LFP LONGFORM: Jackpot! London biggest winner in Ontario’s retail-marijuana lottery

Ontario’s legal marijuana retailers are allowed to open brick-and-mortar pot shops as of this Monday, April 1. London has landed an unusually large number of the lottery-selected stores, but will they be ready to open when the smokers come knocking? Dale Carruthers reports:

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London defied the odds by landing three of Ontario’s first 25 cannabis stores.

The Forest City will have as many brick-and-mortar marijuana stores as Ottawa, a city with more than double its population, and just two fewer than Toronto, the seventh-largest city by population in North America.

The city’s three-store tally also matches that of both Montreal and Vancouver, considered to be Canada’s cannabis mecca, where the operations have been running for months.

Ontario will finally catch up to most other provinces Monday when cannabis retail stores that have cleared all the regulatory hurdles are allowed to open. Only one store in London is expected to be able to open for Day 1.

So how did the city score so many pot shops?

“Part of it’s just luck,” said Michael Armstrong, a professor at Brock University’s Goodman School of Business who studies the cannabis industry.

The Alcohol and Gaming Commission of Ontario (AGCO), the province’s pot regulator, chose companies and individuals who have the right to apply for the first 25 licences through a lottery system that attracted nearly 17,000 expressions of interest in January.

Seven of those licences are allocated to the west region, an area stretching from Windsor to Waterloo to Niagara Falls. Only cities with more than 50,000 people are eligible for the first stores.

Experts predicted the bulk of the lottery winners would set up shop in Hamilton, a growing city within the Greater Toronto Area’s orbit that once was home to more than 80 illegal dispensaries, the most per capita in Ontario.

But Steeltown is getting just two stores, while St. Catharines and Niagara Falls are each getting one. Other mid-sized cities such as Windsor, Kitchener-Waterloo and Brantford didn’t land any outlets.

“With that randomness you wouldn’t expect a nice even distribution,” Armstrong said of the AGCO’s lottery system. “The fact that you’ve got three in London is probably pushing the odds a bit. The more interesting question is, why?”

There are multiple factors that make London an ideal location for the province’s first wave of cannabis retail stores.

Located along Highway 401, North America’s busiest highway, midway between the United States border and Toronto, London is nestled in a region with roughly 1.5 million residents.

The city is home to more than 50,000 post-secondary school students between Western University and Fanshawe College. Canadians between 18 and 24 are the most likely cannabis users, according to a February report from Statistics Canada that found one-third of that age group had used marijuana in the past three months.

Finally, the demand for brick-and-mortar marijuana stores has been proven in London, where six of the black market businesses once operated at the same time before repeated police raids eliminated nearly all of them. A handful of weed delivery services have since popped up to fill the void.

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“Your actual location is the paramount consideration in retail,” said Nick Pateras, vice-president of strategy for Lift and Co., a cannabis technology and training company.

Retail outlets opening in April have the opportunity to command a disproportionate share of the market by setting up in high-traffic areas and then maintaining customer loyalty as more stores open in the future, he said.

“For now, the market is relatively unsaturated,” Pateras said, noting the lottery winners selected cities to open without knowing where the competition would go.

Citing a nationwide supply shortage of cannabis, the province says it issued the first 25 retail licences as a temporary measure and will re-evaluate the situation in December. Premier Doug Ford has vowed to authorize an unlimited number of cannabis stores to open.

“When Ontario has determined that the federal government has provided for enough reliable supply, Ontario will issue further retail store licences,” Ministry of Finance spokesperson Scott Blodgett said in an email.

Ontario is the second-last province or territory to roll out legal cannabis retail stores. Nunavut is the only territory without the brick-and-mortar businesses.

Since Canada legalized recreational marijuana on Oct. 17, 2018, adults in Ontario can only legally buy the drug from the Ontario Cannabis Store (OCS), the government-run delivery service.

Critics have questioned whether any of Ontario’s first 25 stores will be able to open by Monday’s deadline. Retailers that fail to open will be fined $12,500, while those still not in business by the end of the month get dinged $50,000.

