannabis Store (OCS) sell cannabis online only immediately after federal legalization on October 17, followed by hundreds of private brick-and-mortar stores that will be opening in spring of 2019.

The new framework is a radical shift in policy from the previous Liberal government, who planned to only sell cannabis in government-run OCS stores under the umbrella of the Liquor Control Board of Ontario. The new private retail system could see up to 500 retail licenses by next spring, a far larger number than the 40 government-run stores Wynne had promised and what critics called inadequate.

Making the announcement after the markets closed on Monday, Attorney General Caroline Mulroney stressed that public safety is the province’s priority as it rolls out its new policy."We will be ready to put in place a safe, legal system for cannabis retail that will protect consumers," said the AG, "We will also be ready to undermine the illegal market and protect Ontario's roads.  Most importantly of all, we will be ready to protect our kids."

These new licensed retailers will operate under strict rules and guidelines, and will face stiff fines if they are found to violate any terms of the agreement. To help consumers know they are purchasing from a licensed retailer, the government will be issuing an Official Ontario Cannabis Retailer Seal. For those concerned about cannabis stores in their neighbourhood, there will be a retail “opt-out” clause available to municipalities which will prevent physical stores from opening within their boundaries. Queen’s Park will also be providing up to $40 million to local governments to help keep their communities safe.

Vic Fideli, Ontario’s Finance Minister, made it clear the government has no intention of getting involved in running brick and mortar stores. "Instead, we will work with private sector businesses to build a safe, reliable retail system that will divert sales away from the illegal market," he said.

You can bet Bay Street will be thrilled with the news, as a significant amount of investment is waiting to be untapped in the new private market system. It will be interesting to see how the markets react in the short and long term future as recreational cannabis becomes more mainstream overtime. Our expectation would be that as was the case with producers, the initial wave of retailers will be consolidated over time until only several large and dominant players (and perhaps a few boutiques) remain.

Provident will continue to follow developments in this sector and will provide our insights which you can now subscribe to and not miss out on any of our analysis.