Ontario unlikely to see all 25 stores open on April 1

HIGHLIGHTS

1. Several locations applying to sell recreational cannabis in Ontario will not be through the licensing process by April 1
2. Drawdowns start at $12,500 for failing to open by April 1, reaching a total of $50,000 for any stores that still have yet to open April 30
3. Aside from losing $50,000, lawyer argues applicants cannot be disqualified for delaying opening

Not only will Ontario have fewer than 25 cannabis retail stores open on April 1, but there is no way of knowing when that target will be met.

As of Tuesday evening, with less than two weeks before the government-imposed deadline, just five locations have been fully authorized to sell recreational cannabis in Canada’s largest consumer market, according to data from the Alcohol and Gaming Commission of Ontario (AGCO), pending final inspections. Six of the remaining 20 locations were still in their 15-day public-notice period, after which applicants get five days to respond, and some are even further behind.

“In the Toronto region, for example, which by legislation is going to have five stores, well there are two that have not reached the public notice period for a proposed location and one of those two has not even submitted a request for a store authorization,” said AGCO spokesperson Ray Kahnert. “The store authorization process begins with the application, it doesn’t leap to public notice immediately, there is part of the eligibility and due diligence process before it goes up on the public site.”

Winners of the AGCO’s cannabis retail lottery in January were required to submit a $50,000 letter of credit as part of their initial application and Mr. Kahnert said all 25 complied. The AGCO will draw $12,500 from the accounts of any applicant who has not fully completed the licensing process by April 1, the lottery rules state, with another $12,500 drawdown if sales do not commence by April 15. Those still unable to open by April 30 will lose the remaining $25,000.

Despite the tight timeline and the lack of any previous retail experience among the vast majority of lottery winners, Mr. Kahnert said applicants can expect the AGCO to strictly enforce its rules.

“It is as deliberate and as straightforward as going to [AGCO] Rule 18, and it is very explicit that April 1, the first drawdown happens,” he said “These are the terms regarding drawdowns and this is how we are going to proceed.”

Rule 16 of the lottery process does suggest some leeway for the AGCO registrar to “exercise discretion,” over the drawdowns, noting applicants “must be prepared to demonstrate they are making reasonable efforts to open for April 1.”

Chad Finkelstein, a Toronto-based lawyer whose clients include several lottery winners at various stages of the AGCO process, said applicants expected to lose at least part of that $50,000 from the outset.

“Everybody involved recognized that given the timelines and the onerous investigation and review that was going to take place, it was probably a foregone conclusion that the letter of credit would be partially or wholly drawn from,” Mr. Finkelstein said. “When you’re talking about the construction and build-out of what is by all accounts a nice, elegantly-designed retail store, $50,000 can often be a rounding error. I think it is viewed as part of the initial investment.”

After one lottery winner – Gary Hatt of the Greater Toronto Area – was disqualified for violating the lottery rules, Mr. Finkelstein said remaining applicants are now even less willing to rush through the process.

“There is a recognition that, yes I might be out $50,000 but at least I’m not going to rush into this and get rejected because I submitted the wrong agreement or the wrong arrangement,” he said. “The maximum penalty that is stated in the laws and in the rules is that you lose the full $50,000 and not disqualification. None of the regulations or the lottery rules or the registrar’s standards says that a consequence of not being open by April 30 is that you are disqualified.”