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article imageOntario's pot licence lottery — Why did Ford change the rules?

By Karen Graham     Jan 18, 2019 in World
Last Friday, the Alcohol and Gaming Commission of Ontario announced the names of the 25 winners of the lottery for retail cannabis licenses. Problem is, very few have any experience or connections to Canada’s cannabis industry.
Close to 17,000 individuals and a very few companies threw their name into the lottery pot, all hoping to win the "golden ticket," much like the Charlie and the Chocolate Factory movie from 2005.
The trouble with Ontario's lottery is that it is being viewed as one of the most unorthodox approaches to legalizing marijuana ever — or as Now Toronto puts it, "a blatant attempt by the Ford government to ensure legalization fails in Ontario."
Toronto-based cannabis lawyer Caryma Sa’d said, “Why would we uproot an industry that existed? People who know how to work within it are now unable to participate because of an artificial limit on the number of licenses.”
"It’s a shit show all around"
Licensing cannabis retailers by using a lottery was not the original plan. In December 2018, the Ford government placed a cap on the number of stores that could be owned by any one company at 75. However, there was no limit on the number of licenses for storefront operations.
Less than four days before companies were supposed to finalize and submit their applications for retail locations, Doug Ford's government changed the rules in the middle of the game. The application process was scrapped and basically, anyone with $75 and the time to write an "Expression of Interest" could apply for the 25 license slots.
“Realistically, there’s nobody who wins,” says Christian Borys, an industry observer who runs the website The Cannabis Complex. “It’s a shit show all around.” Boyd calls the lottery outcome “a failure all around. It’s bad PR for the government obviously, it’s bad for entrepreneurs, and it’s bad for the consumer.”
The licenses were divided up regionally so that all parts of the province will have retail stores available. Attorney General Caroline Mulroney knocked down critics who said the way the lottery was handled would allow the black market to thrive. She stressed the government would not allow store operators to open without a guarantee of product supply.
“Certainly, we need to see more stores in place across the province, but given the national supply shortage and the amount of supply we currently have, we need to do this in an equitable way,” Mulroney said.
For Golden Ticket holders, there's work to be done
The 25 lucky licensing permit holders have a lot of work to do before they can begin looking at the dollar signs. They had until Friday to submit a complete application, including proof of a lease offer, a $6,000 non-refundable fee and a $50,000 letter of credit.
Most of them, other than the three companies, will have to apply to run the stores as sole proprietors. But, even here, there is a catch. Individuals thinking they can sell their retail store to the highest bidder, and there are rumors that as much as $5 million is being offered to some people, regulations don't allow this.
A Montreal cannabis store owned by the SQDC (Société québecoise du cannabis)  a day before the le...
A Montreal cannabis store owned by the SQDC (Société québecoise du cannabis), a day before the legalization of cannabis in Canada
In other words, the license holders have to be directly involved in the operations of the business. These retailer license holders now have a big responsibility on their shoulders as they shepherd Ontario into the cannabis world.
What is the best way to grant marijuana licenses?
In the United States, both Arizona and Washington use some kind of lottery system to award marijuana licenses to businesses. Some localities, like Long Beach and Santa Ana in California and Grand Rapids, Michigan, use lotteries to grant retail licenses.
Realistically, anyone wanting to open a retail business in the cannabis industry should be well-informed. They not only need the right leadership, but they need to have an understanding of the laws, finance, marketing, and more to managing expenses, inventory, employees, and customers. It's not something to be taken lightly.
Quite often, states will restrict the number of licenses granted to dispensaries, cultivators, processors, and testing labs. States use three different licensing processes - competitive, lottery, or qualified lottery.
This may be the most equitable in getting a legitimate and well-qualified producer or retailer. Applications are based on quality, of course, but also include areas such as proof of capitalization, inventory control plan, operations plan, detailed policies and procedures, security plan, criminal record, and local support. This process is used by most states.
The lottery process used in the U.S. is similar to what was used in Ontario. Applicants need to meet minimum requirements, submit an application fee and hope to get picked. Qualifications are not considered because winners are chosen at random.
Qualified Lottery
A qualified lottery works much like a simple lottery, with one big difference. The criteria for qualifying is much more detailed and far stricter than a regular lottery. Washington state uses a qualified lottery and applicants have to meet high standards just to make it into the lottery.
Discount Medical Marijuana cannabis shop at 970 Lincoln Street  Denver  Colorado.
Discount Medical Marijuana cannabis shop at 970 Lincoln Street, Denver, Colorado.
O'Dea (CC BY-SA 3.0)
The outcome of a lottery? Consider this
Keep in mind that lotteries are based on the luck of the draw. So not everyone getting that license may be qualified to run a cannabis business, let alone a lemonade stand.
In Santa Ana, California, the local government held a marijuana license lottery and 20 marijuana license applicants were granted dispensary licenses. Seven months later, only two stores were opened.
On the other hand, having no restrictions on the number of licenses for retail operators can have a down-side. Colorado has no limits on the number of licenses issued to produce or sell marijuana. The state has literally granted hundreds of them. It is only a matter of time when the market is so saturated that some businesses will fail.
This has already happened in Oregon. Some marijuana retailers are consolidating after overproduction led to tighter retail margins. This led to a drop in cannabis prices.
More about Ontario, "golden ticket", Lottery, marijuana retail stores, Legalization
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