Pateras, whose company’s CannSell training program is mandatory for Ontario marijuana retailers and staff, predicts just a handful of stores will be up and running Monday.

“They’ll open their doors in a way that will be purely for that purpose,” he said.

“For the stores that are open on Day 1, you’ll probably have a different store experience when you visit on April 1 first than if you visit (it) on May 1.”

Just one of London’s three stores, Central Cannabis, is on track to begin serving customers Monday. The Wonderland Road outlet, owned by Chris Comrie, is just one of 10 lottery winners from across the province to receive a retail store authorization from the AGCO. All that remains is for the northwest London outlet – in a space formerly home to the Oar House pub – to pass a series of compliance inspections.

The AGCO will only license operators and authorize stores once the regulator is satisfied that all the legal requirements are met, spokesperson Raymond Kahnert said.

“That is why the AGCO will not predict how many stores in Ontario will be ready to open right as of April 1,” Kahnert wrote in an email.

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In London, Comrie hired Ontario Cannabis Holdings (OCH), a company with a track record of opening cannabis stores in Alberta, to help launch his outlet.

“We had a very short time period to work within . . . but beyond that, everything is going on time and schedule,” OCH chief executive Jon Conquergood said of transforming the former bar into a retail space.

“There is no ifs, ands and buts about it. We will be open Monday morning at 9 a.m.”

Many of the 25 lottery winners, most of whom had no prior experience in the cannabis industry, have turned to consultants, licensed producers and experienced pot retailers for help.

An Ontario numbered company struck a licensing agreement with Canopy Growth, a marijuana producer based in Smiths Falls, and Quebec-based Couche-Tard, operator of 15,000 variety stores worldwide, to open a Tweed outlet at 1025 Wellington Rd., just north of White Oaks Mall.

The founder of Canada’s largest consulting firm says retail operators seek help for everything from record keeping and security monitoring to ensuring the business is complying with federal and provincial regulations.

“We help our clients on business plans and forecasting, understanding supply agreements that they have to strike, looking at training and education for their staff,” said Brian Wagner, founder and board chair of Cannabis Compliance Inc. (CCI).

CCI is working with one of Ontario’s pot lottery winners, said Wagner, who called the opportunity to open one of the first stores a “once-in-a-lifetime gig.”

Those initial outlets will have a leg up on the competition if they can overcome the challenges of being the first to open and establish brand loyalty, he said.

London’s new pot shops will still have to compete against the black market, including a flourishing dispensary scene on nearby Oneida of the Thames First Nation, where more than a half-dozen of the businesses have popped up in the past year.

Quality and safety of products ranked as the top concern among pot buyers, according to a Statistics Canada report from February that ranked the second consideration as price, followed by accessibility.

It’s not known how much a gram marijuana will cost at the brick-and-mortar dispensaries but experts agree it will range from $9 to $12, on par with the prices on the OCS website.

Pateras said people prefer to buy cannabis products in person, rather than online, especially those unfamiliar with the drug.

“You cannot rely on online shopping only as a sales channel,” he said. “People want to have the comfort and convenience of the brick-and-mortar outlets to go and learn about the products, engage in a dialogue with staff and then be able to go home with product in hand.”

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LONDON CANNABIS RETAIL LOCATIONS

J. London

Owner: Ranjit Basra

Location: 691 Richmond St., suite 5, on the west side of Richmond Row

Status: Awaiting retail store authorization

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Tweed

Owner: Ontario numbered company

Location: 1025 Wellington Rd. S., unit A2, just north of White Oaks Mall

Status: Awaiting retail store authorization

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Central Cannabis

Owner: Christopher Comrie

Location: 666 Wonderland Rd. N., unit 6B, the former home of the Oar House pub

Status: Retail store authorization issued

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Ontario’s first 25 stores (23 known so far)

1 – Ajax

1 – Brampton

1 – Burlington

2 – Hamilton

2 – Kingston

3 – London

1 – Niagara Falls

1 – Oshawa

3 – Ottawa

1 – St. Catharines

2 – Sudbury

5 – Toronto