Ontario’s cannabis market is about to get an exciting upgrade…
While the U.S. is considered the crown jewel of the global cannabis market, Canada plays an essential role as the first G20 nation to formally legalize cannabis nationwide.
But one of the biggest problems with the Canadian cannabis market is the tiny number of cannabis stores – particularly in Ontario, Canada’s most populous province.
More than a year after adult use came to Canada, Ontario only has 24 operating cannabis dispensaries for a population of more than 14.5 million people. The province recently had a badly botched lottery process, but even if that process had gone perfectly, there would still be far too few legal dispensaries in the province.
To give you an idea of how bad the situation is, Denver, Colorado has a population of only 620,000 people – that’s about 4% of Ontario’s population. Yet, Denver has over 340 dispensaries.
Ontario could easily support more than 1,000 dispensaries and probably many more than that. With this stark shortage, it’s no wonder people continue to rely on the illicit market!
Now Ontario promises to do better – much better.
Bold Promises from Ontario’s Government
In the Province’s 2019 Ontario Economic Outlook and Fiscal Review, the government acknowledges that it has not done a good job. Specifically, the government said it is “committed to moving to an open allocation of cannabis retail store licenses where the number of stores is limited only by market demand.”
If the government really means what it says, that means no lotteries, no auctions, no restrictions on the number of stores per owner.
It remains to be seen if Ontario will back up its bold words. Doug Ford and his Progressive Conservatives won their election in 2018, which means it has had nearly 18 months to do something and so far it has not.
So, there’s some doubt here – but this is why I think they’ll succeed.
Breaking Down Barriers to Open More Dispensaries
A licensing regime that is “only” limited by market demand means a licensing regime that is open to all qualified comers – if a dispensary can prove it has the financial resources and operational experience to operate a cannabis dispensary, it can, subject only to zoning. And if too many dispensaries open up, the market will take care of that problem, too.
The reason is taxes.
Ontario is leaving a lot of money on the table by having so few cannabis stores. One recent analysis indicates that Ontario has left at least $50 million on the table just in sales and excise taxes compared to what it would have received if it had a dispensary rollout more like that of Alberta.
And that doesn’t even include taxes on the wages of dispensary employees, property taxes on more-valuable real estate, and more. That number grows further in a market that actually meets market demand.
Consumer Choice and Convenience Expected to Grow
There was more to like in the Economic Outlook report. In addition to more stores in Ontario itself, the government is committed to more stores on First Nations property, which would not only increase consumer choice and convenience, it would also bring economic benefits to historically disadvantaged communities.
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The government also proposes to allow licensed producers to sell cannabis from their production sites, which might even create a real cannabis tourism business since there are so many facilities along the road from Windsor to Toronto.
And it would allow customers to order cannabis online or over the telephone for in-store pickup. That’s not as good as allowing deliveries, but it’s definitely a move in the right direction.
Finally, it is exploring the possibility of allowing private companies to distribute cannabis instead of having every gram pass through the government-owned Ontario Cannabis Store.
That would be a big change and a particularly important one as Cannabis 2.0 brings a much more diverse product mix to stores – privately-owned distributors will do a better job of gauging demand for the new products.
Again, how much of this actually occurs remains to be seen.
Some people have complained about the lack of detail in the government’s document, but it’s a broad-brush document by design, so that doesn’t concern me.
What does concern me is that Ontario’s government has disappointed before.
The Potential for Success – or Failure – in Ontario
The proposed changes are part of a theme we see over and over.
After cannabis is legalized, people start to realize that their fears of the market are unfounded. Crime doesn’t go up, and in some cases, it goes down. Addiction doesn’t go up, and sometimes it comes down.
Taxes definitely go up. So does employment.
Should Ontario succeed, the cannabis market will grow exponentially – not mathematically like it is now.
And producers and their investors will benefit just as much as consumers will.
This is an issue I’m watching very closely, and I’ll have more updates for you as they develop.
Executive Director, National Institute for Cannabis Investors
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7 responses to “Massive Changes Are Coming to Ontario’s Cannabis Market”
November 12 2019