Most pot shop lottery winners are individuals, not corporations

Nearly 17,000 applicants participated in the lottery to win the right to apply for a licence to run one of Ontario’s first cannabis shops.

And the majority of the 25 lucky entrepreneurs chosen in Friday’s draw were individuals, not corporations, according to results posted Friday night by the Alcohol and Gaming Corporation of Ontario.

Trina Fraser, an Ottawa lawyer who is a key adviser to the cannabis industry, tweeted that she didn’t recognize any of the winners.

She warned that individuals may have a harder time getting stores up and running by the province’s April 1 deadline.

A win has been widely seen as a golden ticket. The first shops to open will have a big head start in the country’s largest marijuana market.

The province has temporarily limited the number of stores to 25 because of a shortage of pot. Politicians decided that a lottery was the fairest way to decide who could first apply for the licences.

The lottery was a blow to entrepreneurs who already had plans to open shops under way. Some had signed leases and completed branding and store designs.

At least half a dozen companies, including Ottawa’s National Access Cannabis, planned pot-shop chains or franchise operations.

Those big players found themselves at the mercy of chance, just like everyone else who paid $75 to enter the lottery. It didn’t appear that any of the big players won the lottery.

Among the 25 winners across Ontario, 19 are individual names, including all five winners in the Toronto region.

The AGCO said that 64 per cent of the 16,905 people lottery applicants had been sole proprietors, while 33 per cent were corporations, three per cent were partnerships and one per cent were limited partnerships.

Each of the 16,905 people, corporations or partnerships that participated in the lottery was was allowed to bid in as many as five regions. Many of the applications made bids in several regions, with a total of 59,069 bids submitted.

In east Ontario, the region including Ottawa, five lottery winners were drawn: Daniel Telio, Brandon Long, Patterson and Lavoie, Pure Alpha Holdings and Karan Someshwar.

There were a total of 11,084 lottery bids in the eastern region, so the odds of winning were small.

It was the same in other regions. There were 13,693 bids in Toronto, 13,453 in the Greater Toronto area, 8,545 in the north and 12,294 in the west.

The next big question is where the shops will be located. That piece of the puzzle won’t be complete until later in January, when the AGCO starts posting proposed locations for public comment.

Winners in each region can choose to apply for a shop licence in any municipality with a population of more than 50,000 that hasn’t “opted out” of allowing cannabis shops.

Winners have five business days to apply for the first of two licences.

That timing is “awkward,” considering that municipalities have until Jan. 22 to opt out of cannabis sales, says Edward Collins, a vice-president with Cannabis Compliance, a consulting firm that helped more than 200 clients enter the lottery.

In eastern Ontario, for instance, Ottawa, Kingston and Peterborough have agreed to allow cannabis shops. Other cities large enough to qualify for stores vote next week on whether to opt out include Barrie, Kawartha Lakes and Belleville.

Lottery winners must pass the AGCO licence screening, which includes checks for criminal background, connections to organized crime and finances.

Opening a shop isn’t cheap, either. Winners must post $50,000 lines of credit that will be drawn down if they don’t open their shops on time by April 1. There is also a $6,000 non-refundable fee for an operator’s licence, plus $4,000 for the store licence.

However, any “mom and pop” lottery winners should have no problem finding companies with deep pockets willing to help. Cannabis consultants expect lottery winners to be inundated with offers of financing, service agreements and franchising-type deals.

A general view of cannabis plants are shown in a grow room at Up Cannabis Inc., Newstrike Resources marijuana greenhouses, in Brantford, Ont.,

Lottery winners can’t cash in by selling their rights to apply for licences, however. That’s against the rules. They also can’t change ownership control of their companies during the lottery period until Dec. 13, 2019.

Several experts said it would be a challenge for anyone to have a store in operation by April 1. 

They could be lucrative, though. The stores can be open seven days a week from 9 a.m. to 11 p.m.

While the first 25 shops will benefit from restricted competition, eventually the retail cannabis trade will be a competitive one, Collins said, and the profit margins may be less than other sectors of the cannabis industry.

Stores are free to set whatever prices they want, but they have to compete with both the online government outlet and black-market sellers. Stores must buy their pot from the Ontario Cannabis Store, which is the wholesaler. It’s not known what markup the OCS will charge to retailers.

The pot shortage is also a big unknown. Opinion varies on how long it will be before growers can supply enough cannabis to meet demand. It could be a few months if several huge greenhouses open as planned, or a few years.

More cannabis will be required when the federal government allows the next wave of products that can be eaten, vaped and slathered on skin.

The federal government has a deadline of October 2019 to legalize cannabis edibles, concentrates such as the oil used in vape pens and topicals.

The province has said the restriction on shop licences is temporary.

If the cannabis shortage eases, the rules can be changed to allow for awarding more licences.

The lottery is the latest turn in what has been a rocky road for pot legalization in Canada’s largest province.

The provincial government announced in August that it would ditch plans made by the former Liberal regime for government-run cannabis shops, with the Conservatives opening the doors to private enterprise to run the bricks-and-mortar stores. There was to be no limit to the number of licences issued.

Officials speculated that Ontario would have 1,000 privately-run pot shops. They are supposed to start opening in April.

There wasn’t enough time to get the shops up and running in time for Oct. 17, when Canada legalized recreational marijuana.

The government’s online store opened as the only legal place to buy pot. The Ontario Cannabis Store was quickly deluged with complaints from customers about slow delivery and poor customer service. The store blamed rotating postal strikes and mis-labelled products that had to be sent back.

Now the whole country is experiencing a shortage of cannabis grown by federally-regulated growers. In some provinces, store hours have been cut, staff laid off and products sold out or unavailable. Alberta has stopped issuing licences for privately-run shops.

In mid-December, Ontario announced it would limit the number of shops to 25 because of the shortage.

jmiller@postmedia.com

twitter.com/JacquieAMiller

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