Canadian rec marijuana retail opportunities: Ontario gloom versus ‘Alberta euphoria’

Cannabis retailers face starkly different futures in Canada as West Coast entrepreneurs prepare for a retail cannabis “gold rush,” while their counterparts in Ontario dig in – or in some cases hit the road – ahead of that province’s promised crackdown on dispensaries.

Private capital already is leaving Ontario and pouring into Western Canada as future retailers large and small look to get a leg up on competitors, industry officials said.

Ian Dawkins, president of the Cannabis Commerce Association of Canada, said with Alberta, Manitoba and Newfoundland committing to private retail sales of adult-use marijuana, and British Columbia likely to go that way, “the floodgates are opening” eight months ahead of legalization.

“If you want to execute, you have to start now,” Dawkins said of entrepreneurs in those provinces laying the groundwork to open storefronts. “We’re seeing an enormous volume in interest. Alberta is the big opportunity for now.”

Things couldn’t be more different in Ontario and Quebec, where legislation has been introduced that would put the provincial government in charge of adult-use cannabis sales.

Ontario’s ruling Liberals are under siege from lobbyists trying to convince them to change course.

Eden Medicinal Society, for example, is pushing the government to allow existing medical marijuana dispensaries to apply for private licenses and be regulated as legal retail distributors.

But it won’t work, predicted Omar Khan, vice president of public affairs at Hill+Knowlton Strategies, a strategic communications consultancy, and former chief of staff to Ontario’s minister of economic development.

“There is no chance (Ontario) will allow current dispensaries, all of which operate outside the law, to play any role,” he said. “The government of Ontario has been pretty clear. Marijuana retail in the province will happen through the Ontario Cannabis Retail Corp.”

Western Canada’s gain

Dispensary franchiser Inner Spirit Holdings isn’t wasting time. Based in Calgary, it’s establishing a chain of recreational cannabis dispensaries across Canada under its Spiritleaf brand.

By Dec. 16, CEO Darren Bondar said he will have already signed up 100 entrepreneurs who each put down a 25,000 Canadian dollar ($18,000) franchise fee.

“First movers will have an advantage. There will still be opportunities past 2018 for other guys to join, but they’ll face challenges of getting licenses and real estate around businesses who are already established and marked their territory,” he said.

Once in, each franchisee can expect to dish out CA$275,000 to get their Spiritleaf doors open, which includes CA$100,000 in inventory.

Dawkins also said he’s seeing an “enormous volume in interest” in private retail.

He said anyone interested in opening a franchise should hire a consultant, get a business plan drawn up and start scouting out your location today.

“There’s no way you’re going to waltz into this. If you want to execute, you have to start now. The floodgates are opening,” he said.

Ontario’s loss 

Abi Roach – director with the Cannabis Friendly Business Association, which represents a few dozen businesses in the marijuana industry, including dispensaries – sees some current dispensaries in Ontario moving to more business-friendly provinces, and possibly even the United States.

“The dispensary owners I know are all hoping for a medical carve-out, which seems possible,” she said. “A lot of private medical dispensaries will go for that, and a lot of the rec ones are looking at more business-friendly provinces like Alberta and B.C.”

At the same time, the Ontario government’s promised crackdown on dispensaries already has started.

Before Cannabis Culture co-owner Jodie Emery was arrested in March, she had big plans for her lounge and dispensary franchise model – which at the time was flying high with over 15 locations nationwide and 250 employees.

Now, however, most have been shut down, and Emery is on bail facing charges related to trafficking and other allegations.

Sidelined from her business, she’s back to activism in an attempt to change what she dubs “prohibition 2.0.”

“Now that this year is wrapping up and next year is supposed to be the year of legalization, I’m hoping that our case can be resolved and I can get back to focusing on business, but I’m going to need help, support and investors,” she said.

Like many others who have been involved with the police, Emery is facing the task of finding a way to transition to the legal market without giving up the brand she helped create.

Meanwhile, as the proprietor of the Hotbox Cafe, Roach foresees the status quo for Ontario’s lounges.

“What we’ve done has not been legal for the last 20 years we’ve been open, and it goes against the Smoke Free Ontario Act, even though we only allow vaping indoors. Nobody has bothered to shut us down, and the reason is we’re a necessity in a city like Toronto,” she said.

Ontario’s severe penalties

Jonathan Sherman, an associate in the cannabis group at the Cassels Brock law firm, said companies should be aware of the penalties facing those who violate Ontario’s proposed rec retail legislation, Bill 174.

“We would not advise dispensary owners to take a wait-and-see approach as the Ontario government has been very clear with respect to its desire to shut down dispensaries and to impose significant fines for individuals and corporations that violate these rules,” he said.

Under the legislation, a business that violates the law would face a of $250,000 fine plus jail. Subsequent convictions could earn a person a fine of up to $100,000 a day, jail or both.

Companies caught selling cannabis could be fined between $25,000 and $1 million. For every subsequent conviction, they could be fined $10,000-$500,000 a day.

Matt Lamers can be reached at [email protected]

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